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Spanish Tax Rules and Expats
27 April 2016 @ 19:23

by Sandy Paterson

Spanish Taxation Rules and Expats


During the course of the last couple of years a number of changes were made to the Spanish Tax system which have significant implications for Expats in Spain.

This is not just happening in Spain of course, Governments around the world are looking for additional tax revenue and with the amount of information being shred about individual’s finances between countries Expats have become a “soft target. 

This focus on unpaid tax around the world has seen nations entering into financial disclosure agreements with each other, with any country not “signing up” being regarded as financially “dodgy” and some even being blacklisted. Clearly investments held “offshore” have come under scrutiny. Declaring offshore investments & assets has always been a legal requirement in most EU countries but many people have been completely unaware of this, or have been sticking their head in the sand believing that the taxman cannot see these investments so they won’t be able to tax them. Be warned this is most definitely not the case now, your information is being shared.

Recent very public “naming & shaming” of companies and individuals using tax loopholes to avoid paying tax has been used as a tool to deter others by the UK the Government. The UK is now not alone in this as countries affected by financial crisis are desperate to pull in as much tax as possible to prop themselves up. This has left some individuals owing taxes to more than one country on the same assets.

Spain, despite recent financial woes is still the number one destination for UK Expats to retire to, leaving the Spanish Government with a nice easy target for additional tax revenue from the ever growing expat community. 

Delaration of Assets (Modelo 720 Form)

Under the new rules, Spanish Residents (are you certain you are not considered resident in Spain? (see below)) must declare overseas assets worth more than €50,000 on the Modelo 720 Tax Form. This includes:

  • Property (your old home you kept and now let out in the UK perhaps).
  • ISA’s (the Spanish Government looks straight through the tax wrapper as if it was not there)
  • Bank accounts
  • Protection policies

Are you a Spanish Resident?

Whilst it seems complicated establishing residency in Spain is actually relative simple. You are a Spanish resident if:

  • You live in Spain for more than half a year (not necessarily in one sitting). Or;
  • You have your ‘centre of vital interest’ in Spain. These rules have been tightened up to make sure those who deliberately spend less than 183 days a year in Spain to avoid tax.

Non-declaration of assets could result in significant fines, sometimes more than the amount of the undeclared asset’s entire value. There have already been cases where Expats have suddenly been presented with a tax bill and a fine despite having thought that their assets were “invisible” to the Spanish Hacienda.

What can you do to avoid this?

Spanish tax compliant solutions are available such as Spanish Compliant Investment Bonds, which are very useful for the following reasons:

  • They do not need to be declared on Modelo 720
  • The structure of the Bond is such that they are “compliant” as seen by the Hacienda
  • Any tax liability due is calculated by the bond provider and paid direct to the Hacienda
  • Avoid the need for probate on death
  • Multi currencies available
  • Inheritance tax efficient
  • Whilst they are still taxable to some extent, the tax treatment is very favourable in Spain when compared to not using this method so potentially large tax savings can be made
  • There is a very large range of investments, asset classes, different risk profile investments available within the bond including some capital protected funds for low risk investors

The use of Spanish compliant investment bond products created specifically for Expats in Spain enables you to save tax and have the peace of mind needed for a comfortable retirement.

Get in touch to discuss how we can help you save tax. In the meantime request our FREE Guide to Spanish Tax Compliant Investments.

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