| Frequently Asked Questions
Should I become a Legal Resident of Spain for Tax purposes?
If you spend more than 183 days a year in the country or your habitual home is there, then YOU ARE A RESIDENT OF SPAIN FOR TAX PURPOSES. Spain is not a tax haven. However, with advice and careful planning, an expatriate can substantially reduce the potential tax payable.
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Should I own my Spanish property through an Offshore Company?
There are three popular ways in which Spanish property is owned by companies.
- The property is owned by a Spanish company the shares of which can be held in two ways.
- Directly by the individual(s).
- Through an offshore company, and the shares in this company may be held by the individual(s), or a Trust.
- The property is owned directly by an offshore company, ie Gibraltar, with the shares in that company being held by an individual(s), or a Trust.
Although under (2) the company has to pay an annual tax of 3% (based on the valor catastral), to date the advantages of either(2) or (1b) have been that no capital gains tax or inheritance tax is payable on the sale or the inheritance of the Spanish property.
This is because the sale is achieved through the transferring of shares in the offshore company, and this transaction is not disclosed in Spain. This is against Spanish tax law. When a change in the beneficial ownership of a property occurs, this should be notified to Hacienda (Ministry of Finance & Economy).
THIS ABILITY OF NON-DISCLOSURE HAS NOW COME TO AN END.
With the implementation in Spain of the European Money Laundering Act (Directive 2001/97/EC) and other disclosure directives, all professional advisors, lawyers, accountants, investment advisors etc, are legally bound by these new laws to give complete and full disclosure. There will be very severe repercussions for professional advisors, both legal and fiscal, if they do not comply with these regulations.
The above now means that owning Spanish property through an offshore structure is extremely expensive, inefficient and unwise. Capital Gains tax and Inheritance tax are no longer avoided. A 40% annual tax is now payable on the notional rental income and the high annual costs of maintaining the structure will continue to be incurred for absolutely no benefit.
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What documentation is required for an individual to start a business in Spain?
- Residence Card
- Self Employment Social Security
- Opening Licence from the local Town Hall
- Specific Trading Licences as applicable . eg. Hotel, bar etc.
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What documentation is required for a limited liability company to start a business?
- Fiscal identification number
- Social Security for all directors and employees
- Opening Licence from the local Town Hall
- Specific Trading Licences as applicable, eg. Hotel, bar etc.
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Is IVA (VAT) payable on the sale of property between individuals?
No, however, transfer tax at the rate of 7% is payable.
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A person over 65 sells his principal residence in Spain, is Capital Gains Tax payable?
If he is a resident taxpayer and has lived in the property for three years, No tax is payable. However, a non resident is subject to capital gains tax at 35% on any gain realized.
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An individual rents a property from a non-resident, is he obliged to withhold tax?
No such obligation exists if the payee is not carrying out a trade or business. However, the law makes the payee jointly responsible for the tax in the event that the landlord does not pay.
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A retired UK tax payer relocates to Spain. His private pension continues to suffer tax in the UK. Can the tax withheld be deducted from his Spanish tax liability in his first tax return in Spain?
No, tax will become payable in Spain on his total income. An application can then be made to the Inland Revenue to refund the taxes deducted, under the double tax provisions. In addition the Revenue will take steps at the same time to stop further deductions provided the Spanish authorities confirm the change in tax residence.
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A non resident buys a property in Spain with mortgage finance; the intention is to rent out the property. Would the rent received be subject to tax in Spain., if so, would the interest paid on the mortgage be considered a deductible expense?
Tax at 25% is payable on the gross rent received, without any deductions for the interest paid on the money borrowed nor any other expense.
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A non resident of Spain purchases a property "Off Plan" from a developer and pays a deposit. He then sells the property before completion, is his gain taxable?
Yes it is. Contrary to common belief sales of this type are subject to tax.
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What is the threshold for declaring Wealth Tax for a non resident individual?
No threshold is applicable, the total wealth located in Spain is subject to this tax.
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In relation to the sale of a Spanish property, what expenses and costs are allowable for the purpose of calculating the capital gain?
The following expenses can be deducted: Professional fees paid on the purchase and sale, notarial fees, registry fees, stamp duty or IVA paid on the purchase, local authority plus valia tax.
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We have been told that provided we have a Spanish Will, no Inheritance Tax will be payable upon our deaths. Is this true?
It is certainly not true. A Will simply helps to identify the beneficiaries and enables them to obtain legal title to their inheritance once the relevant tax has been paid.
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I own a property in Spain, how will it be valued upon my death for Inheritance Tax purposes?
The law is very specific. The value to be used is the greater of: escritura value, valor catastral or the open market value. The valor catastral, multiplied by a factor of between 2.5 and 3, is frequently used as a convenient means of assessing the value.
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When does the Inheritance Tax have to be paid?
Quite simply: within six months of the death. In certain circumstances this could be extended to twelve months but interest would then be added.
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What are the major differences between Death Duties in the UK and Inheritance Tax in Spain?
In the UK it is the estate of the deceased that is subject to taxation. In Spain it is the individuals who inherit that are taxed. The other major difference is that there is no inter-spousal exemption in Spain. When a property is in the joint names of a couple, on the death of one partner the surviving spouse must pay inheritance tax on the value of the half he or she inherits.
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