Alberto Perez Cedillo, a dually-qualified Spanish abogado and English solicitor, and chairman of the British Spanish Law Association, updates us on tax in Spain.

Spain is currently suffering from all the elements that make the current crisis in Europe such a difficult one, including the real estate crisis, the credit crunch, the internal bailouts of banks, and although a lot is currently being done there is still a long way back to recovery. Despite all this bad news Spain remains one of the favourite destinations in Europe for Brits to relocate: there are nearly 400,000 living in the Spanish shores. The government has taken additional recent steps in the fight against crisis and fraud. The most recent laws are if anything controversial.

LAW 7/2012 OF 29TH OCTOBER (effective since 1 January 2013) is aimed to fight fraud and the most relevant changes introduced by this law are:

  • Compulsory declaration of overseas assets for Spanish tax residents.
  • Limitation on cash payments.

Compulsory declaration of overseas assets for tax residents

From 1 January 2013 it became compulsory to all tax residents to declare all their overseas assets in excess of 50,000€ (property, bank accounts, shares, insurance policies, rights over properties, etc).

  • What to do? Tax residents must file form 720 and declare the assets accordingly
  • Who has to file the form? All Spanish tax residents (corporations and individuals). If you are a UK tax resident and just own property in Spain you do not have to file this form.
  • What do you need to declare?The assets to be declared are divided in the following categories:
    • Group 1: Bank accounts overseas
    • Group 2: Shares, insurance policies, deposit accounts and other investments overseas.
    • Group 3: Immoveable property and rights over immoveable property.
  • Are there any penalties for those not declaring their overseas assets?Yes. Those who have failed to file the form 720 may face the following fines:
    • If you fail to report one of the above mentioned groups the minimum fine to be applied will be of 10,000€. Therefore, if you fail to report the three you may face a minimum fine of 30,000€.
    • If the amount that you failed to declare is in excess of 120,000€ it will be considered by the Spanish Tax Authorities as fraud.
  • When do you need to declare your overseas assets? The deadline to file the 720 form is 31 March of every tax year.

Limitation on cash payments.

It will not be possible to effect payments in cash for amounts in excess of 15,000€ or its equivalent in any other foreign currency. This includes cheques made cash payable. For example if you carry out works in your Spanish property you can pay up to 15,000€ cash. Spanish tax residents will only be able to effect cash payments up to 2,500€.

CHANGES INTRODUCED BY LAW 16/2012 OF 27TH DECEMBER EFFECTIVE SINCE JANUARY 1ST 2013

Non Spanish Resident companies owning property in Spain.

Spain has abolished the 3 per cent annual tax on the valor catastral (an administrative value that is usually lower than the market value) that was applied to all non Spanish resident companies that were registered owners of property in Spain. From 1 January 2013 it is possible for a UK company to be the registered owner of a Spanish property and not pay this tax. Please note that this measure is not applicable to off shore companies.

Reforms on Capital Gains Tax (CGT)

All those residents and non residents that have made a gain in period of less than a year will face an increase on CGT. The increase is as follows:

• Gains made in less than 1 year: from 24 per cent to 56 per cent, depending on the amount gained.

• Gains made over 1 year: from 21 per cent to 27 per cent, depending on the amount gained.

Taxation of lottery prizes

All those earnings from lottery prizes will now be taxed at 20 per cent for amounts in excess of 2,500€.

The views expressed above are those of Alberto Perez Cedillo and do not reflect and may not be attributed to the Law Society of England and Wales.