When does an individual become a Spanish Resident for Tax Purposes?

It should be noted that the rules that apply to consider whether an individual is Spanish resident for tax purposes are not linked to those that apply to determine the emigration status of an individual.

 

Individuals who either spend 183 days or more in Spain during a calendar year or their main base or centre of activities or economic interests in Spain will be deemed Spanish Tax resident and unless proven otherwise, takes place when the spouse and underage dependent children’s taxpayers permanently reside in Spain.

 

However, this test normally applies as a tie breaker rule, when it is necessary to interpret a double taxation agreement between two countries, to conclude in which country the taxpayer must pay their taxes.

 

What are the benefits that the Beckham Law provides?

Spanish Tax Residents pay taxes at a progressive tax rate from 19% to 47% depending on the amount of their worldwide income.

 

In contrast, Spanish non-tax residents - and therefore those within the scope of the Beckham Law - will pay taxes at a flat rate of 24% up to the amount of 600,000 Euros. If this is exceeded, a fixed rate of 45% will be triggered. However, this will only apply to Spanish income, leaving any income generated outside Spain to be levied at the corresponding foreign jurisdiction, except for employment income, which would be deemed to be obtained abroad in Spain where the taxpayer works remotely.

 

What are the enhancements that the Spanish Start-Up Law introduces to the Beckham Law?

The enhancements to the Beckham Law introduced by the Spanish Start-Up Law are the following:

1. Tax exemption for remuneration in kind.

    

   According to the previous legislation, only the taxpayer who pays taxes as a Spanish tax resident, was able to exempt tax on the income received as a remuneration in kind. However, following the amendments made by the START-UP LAW that exemption is extended to non-Spanish residents – and therefore those within the scope of the Beckham Law

 

2. Extending the scope of its application.

    

   The START-UP LAW extend the scope of the application of the Beckham Law, allowing to Digital Nomads, Highly Qualified Professionals, and those who provide services in the fields of research an innovation, pay taxes under this regime, provided they meet certain requirements.

    

   In addition, the START-UP LAW also extend the scope of the application of the Beckham Law regime to the taxpayer's family members.

 

3. It reduces the tax period in which the taxpayer has not been Spanish tax resident.

    

   The regime can be applied if the taxpayer was not a Spanish tax resident during the 5 years preceding the taxpayer’s relocation to Spain (as opposed to the preceding 10 years period previously required).

Who is eligible to apply for the Beckham Law Tax Regime?

1. Professionals relocated to Spain because of an employment contract.

 

2. Company’s director.

    

   This special tax regime continues to apply to those who relocate to Spain because of being appointed Director of a company.

    

   However, according to the previous legislation, the director was required not to participate in the company (nor to have shares), or if they were participating in the company cannot be deemed to be connected to that company, according to the criteria established in Article 18 of the Spanish Corporate Tax Act. This limitation is removed unless the company is a real estate holding company.

 

3. Professionals who work remotely, also known as “digital nomads”.

 

4. Professionals relocated to Spain to carry out an activity qualified as an entrepreneurial-activity according to Article 70 of the Spanish Law called supporting entrepreneurs and their internationalization.

 

5. Highly qualified professionals relocated to Spain to provide services to Start Ups.

 

6. Professionals relocated to Spain to provide services in the fields of research development and innovation and the income received from those activities represents more than 40 % of their income of the taxpayer.

 

7. Taxpayer’s family members.

    

   According to the previous legislation, family members of the main taxpayers who pay taxes and the Beckham Law regime were outside of the scope of this law.

    

   However, the Spanish Start-Up Law establishes that the spouse and the children of the taxpayer, who are under 25 years old, as well as any disabled dependants regardless of age can pay taxes under the Beckham Law rules, so long they meet certain requirements.

If you want to be updated about this topic, send an email to london@scornik.com and you will receive the latest news.

 

Written by Laura Gallego Herráez.

 

Read more about Taxation.

 

Spanish Digital Nomad Visa:

1. Who qualifies for the Spanish nomad visa?
2. Where must a digital nomad working from Spain pay its taxes?

Tax Incentives:

1. What tax reliefs are available when investing in Spanish start-ups?
2. During how many tax periods could I benefit from those tax incentives?
3. Which companies qualify for the tax incentives provided by SUL?

Enhancement of Beckham Law:

1. Who qualifies for the so-called Beckham tax regime?
2. Can a Spanish Nomad Visa holder apply for the so-called Beckham tax regime?
3. When this special tax regime must be applied for?

Benefits for Investors:

The requirements for investors investing in start-ups that will not reside in Spain are simplified, as they will no longer require obtaining a foreigner identity number (NIE); and the company incorporation process is eased, and for specific cases, lower notary and registry fees would apply.

1. How to set up my company through the new online system that Start-up Law provides?
2. How to apply to NIF through this new system?

This new legal hub not only redefines the way legal services are delivered, it also provides value to its users by providing free access to publications explaining the changes brought by SUL. If you are interested in receiving the said publications, send us an email to london@scornik.com

 

Spanish Wealth Tax

Spanish Wealth Tax is payable by individuals; (companies are not subject to wealth tax). This tax applies to both Spanish and non-Spanish tax residents. However, while Spanish tax residents pay wealth tax on their worldwide net assets (i.e. total assets minus total liabilities), non-Spanish tax residents only pay wealth tax on their net assets located within Spanish territory.

 

Pursuant to Spanish national legislation, the tax rate that applies ranges from 0.2% to 3.5% depending on the total value of the net assets of the taxpayer above €700,000.

 

However, the government of each Spanish Autonomous Community can either apply, the national law or pass its own laws on the following:

• Deductions and tax rebates.
• Tax-free allowances.
• Levied tax rate.

Using that legislative capacity, the regional Government Council of Andalusía has approved the abolition of the wealth tax within its regional territory.

 

Solidarity Wealth Tax

This is a temporary tax, which will apply during 2023 and 2024 and it will be reviewed before ending 2024.

 

Individuals whose net assets worth more than EUR 3 million will be subject to the solidarity wealth tax as follows:

 

APPLICABLE RATE	NET OF WORTH ASSETS
1,7%	Between EUR 3 and 5 million
2,1%	Between EUR 5 and 10 million
3,5%	More than EUR 10 million

 

Non Spanish tax residents and those residing on a region where wealth tax has not been scrapped, the amount paid on account of the wealth tax will be deductible from the amount due on account of the solidarity tax.

 

Written by Laura Gallego Herráez.

 

Read more about Taxation.

 

What is the (so called) “Beckham Law”?

The “Beckham Law” consists of an optional special tax regime for those inpatriates who move to Spain allowing them to pay their income tax as non-Spanish residents (despite becoming de facto tax residents) and, depending on their income and circumstances, pay lower tax in comparison to Spanish tax residents (STR).

 

STR pay taxes at a progressive tax rate from 19% to 47% depending on the amount of their worldwide income.

 

In contrast, Spanish non-tax residents (SNR) – and therefore those within the scope of the Beckham Law - will pay taxes at a flat rate of 24% up to the amount of 600,000 Euros. If this is exceeded, a fixed rate of 45% will be triggered. However, this will only apply to Spanish income, leaving any income generated outside Spain to be levied at the corresponding foreign jurisdiction, with the exception of employment income, where income obtained abroad is also taxed in Spain.

 

Dividends, interest, and capital gains generated in Spain are taxed at a rate ranging from 19% to 23%.

 

However, if the taxpayer is under this special tax regime, double taxation agreements and some deductions will not apply. Therefore, to evaluate which system benefits most to each taxpayer it is necessary to assess the circumstances of each case.

 

Requirements to be elegible under the Beckam Law: amendments proposed by the Spanish Start-Up Bill.

In order to be eligible to apply to this special regime, the taxpayer must have relocated to Spain as a result of an employment contract in Spain or being appointed as a director of a Spanish company where the taxpayer does not hold any shares or otherwise - and again depending on each case - there is certain connexion between the companies. However, and this is a relevant modification introduced by the SUB, if the taxpayer is appointed as a director of a Spanish start-up company, he can apply to this special regime, regardless of his stake in the share capital of the said entity.

 

In addition, the SUB extends the scope of this special tax regime to those who work remotely, also known as “digital nomads”.

 

Also, the taxpayer must not derive income through a permanent establishment of a foreign company in Spain as it is established by the current legislation.

 

The qualifying period to apply for this regime will drop from the - currently - 10 years in which the taxpayer has not been deem to be STR previously to applying to the special regime, to 5 years.

 

According to the current legislation, family members of the taxpayer who is registered with the Spanish tax authorities within this special regime are outside of its scope. However, the SUB, establishes that the spouse and the children of the taxpayer, who are under 25 years old, as well as any handicapped dependents regardless of age can pay taxes under the Beckham Law rules, as long as they meet the following requirements:

1. Family members must relocate together with the taxpayer or a later date within the first year in which the special regime applies.
2. They must not have been tax residents in Spain for the five years prior to relocation.
3. They must not derive income through a permanent establishment in Spain.

The total taxable income of all the family members for each tax year in which the inpatriate’s tax regime applies cannot exceed the taxable income of the tax payer (600,000 Euros) that has relocated to Spain. The purpose of this rule is that when the relocated tax payer is the main source of income for the family, only then may the other family members benefit from this regime.

 

If you want to be updated about this topic, send an email to laura.gallego@scornik.com and you will receive the latest news.

 

Written by Laura Gallego Herráez.

 

Read more about Taxation.

 

Self-employed & Companies can also defer quarterly VAT returns tax for up to 12 & 6 months respectively without security for amounts below € 3,000 and up to 36 months for amounts over € 3,000 providing security.

 

When security is required, this may adopt the form of:

1. Bank guarantee.
2. Chattel mortgage.
3. Mortgage.
4. Rights of assignment of the lease of urban property.

 

The guarantee must be provided within two months from the date the Spanish tax authorities confirms that the deferral is granted.

 

Interest on tax deferral

When the Spanish Tax Authorities admit the deferral sought, interest on the deferred amounts is applied and for 2022, it is set at 3,75%.

 

Written by Laura Gallego Herráez.

 

Read more about Taxation.

 

SPANISH CORPORATE TAX REFORMS IN 2022

CIT rate of 15% for Companies whose profits are equal to or over 20 million euros

On 8th of October 2021, the Organisation for Economic Co-operation and Development (OCDE) announced an agreement, known as BEPS 2.0, between its 136 member countries, which include the USA, Spain, the Republic of Ireland and the United Kingdom, to establish a common CIT of 15% for companies whose net profits are equal to or over 20 million.

 

This was a historic agreement achieved by 136 jurisdictions, which represent more than 90% of worldwide GDP, seeking for such companies to avoid tax evasion.

 

According to OECD these companies evade up to 10% of the total amount of the corporate tax due using establishments of headquarters in territories of low taxation. Even though it was envisaged that the reform would be enforceable in 2023, it is likely to be delayed until at least 2024. This situation is due to some governments who need to work out internal political issues before implementing the said tax reform.

 

In the case of Europe, Poland has blocked, at the moment, the approval of this tax reform within the European boundaries.

 

In this scenario, Spain has decided not to wait until the European Union achieves an agreement to implement the tax reform. Therefore, it has modified its domestic legislation approving CIT of 15% for companies whose net profits are equal to or over 20 million Euros.

 

This new legislation applies from 1st of January 2022.

 

CIT rate of 10% for Companies of new creation

Another tax reform approved by the Spanish Government consists of reducing the CIT from 15% to 10%, for Companies of New Creation in their first tax period where has had benefits and in the following one.

 

What is a company of new creation?

The Spanish Company Act (Ley de Sociedades de Capital) regulates in its Articles 434 to 454 what constitutes a Company of New Creation as follows:

1. Only a maximum of 5 individuals can be shareholders of the company who in addition must not already be a shareholder of another company.
2. The capital of the new company must be larger than € 3,000 but not more than €120,000;
3. The share capital has to be paid by monetary contributions₁;
4. The name of the company must consist of the two surnames and the name of one of the founding members followed by an alphanumeric code enabling the identification of the company in a unique and unequivocal manner.

Written by Laura Gallego Herráez.

 

Read more about Taxation.

---

₁ Read our article about non-monetary contributions.

 

Reciprocity between UK and SP relating to The Refund of Spanish VAT for UK Companies

Article 119 bis of Spanish Law 37/1992 establishes that professionals or businesses not established in Spain can apply for the refund of Spanish VAT as long as they are located in a estate in which Spanish professionals or business are entitled to obtain the refund of VAT paid in the said estate (reciprocity of treatment).

 

In this regard, in order to deal with the new legal landscape created as a result of Brexit, on 4th January 2021 the Spanish General Directorate of Taxes has issued a resolution to clarify some aspects related to the VAT refund to companies established in the UK and in Northern Ireland.

 

The said resolution includes the following:

• SP recognizes the existence of reciprocity with UK for the purposes of Article 119 bis of the Spanish VAT Law and accordingly, UK companies are entitled to claim the refund of the Spanish VAT incurred.
• UK companies must appoint a tax representative resident in Spain so to apply for the reimbursement of VAT quotas.₅
• In the UK the following transactions are excluded from the mentioned reciprocity agreement:
1. 50% of the VAT paid for the rental or financial lease of an automobile vehicle.
2. For the acquisition of goods and services that are not used in the business activity.
3. For the acquisition of automobile vehicles.
4. For goods and services to be resold.
5. For goods and services that relate to entertainments or recreational services.

Accordingly, on a reciprocity basis, UK companies are not entitled to obtain Spanish VAT refund for the transactions mentioned above.

 

Further information can be found in the following links:

Withdrawal Agreement.

Guidance on claiming VAT refunds in Northern Ireland or EU (Northern Ireland ‘Protocol’).

 

Written by Laura Gallego Herráez.

 

---

 

₁ https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32008L0009

₂ Northern Ireland remains to be part of the EU for purposes of the supply of intra-Community acquisitions but not in case of services.

₃ https://www.boe.es/buscar/act.php?id=BOE-A-1992-28740

₄ https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A31986L0560

₅ The application shall be done through the filing of Form 361.

 

Read more about Taxation Law.

 

The Government’s policy intends to simplify tariffs by eliminating ‘’nuisance’’ tariffs (those of less than 2%) and rounding higher tariffs down to the nearest standardised band. This will reduce administrative burdens for businesses that want to import into the UK.

 

Additionally, the UK government plans to remove or reduce tariffs for goods considered as key inputs to UK manufacturing (such as wood and plastic) as well as tariffs in areas where the UK does not have a significant domestic industry to protect (like cotton, bicycle parts and footwear). British manufacturers and consumers rely on these imported goods, so the UK government wants to avoid discouraging imports.

 

On the contrary, tariffs on products where the UK has defensive interests (such as the automotive, agriculture and biofuel sectors) are being retained, in an effort to protect British producers.

 

Finally, the UK Global Tariff also meets an environmental goal, hence why the UK government is planning on making around 100 environmentally friendly products tariff free in order to help the United Kingdom meet its Net Zero commitment by 2050.

 

What does the United Kingdom Global Tariff cover?

The UKGT will apply to all goods at the border when they are imported into the UK, but does not cover other import duties, such as VAT (Value Added Tax). It is also important for businesses to inform themselves on trade remedy measures, like anti-dumping, countervailing and safeguards that could apply to certain products.

 

The UKGT does not apply under certain circumstances, for instance, if an exception applies, such as a relief or tariff suspension. Furthermore, the UK government has committed to allow preferential tariffs to less economically developed countries under the Generalised Scheme of Preferences. Therefore, if the goods that are imported come from one of these countries, the UKGT will not apply. Lastly, the Global Tariff will not be applied on imports from countries with which the UK has secured a preferential trade agreement.

 

What is the new tariff-rate quota?

Products covered by a tariff-rate quota, can be imported at a zero or lower tariff rate as long as they fall under a certain limit, which can be expressed in units of weight, volume, quantity or value. If the limit is exceeded, a higher tariff rate will apply.

 

What will be the consequences of the new United Kingdom Global Tariff?

The UKGT will expand tariff free trade and will result in 60% of relevant imports into the UK (around £30 billion worth of trade) becoming tariff free, as opposed to 47% under the EU’s Common External Tariff.

 

The tariff and VAT have been removed on some goods in light of the coronavirus outbreak. This will however be reviewed throughout 2020, depending on how the situation evolves and could eventually continue to apply in 2021 if necessary.

 

Written by Lucía Fernández Yaipén.

 

Read more about Taxation Law.

 

Comprobación limitada

 

In this category we can find three subtypes of notifications:

• Notificaciones de Requerimiento: you should submit the documentation required by the Spanish Tax Authorities in the said Notificacion de Requerimiento. That documentation must be submitted in the place and the period indicated in the notification. If the submit is delayed or not done, it will be a penalty.
• Notificaciones de propuesta de liquidación: they modify or correct, at your discretion any finance statement you have submitted. If you do not agree, you can submit claims within the deadline to do so.
• Notificación de Resolución del procedimiento: once allegations have been submitted, the Spanish Tax Authority responds with the resolution and agrees to a settlement if appropriate. If you are not satisfied, it can be appealed within the established period.

Providencia de apremio

 

The Spanish Tax Authority use this procedure to collect a debt once the corresponding period of voluntary payment has ended. The Spanish Tax Authority applies a surcharge on the debt in addition to the interest for the delay in the payment.

 

Notificación de inicio de investigación: inspección fiscal

 

This inspection can be arbitrary, simply due to a selection process for all taxpayers, or it may be due to doubts raised by the inspectors in relation to a possible fraud. In this notification, the start of the procedure is informed and the taxpayer must appear before the Spanish Tax Authorities.

 

Notificación de expediente sancionador

 

The Spanish Tax Authority confirms that you have committed a fault in breach of the tax regulations. You are then informed about the beginning of the sanctioning proceeding indicating the amount to be paid for the infraction committed. If you do not agree with the imposition of the sanction, within the period indicated in the notification, you must send the documentation proving that you have not committed any breach of the tax regulations.

 

Notificación de diligencias de embargo

 

This is the notification of a foreclosure proceeding carried out by the Tax Agency against the person or company that is not uptodate with any payments due to the Spanish Tax Authorities, in order to collect the amount of the debt.

 

For example, balance withholding in your bank account with the amount due or property seizures.

 

Electronics Notifications from The Spanish Tax Authorities. I am in UK, How can I register in The Electronics Notifications System from The Spanish Tax Authorities?

You should go to the spanish consulate in London carrying your NIE, your Passport and its photocopy and you will be provided with a digital signature with which you will have access to your electronic notifications from the Spanish Tax Authorities.

 

Effects of Electronic Notifications

Electronic notifications will be considered as taking place at the time of access to the content of its notification or, if access is not carried out, after 10 calendar days from their dispatch without access to the same.

 

All communications and notifications will be available for 90 calendar days in the enabled electronic address. During this time, you will be able to view the full content as often as you wish (the content can only be viewed for 90 days if you have accessed it within the term of 10 days; if it has expired, you will not be able to view the content). After this term, it can only be viewed in the Tax Agency E-Office.

 

The electronic notification system confirms the time and date in which the information is available for those interested in the notification. Similarly, the system confirms the date of access of the recipient to the content of the document notified or that on which the notification was rejected as the legally established term had expired.

 

If, prior to the date of receipt of the communication of the notification, you have accessed the Tax Agency E-Office and you have received the notification electronically, the date prevailing to all effects is that of the first of the notification correctly carried out.

 

Written by Laura Gallego Herráez

 

Read more about Taxation Law.

 

In order to grant such exemption, it is required for the investee company to be resident in a country with which SP has in place a DTA to avoid double taxation (this is the case of UK as above indicated). The problem resides with investee companies that, complying with all of the above, are established in Gibraltar.

 

Gibraltar's CT sets an average nominal rate of 10%, and since it is an integrated territory in the UK, the exemption established under Article 21 of the SPCT will apply, since both requirements are met: minimum nominal rate of 10% and existence of DTA.

 

Notwithstanding the precept referred to above provides that: "In no case shall this requirement be deemed to have been fulfilled when the investee is a resident of a country or territory classified as a tax haven, unless it resides in a member state of the European Union (EU)".

 

Nowadays, despite the fact that Gibraltar is considered by SP as a tax haven, UK is a member state of the EU, so the exemption of Article 21 SPCT is put into practice. Following the effective departure of the UK from the EU, this exemption would remain without effect on Gibraltar companies, as the exception in the case of an EU Member State would not be fulfilled.

 

This being the case, Governments of the UK and SP have each approved in their Council of Ministers an information exchange agreement that would allow the exclusion of Gibraltar from the list of tax havens for SP, as long as the agreement is ratified by the Congress.

 

Patent Box

Article 23 SPCT – Reduction of income from certain intangible assets (Patent Box).

 

In accordance with Section 1 of Article 21 of the SPCT, in order for the application of the reduction to be applied, it is required that the assignee does not reside in a country or territory of zero taxation or classified as a tax haven, unless it is located in a EU Member State.

 

Therefore, this reduction may continue to apply to Gibraltar companies from January 2021, provided that the goverment of SP ratifies the agreement between the UK and SP which would exclude Gibraltar from being considered a tax haven.

 

In the rest of the UK territories the DTA will apply.

 

Exit Tax

Article 19 SPCT – Exit tax

 

When a company resident within Spanish territory transfers its residence outside of SP the difference between the market value and the tax value of the patrimonial elements owned by the company will be included in the tax base of the CT settlement in the year in that the transfer of residence occurs. However, when the transfer of residence is made to a Member State, the integration into the tax base will be deferred until the date of transmission of the affected assets to third parties.

 

In other words, the Member States enjoy a privilege vis-à-vis with third countries, being able in the first case to postpone the tax obligation resulting from the change of residence. From January 2021, this privilege will not apply to transfers made to the UK.

 

Article 14 SPCT – Provisions and other expenses

 

Article 14 SPCT includes the deductibility of the contributions made by pension provider companies provided for in Directive 2003/41 / EC to employment pension funds authorized or registered in another Member State (as long as certain requirements are met). After the effective exit from the EU, contributions to UK employment pension funds will not be considered deductible expenses as this is a purely financial matter.

 

Written by Álvaro Diz Sánchez

 

Read more about Taxation Law.