Possible problems with the change of tax residence to Spain
Nowadays, either because of the possibility of teleworking or because of the attractiveness that Spain has for foreigners to come to our country (concentration of companies of some sectors in certain cities, climate, culture, gastronomy, etc.) it is becoming more and more frequent the arrival of foreigners to Spain with the will to settle here, either temporarily or in the long term. Unfortunately, one of the causes can also be unwanted, such as war conflicts in their countries of origin, as has happened to some of our clients.
In these cases several situations can occur, which we explain below in case it may affect you. The difficulty is sometimes in knowing from what moment you can be considered tax resident in Spain, since there are two assumptions in which you can be tax resident in Spain:
If in a calendar year you reside more than 183 days in Spain.
If your center of vital and economic interests is in Spain, a concept that is not always easy to determine, since it includes the family and economic situation.
In addition, this consideration “a priori” of tax resident in Spain can clash with the fact that you can also be considered “a priori” resident of the country of origin, for similar reasons. In these cases it is necessary to check where he/she will be considered tax resident, through the Agreement to avoid double taxation between both countries, in case it exists, which establishes some “tie-breaker rules”, mainly based on where the family resides and where he/she has a permanent home at his/her disposal.
We explain you different situations that have arisen in our Law Firm.
Case “I am a worker and I am going to live in Spain”.
In this case the first problem is to establish from what moment you can be considered a tax resident in Spain, whether from the moment of your arrival in Spain or from the moment you have spent more than 183 days in Spain in a calendar year. This affects both the employee and the company, which will have to withhold income tax, according to tables, if the employee is a tax resident in Spain, or non-resident tax, at the rate of 24%, otherwise, which can be a very high tax in certain cases, with low salaries.
In the case of an employee who becomes a tax resident in Spain during the current year, it should be remembered that he/she must include in the income tax return for that year the totality of the income, as he/she is taxed for universal income. That is to say, he/she will have to declare the income from salaries in foreign companies, prior to his/her arrival in Spain, deducting totally or partially the withholdings for the income tax in his/her country of origin.
We have had several cases in our office of new residents in Spain who had not declared their income in their country of origin. The Spanish tax authorities have received this information from the country of origin (e.g. France and the Netherlands in our case), sending a liquidation to the client for this undeclared income, and the client has to pay this liquidation, with interest and sometimes with a penalty.
Case “I am self-employed / freelance and I am going to live in Spain”.
In this case we find ourselves in a situation similar to the previous one, in which at the beginning the requirement of more than 183 days of stay in Spain is not met and yet would be obliged to contribute in the self-employed regime of Social Security, having an economic or professional activity in Spain and being living in Spain.
If the tax residence in Spain is defended from the first moment for having the center of vital interest in this country, it should be taxed as tax resident in Spain. Otherwise, e.g. because your center of vital interests is not in Spain (family, business, assets, etc.) you should be taxed as a non-resident, pending you are living more than 183 days in Spain and provided that on the basis of the Convention you can be considered tax resident in Spain.
“Beckham” case
In certain cases, especially if they are workers posted to Spain with relatively high salaries, it may be interesting to request the application of this regime, whereby they are taxed at a fixed rate of 24% (in 2022) up to a certain amount. This regime is applicable for the first year and five more years, after which they will be taxed under the general regime.
However, it is necessary to analyze beforehand whether it is convenient to use this regime in all cases, since it may be interesting not to do so if the salary is not high or if you plan to have additional income as a freelance / self-employed.
Case “I have forgotten the 720”.
We also find in quite a few cases, clients who, in most cases due to ignorance, have not declared the 720 model of assets abroad, having more than 50,000 euros outside Spain in some of the sections that require its presentation (bank accounts, real estate, other financial assets such as shares and investment funds).
In this case it is necessary to check the repercussions:
Possible penalties for late filing of model 720. Although the penalties and consequences of late filing of this model are much lower than before the ruling of the European authorities in 2022, the situation should be regularized as soon as possible, assuming the corresponding penalties.
Possible late filing of income tax returns for undeclared income.
In any case it is necessary to analyze the best way to regularize the situation with the lowest possible cost.
Case “and what is the Wealth tax?”
Another case we have come across, especially with people with high purchasing power, is their ignorance of the Wealth Tax “(“Wealth Tax”), which is a tax on the value of the assets they have (in Spain and other countries) and that sometimes can mean having to pay tens of thousands of euros in Spain, without knowing it when they moved to Spain.
The surprise when learning about this tax is greater when it is explained to the client that there are some autonomous communities in Spain that are exempt from this tax, while others apply it.
As you can see, the change of fiscal residence to Spain, can be simple or more complicated and has its consequences, especially in the first year of residence in Spain and because in our country income tax is paid for the whole year, not from the moment of arrival in Spain, and for all income obtained worldwide (universal income taxation), with some exceptions.
And you, in which case are you? If you have any doubts you can contact jose@asesoriagarcialopez.es or marta@asesoriagarcialopez.es
Taxes in Spain – Form 720