Viewing posts from: November 2000
Changes in tax for International people living in Spain after the EU Referendum. What changes and what does not?
By Barry Davys
This article is published on: 6th July 2016
06.07.16
If the UK leaves the European Union what impact does this have on taxation for international people living in Spain?
The framework for taxation in all countries is based upon the following:
- Are you tax resident according to the laws of that country?
- Which tax authority is the controlling tax authority for your Worldwide income and gains?
- If you have income or gains outside of the country where you are tax resident, is there a double taxation agreement between the country where you are resident and the country where the income or gain is made?
For those of us living in Spain, the simple test is are we in the country for more than 183 days in any calendar year? If yes, then we will be Spanish Tax resident.
If we meet the residency requirement Spain is our controlling tax authority. This means we have to report our Worldwide income and gains to Spain and our main payment of tax is in Spain.
Double Tax Treaties
The OECD, UN and USA have set up model frameworks for Double Taxation Treaties. Most countries use these frameworks. However, the Treaties are between individual countries. Even if the country is in the EU there is NO EU wide double taxation agreements. Therefore, if the UK leaves the EU it will not affect the double taxation agreement between the UK and Spain. As an example, Spain has 88 tax treaties, 66 of them with countries outside the EU and even if the UK leaves the double tax treaty should stay. The tax treaty between Spain and the UK covers both income and gains.
Beckham Rule
It is not expected that there will be any changes to the Beckham rule (Impatriate Tax Regime). It is available to people from around the World. Therefore people moving from the UK to Spain should still be able to benefit from the lower rate of taxation for five full tax years.
Where we do expect changes
There is a potential economic impact in both Inheritance Tax and Exit Taxes if the UK leaves the EU.
Inheritance Tax
In September 2014, the European Court of Justice instructed Spain to change its rules regarding Inheritance Tax where the deceased person or the person receiving the inheritance was in another country in the European Economic Area (EEA). The effect was to allow these people to claim the allowances that are available to inhabitants of Spain, rather than them being taxed on a special “National” rate. This was because the National Rate resulted in higher taxes.
If Britain is now longer a member of the EEA, it is quite possible that we will have to return to paying the national rate of inheritance tax. Please note, it is possible for the UK to leave the EU but not the EEA and therefore will still qualify. Whilst the loss of the local allowances will only put us back to the situation two years ago it will still be a backwards step.
There are several pieces of Inheritance Tax planning that you can do to reduce the burden of Inheritance Tax. HOWEVER, we have not left the EU, there is some debate about whether we will ever leave the EU and we may yet become part of the EEA. We strongly recommend, therefore, that you discuss the possible planning methods now but do NOT implement any planning on the basis of the UK leaving the EU. This is because once taken, many of the planning steps cannot be undone.
Exit Tax
Exit tax is chargeable to all taxpayers that have been in Spain in at least 5 years of the last 10 years whilst Spanish Tax Resident if:
The market value of the shares and collective investments held exceeds a joint value of Euro 4 Million
or
Only Euro 1 Million if the person holds 25% or more of the shares in a company.
However, currently, if the person moves to another country in the European Economic Area with whom an effective exchange of information exists, the gain will only need to be declared and Spanish Exit Tax paid if during the next 10 years the shares are sold or the person loses his residency in the EU or in the EEA.
It the UK leaves the EU and does not get EEA membership, Spanish Exit Tax would become payable on departure.
CRS – Automatic exchange of information between countries
The OECD has also introduced a common framework for the automatic reporting of information from one country to another of the financial affairs of people who live in the second country, for example UK to Spain where a British person lives in Spain. This framework has been updated and common formatting of reporting leads to common software and much easier analysis of the information.
Please be aware that these reports will still take place even if the UK leaves the EU. Currently there are 101 countries using this common software and standards.
Supporting the International Community – The Spectrum IFA Group
By Barry Davys
This article is published on: 2nd November 2015
02.11.15
We are pleased to have supported yet another initiative for the International Community, this time at the Barcelona International Community Day. The day, organised by Barcelona Activa, was designed to provide the international community with a one stop shop for advice on living in Barcelona, including schools, relocation agents, solicitors, local groups and activities and independent financial advice.
Over 5,000 people attended the event and the team from our Barcelona office was on hand to answer questions on all aspects of financial planning whilst living in Spain. We had in excess of 15 nationalities asking for advice although it was noticeable our French speaking consultant was particularly busy.
Questions included:
- What tax do I have to pay if I transfer money to Spain?
- What will happen to the exchange rate and how do I transfer money to Spain?
- So what is the top rate of tax in Spain?
- How good are the pensions in Spain?
- What do I do with my existing investments?
- How do you charge for your services?
Our favourite question was “We are digital nomads coming to Spain for a couple of years. Does the Beckham Rule apply to me”. Fortunately, we knew what a digital nomad is and we had our expert in the Beckham Rule available to answer the question.
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Beckham Bounces Back in Spain
By Barry Davys
This article is published on: 12th November 2014
12.11.14
When David Beckham (Becks) came to Spain to play for Real Madrid in 2003, a special Spanish tax system was set up for him so he did not have to pay tax on his worldwide image rights. This system has been extended to people moving to Spain, although in an ironic twist, professional footballers will be excluded from the scheme from 1st January 2015.
Tax rates in Spain are falling with plans to reduce the top rate of tax in Spain from 51% (56% in Catalunya) to 47%. The top rate is however still very high. However, in a bid to attract high earners to Spain the law is being improved.
Why use the Beckham Law?
Well, the three benefits are as follows:
- Flat rate income tax of 24% on Spanish earnings in Spain. If your income is derived from Spanish sources then the maximum rate you would pay will be 24% instead of normal rates up to 600,000€ pa. Above 600,000€ the tax rate is 45%. Here are some specific examples of the saving based on the 2015 Spanish Tax rates.
Annual Salary €
|
Beckham Tax Rule Saving € |
| 100,000 |
13,645 pa |
| 150,000 |
26,495 pa |
| 200,000 |
36,645 pa |
| 250,000 |
48,145 pa |
| 300,000 |
59,645 pa |
| 400,000 |
82,645 pa |
| 500,000 |
105,645 pa |
| 600,000 |
128,645 pa |
You are allowed to stay on the Becks rule for a maximum of 5 years. The total saving is therefore the figure above x 5. Your individual circumstances will dictate exactly how much saving you will acheive but the figures above are a good guide.
- No capital gains tax to pay on any gains made outside Spain. This includes the sale of property, shares, etc. This point is especially important if you have a property to sell or a business to sell outside of Spain. As an example an owner of a technology company that sells the business for £20 Million whilst on the Beckham scheme will not pay Capital Gains tax in Spain nor in the UK if he/she does not return to the UK for 5 years.
The potential capital gains tax saving in this example could be £8 Million.
- Only income obtained in Spain will be subject to Spanish taxation. As an example, bank interest earned from bank accounts outside Spain are not subject to Spanish Tax whilst you are on this method of taxation. Rental income from property outside of Spain is another example.
Beckham tax scheme rules
If you meet the following conditions you can reduce your tax by requesting to be taxed on a non resident basis under the Beckham rule:
- If you have not been resident in Spain in the last 10 years.
- If you apply for the “New” Beckham law within 6 months of arriving.
- You must be resident in Spain. The main condition being living in Spain for 183 days a year.
- The requirement for work to be primarily conducted in Spain has been reformed.
- The requirement to work solely for a Spanish company has been reformed.
- The reduced rate of taxation will apply for a maximum period of 5 years.
If you meet these criterias, you should consider using this method of taxation.
References:
SpainRoyal Decree 687/2005
Baker and McKenzie SLP, Acccountants, Spain
This information is intended as a guide only. A suitable qualified tax lawyer should always be used to calculate a specific liability. Legislation can be subject to change in the future.
How my Spectrum IFA Group Financial Adviser in Spain saved me 82,947euro in tax!!
By Barry Davys
This article is published on: 5th November 2014
05.11.14
Mr Blood had lived in Spain for eight years. However, as a result of a pension mis-selling review in the UK by a large UK bank he received compensation to cover a pension shortfall. The client was extremely satisfied with the amount of the compensation. Advice was requested from his Financial Adviser (IFA), Barry Davys of The Spectrum IFA Group, on how to invest this compensation to ensure that his pension fund returned to its true value.
Whilst this payment of compensation is tax free in the UK, Mr Blood is resident in Spain. In Spain these types of payment are taxable. Fortunately, the IFA knew the differences in the tax regimes. Barry had a tax lawyer calculate the amount of tax due on the compensation payment and Mr Blood was, not surprisingly, horrified to find that the tax to be paid was 82.947,91€.
Despite the client having signed a letter of acceptance with the bank and the compensation having been paid, Barry reviewed the case and found that the letter of acceptance did not sufficiently identify the issue of Spanish tax, having only emphasised the UK tax situation. Barry opened negotiations with the bank. As the regulatory requirements in the UK required the bank to put the client in a “no loss” position, the payment of tax resulted in a loss. To be fair to the UK bank they accepted this principle and agreed to pay a further compensation to cover the loss from having to pay tax.
The payment of a further 82,947€ could have seemed like a satisfactory outcome. However, any payment to cover the client’s loss as a result of the tax payment would be subject to taxation on the additional payment too. Our adviser again instructed a tax lawyer for the calculation of the gross amount required to ensure the client was put back in a no loss situation. Further negotiation by the IFA resulted in a grossed up additional payment to the client of 178,000€. This resulted in Mr Blood being recompensed in full for the loss.
Case Study Key Points
The key points in this case study show that a knowledge of UK and Spanish tax law was required to identify the problem. Secondly, knowledge of regulatory requirements helped ensure a successful negotiation between the bank and the IFA. Using specialist tax lawyers to calculate liabilities strengthened the client’s position. Finally the IFA’s knowledge of UK and Spanish pension law helped to identify what options were available for reimbursement.
On payment of the additional compensation Mr Blood commented;
“I was frankly shocked to learn that the Spanish Hacienda doesn’t recognize compensation for a loss as exactly that; a compensation. My initial dealings with the bank quickly highlighted my lack of experience with financial matters, and I was relieved that Barry agreed to negotiate on my behalf. His in-depth knowledge of the financial services industry and his negotiation style delivered for me the best possible outcome I could have wished for me and my family. I sincerely believe this outcome was only possible with his support.”
Barry Davys was also pleased. “It is extremely gratifying to be able to help someone in this way. The years of studying taxation, pensions, regulations etc. feel worthwhile in situations such as these. It is an extremely interesting time in Spain with many changes in taxation. I look forward to the challenge of continually helping international people with their financial planning to put them in the best possible position”.
At a time that is convenient for you
An insight into the good things happening with Spanish Tax
By Barry Davys
This article is published on: 16th July 2014
16.07.14
We are pleased to report that there are a number of proposed schemes to reduce the amount of tax paid in Spain. The proposed reductions in tax apply to personal income, corporation and savings (capital gains) taxes. This will reduce the burden of taxes and some schemes, such as the “Beckham” scheme for retired people, if it passes from a proposal into law, will be particularly beneficial.
Yet it is curious that these proposed changes are getting so much press. In some cases, the proposal is simply to reduce tax back to where it was before the crisis. In addition, there are already other schemes which have already passed into law which are very useful for people living in Spain. For example, if you live in Spain but work outside Spain there is an exemption from income tax for the income from that work. The maximum allowance is 60,100€ per annum. Mark Twain’s famous quote “reports of my death was an exaggeration” could also be applied to the “Beckham” scheme. There is still a version of this scheme which can be extremely beneficial for people who wish to sell property outside of Spain.
Then there is the taxation of pensions and investments. In the best case, and I emphasis this is the best case, the taxation on pension income and investment income can be as low as 3.25%. A recent report in the press was highlighting a proposed detrimental change in taxation to dividend income without also mentioning this other rate of investment tax.
During the next 6 months there will be up to 17 changes in tax in Spain. Most of the changes will be beneficial. We work with a number of tax lawyers and specialists and we give clients access to these experts for a reason. Spanish Tax need not be painful, but you do need someone on your side who knows their way around the system.
We recommend a strategy for making the most of the changes by taking the following action:
- Have a review of your Spanish Tax situation to ensure you are compliant.
- See if there are any back taxes you can claim for the last four years
- Use the most appropriate of the new rules when they are passed into law (you can only do this if your affairs are in order).
