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
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.
British Chamber of Commerce, Spain and The Spectrum IFA Group
By Spectrum IFA
This article is published on: 3rd July 2016
Here in Spain, the British Chamber of Commerce (BCC) is a very strong and successful organisation. In fact, it has just won an award for being the best Chamber in the World for promoting British trade! It was therefore no surprise to hear that the Summer Cocktail was UK themed and included Mini Cars, Scottish Beers and British Gins, amongst other things.
At the party, The Spectrum IFA Group were honoured to be presented with a plaque to thank us for 20 years of membership of the Chamber. The award was presented to Jonathan Goodman, Development Director of Spain, who has overseen our business here for the last 20 years. During this time we have worked closely with the Chamber on a large number of matters and events. In addition to the more formal associations it is always a pleasure to meet other members at their many social gatherings.
We would like to thank the BCC for their recognition of The Spectrum IFA Group and we look forward to working with them for at least another 20 years!
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Making a Will and EU Succession Planning in Spain/Europe
By Chris Burke
This article is published on: 15th June 2016
The Laws on making a Will in Spain/Europe changed on the 17th August 2015. These changes could greatly affect what would happen to someone’s estate/inheritance when they die and it’s therefore important you understand what these are and how they could affect you.
The reason for these changes in that is essence European states have differing laws on who inherits an estate. Many of these are complicated and unclear, making it uncertain who will inherit exactly what.
For this purpose, EU Succession Regulation introduces common rules on which State’s laws apply if there is a conflict between countries’ succession laws.
The following countries are bound by the new regulation:
Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
Notable Absentee’s are the UK, Ireland and Denmark.
Where you are ‘habitually resident’ that country’s laws will apply
To give you an example, a person dies leaving assets in France, Spain, and Germany and resides here in Spain. Due to the fact they are resident in Spain, the assets will be governed by Spanish law.
So what are the rules of Habitual Residence?
How long you are in and how often you visit a state/country as well as the conditions and reasons for you being there. Simply put, for most people, more than 183 days in one country, living or retired there makes it your main residence.
Making a Choice of Law
This default position can be overridden if you choose to apply the law of your nationality via a Will. For example – a German national dies leaving assets in France, Spain, and Germany. They are habitually resident in Spain but have stated in their Will that German law will apply to their estate. All of their assets will be governed by German law.
What about the UK?
As the UK is not bound by the Regulation, UK assets can never be governed by the law of another EU state. However, those states bound by the Regulation have to allow the application of UK laws to assets in their state if someone so chooses.
How might this affect me?
Many EU states have laws of ‘forced heirship’ under which certain assets (such as holiday property) can only be inherited by certain people. The inheritance laws in England and Wales allow you greater freedom to leave your estate to whomever you wish when you die. If you have assets in any of the states bound by the Regulation it may affect which laws will apply to them.
Who does it affect?
All foreigners who have their habitual residency in Spain and die on or after the 17th of August 2015. Spanish nationals may disregard these changes as they are unaffected by the changes.
Examples of which Will you may need
• I am a British/Irish national and NOT resident in Spain. I Don’t Plan to become Resident in Spain.
In such a case this Regulation does not affect you. It only affects existing residents in Spain or else those who at some point in the future plan to take up residency in Spain. There is no need for you to make a new Spanish Will.
A WORD OF WARNING HERE! If you are not truly a resident in Spain i.e. spend less than 183 days a year here, then that’s perfectly ok and you have nothing to worry about. However, if you are PRETENDING you are not resident in Spain, be very careful. More and more people are getting caught out by various means, and fines can be punitive. The reasons for wanting to be UK resident are currently negligible compared to being a Spanish Resident. Inheritance tax is almost nothing if anything in many cases here in Catalonia at present, and the other taxes you pay here are again currently very similar to that of the UK. Why run the risk of getting caught?
Examples of who this may affect?
• A non-resident Scottish man who inherits Spanish assets will also pay Spanish inheritance tax.
You cannot opt out or choose your own national Inheritance tax laws on inheriting assets located in Spain. You have to pay Spain’s IHT.
Other potential questions might be:
• Can I choose my own national tax law besides opting for my national succession law? The short answer is no
The regulation entitles you is to choose freely the Succession Law of your own nationality (i.e. England and Wales or Scotland’s) in lieu of Spain’s compulsory heir rules which, following this new Regulation, applies by default if your habitual residency is in Spain at the time of your death on or after the 17th of August 2015.
VERY IMPORTANT – PLEASE NOTE!!!
You CANNOT choose which Inheritance Tax Laws apply to your Spanish estate. It is mandatory to pay Spanish inheritance tax on Spanish Assets, still.
For example, an Englishman resident in Spain and inherits Spanish assets will pay Spanish inheritance tax.
To clarify on Wills……
You are simply choosing the rules of which country you wish the Will to follow. Either way, Spanish assets will STILL be liable to Spanish Taxes.
For example, in Spain assets left automatically go to certain relatives, whether you want them to or not e.g. the husband dies, 25% of any Property goes to any children, whether you want it to or not. This could then cause problems with selling properties, realising assets etc.
What do I need to do?
It is essential to co-ordinate Wills and Tax Planning (look no further) in each country concerned to ensure that your estate will pass to your chosen beneficiaries in the way that is best for you and your estate.
Chris, a partner of the Spectrum IFA Group, makes sure that not only are his clients assets managed correctly, but they are kept up to date and given the best advice for most eventualities that affect many people almost daily, that they do not think about or aren’t aware of.
Common Reporting Standards
By Chris Burke
This article is published on: 13th June 2016
What is it and what does it mean?
Common Reporting Standards is also known as automatic exchange of information (AEI). It originated in May 2014 with 47 countries tentatively agreeing to share information on residents’ assets and incomes automatically as standard practice.
It is the Brainchild of the OECD (Organisation for Economic Co-operation and Development). Previously this information was shared at request, however this was not effective and largely unsuccessful. The main emphasis of this is to battle against tax evasion.
How will it work?
Countries will transfer all the relevant information automatically and systematically including:
- The name, address, TIN (Tax Identification Number) date and place of birth of each reportable person
- Account number
- Name and identifying number of the Reporting Financial Institution
- Account balance or value at end of calendar year, or if closed during that year
- Each country is allowed to determine which accounts are reportable
When will it start?
Most European countries will start reporting in 2017, including Spain and the UK. For note of interest, other countries will report in 2018 including Andorra.
Starting to report in 2017:
Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom
Starting to report in 2018:
Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Marshall Islands, Macao (China), Malaysia, Mauritius, Monaco, Nauru, New Zealand, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay, Vanuatu
What do I need to do?
Make sure you have ALL your assets:
- Reported correctly
- Tax compliant i.e. not in investments/properties that will mean you pay more in tax
- Understand your personal situation, and what your options are.
Declaracion De La Renta
By Chris Burke
This article is published on: 25th May 2016
Impuesto Sobre La Renta De Las Personas Fisicas (IRPF)
Declaracion de la Renta, also known as IRPF is the annual income tax return that individuals have to submit/pay to the state/region of Spain where you are tax resident. In Spain the tax year is from 1st January to 31st December and you have to declare all your worldwide income. This is essentially very similar to the annual tax return you have to complete every year in the UK.
The period to submit your tax return is from the beginning of April to the end of June depending on whether you are self employed, employed or retired. During April you can submit your tax return only if your income is from a salary or a state or private pension from Spain. In May and June you can submit all other returns.
The procedure to submit your Declaracion De La Renta is as follows:
You can ask for a draft of your tax return from the tax office, check it and if needed change the details and then submit it. All this can be done online and this system can also be used if you declare a salary.
If you have a professional activity or a business you cannot get a draft, but you can ask for your fiscal information, that is all the information the tax office already have for you. You should always check this information is correct.
If you want to prepare the tax return yourself, in the tax administration web site (www.aeat.es) you can download a program to prepare and submit it (programa PADRE).
If you are a professional or have a business/self employed (what in Spain we call an “autónomo”) it is strongly advisable that you have a digital signature. It will be useful to submit your Income Tax Return and other paper work with the tax office, for both Taxes and Social Security.
Not everybody has to submit a tax return. If you have a salary under €22,000 paid by a Spanish company or income from capital/interest under €1,600 annually, you don’t need to submit it. Nevertheless it could be advisable to check if you are entitled to have some money back, which can happen.
If you are self employed, you don’t have to submit a tax return if your annual income is below €1,000 including income from all sources. As there are other higher limits for income from capital and capital gains only, the key thing here is being self employed.
No matter what, if your capital losses are above €500 you also have an obligation to declare. This, for, example would mean if you disposed of an asset and made a €500 loss on it. Therefore, if you have a salary of €20,000 and capital losses of over €500 you have to declare it/submit a tax return.
If you receive income from outside Spain you have to submit a tax return no matter how much you have earned in one year. So, if your income is below all the limits said before, and you have monies from a bank outside of Spain that has been subject to retention or withholding tax (see EU savings directive) no matter the sum, you have to submit a tax return even if there is no tax to pay.
It might be easier and safer for you to submit a tax return via a Gestor (accountant/tax adviser) so that it is done correctly, on time and perhaps most importantly hassle free.
So What’s Your Strategy ?
By Chris Webb
This article is published on: 30th April 2016
Investing is not a sure thing in most cases, it is much like a game – you don’t know the outcome until the game has been played and a winner has been declared.
Anytime you play almost any type of game, you have a strategy. Investing isn’t any different – you need an investment strategy.
An investment strategy is basically a plan for investing your money in various types of investments that will help you meet your financial goals, depending on your time horizon.
Each type of investment contains individual investments that you must choose from. A clothing store sells clothes – but those clothes consist of shirts, trousers, dresses, skirts etc. The stock market is no different, it’s a type of investment, it contains different types of stocks and different companies that you can invest in.
If you haven’t done your research, it can quickly become very confusing – simply because there are so many different types of investments and products to choose from. This is where your strategy, combined with your risk tolerance and investment style, all come into play.
If you are new to investments, we will work closely together to ensure you have a full understanding before making any investments. I will help you develop an investment strategy that will not only fall within the bounds of your risk tolerance and your investment style, but will also help you achieve your financial goals.
Never invest money without having a goal and a strategy for reaching that goal! This is essential.
Nobody hands their money over to anyone without knowing what that money is being used for and when they will get it back! If you don’t have a goal, a plan, or a strategy, then you are essentially handing your money over without any idea of what it can do for you!
How Much To Invest?
By Chris Webb
This article is published on: 28th April 2016
Many first time investors think that they should invest all of their savings. This isn’t necessarily true. To determine how much money you should invest, you must first determine how much you actually can afford to invest and, just as importantly, what your financial goals are.
So, how much money can you currently afford to invest? Do you have savings that you can use? If so, great! However, you don’t want to cut yourself short when you tie your money up in an investment. What were your savings originally for?
It is important to keep three to six months of living expenses in a readily accessible savings account – don’t invest that money! Don’t invest any money that you may need to lay your hands on in a hurry in the future.
So, begin by determining how much of your savings should remain in your savings account, and how much you feel you are comfortable to use for investments.
Next, determine how much you can add to your investments in the future. If you are employed, you will continue to receive an income, and you can utilise your surplus income to build your investment portfolio over time.
Together we can work at setting a budget and determine how much of your future income you will be able to invest.
With my help, you can be sure that you are not investing more than you should or less than you should in order to reach your investment goals.
For many types of investments, a certain initial investment amount will be required. This at first glance, may look out of your reach. However I may be able to reduce these entry levels.
If the money that you have available for investments does not meet any required initial investment, you may have to look at others. Never borrow money to invest, and never use money that you have not set aside for investing!
Stabilise first then invest
By Chris Webb
This article is published on: 14th April 2016
Before you consider investing in any type of market you need to take a good look at your current situation. Investing for the future is a priority but clearing up potentially bad situations in the present is just as important.
Assess your liabilities, you should do this once each year. It is important to know what is outstanding and what the time horizon to clear it is.
If you’ve set aside some money to invest, but you have outstanding debts, you are better off cleaning up the debt first!
Next, look at what you are paying out each month, and get rid of expenses that are not necessary. For instance, high interest credit cards are not necessary. Pay them off and get rid of them. If you have high interest outstanding loans, pay them off as well.
If nothing else, exchange the high interest credit card for one with lower interest and refinance high interest loans with loans that are lower interest. You may have to use some of your investment funds to take care of these matters, but in the long run, you will see that this is the wisest course of action.
Get yourself into good financial shape – and then enhance your financial situation with sound investments.
It doesn’t make sense to start investing funds if your bank balance is always running low or if you are struggling to pay your monthly bills. Your investment monies will be better spent to rectify adverse financial issues that affect you each day.
Reasons To Invest
By Chris Webb
This article is published on: 8th April 2016
Have a think about how different our lives are compared to our parents or grandparents….. How often do we travel? How used to our luxuries in life are we? Well guess what ……. this all costs money and as we are all going to retire at some point it might be a good idea to start thinking about that cost now!
This is why investing has become increasingly important over the years. Gone are the days of relying on the state to look after you in your golden years, and I’m pretty sure leaving your cash in the bank isn’t going to get the results you need either.
Times are changing and more and more people want to insure their futures, and they already know that if they are depending on state benefits, and in some instances company pension schemes, that they may be in for a rude awakening when they no longer have the ability to earn a steady income.
Investing is the answer to the unknowns of the future.
You may have been saving money in a low interest savings account over the years. Now, you want to see that money grow at a faster pace. Perhaps you’ve inherited money or realised some other type of windfall, and you need a way to make that money grow. Again, investing is the answer.
Investing is also a way of attaining the things that you want, such as a new home, a university education for your children, or the longest holiday of your life………… retirement.
Of course, your financial goals will determine what type of investing you do.
If you want or need to make a lot of money fast, you will be more interested in higher risk investing, which will hopefully give you a larger return in a shorter amount of time. If you are saving for something in the far off future, such as retirement, you would want to make safer investments that grow over a longer period of time.
The overall purpose in investing is to create wealth and security, over a period of time. It is important to remember that you will not always be able to earn an income… you will eventually want to retire.
You cannot rely on the state system to finance what you want to do, and as we have seen with Enron, you cannot necessarily depend on your company’s pension scheme either. So, again, investing is the key to insuring your own financial future, but you must make smart investments.
Spectrum sponsored DFAS lecture – Costa del Sol, Spain – Wednesday 16th March.
By Charles Hutchinson
This article is published on: 7th April 2016
The Spectrum IFA Group co-sponsored an excellent NADFAS (National Association of Decorative & Fine Arts Societies) lecture on 16th March at the San Roque Golf & Country Club on the Costa del Sol. The Spectrum Group was represented by our local adviser, Charles Hutchinson, assisted by his wife Rhona who attended along with our co-sponsor George Forsyth from Prudential International.
The National Association of Decorative & Fine Arts Societies is a leading arts charity which opens up the world of the arts through a network of local societies and national events.
With inspiring monthly lectures given by some of the country’s top experts, together with days of special interest, educational visits and cultural holidays, NADFAS is a great way to learn, have fun and make new and lasting friendships.
At this event, around 150 attendees were entertained by an immensely interesting and informative historical talk on the Russian royal family and Fabergé’s Easter Eggs made for the Imperial Russian Court, by Toby Faber of the publishers Faber & Faber.
The talk was followed by a drinks reception which included a free raffle for prizes including CH produced Champagne and a coffee table glossy book on Fabergé. Prudential also supplied a presentation bottle of 12 year old malt whiskey and smaller gifts.
All in all, a good turnout and a very successful event at a wonderful venue. The Spectrum Group were very proud to be involved with such a fantastic organisation and we look forward to next season this Autumn.
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