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Does Spanish Residency Mean Painfully High Taxation?

Spanish Legal IssuesPosted by Andrew Thu, February 02, 2017 15:18:03

March 24th, 2014

Spain’s fabulous weather, its rich culture, its relatively modest cost of living, and its close proximity to other European countries, have always meant that it is a dream destination for many, to reside and to savour all the country has to offer. For those who are prepared to ‘take the plunge’, the demographic changes in Spain over recent years; and the economic impact of the financial crisis have in many ways only added to its desirability and feasibility as a potential country of residence.

Official figures confirm that 13% of Spanish nationals have emigrated from Spain in the last 2 years. And as a result of the impact of the economic crisis and concerns over taxation changes, a huge number of non-Spanish nationals have returned to residency in their countries of origin over the same period. So, the total population of Spain now stands at around just 70% of the UK population. But Spain is almost 4 times larger than the UK!

Also, the over-building in Spain during the pre-crisis period and subsequent Spanish property price crash mean that there remains a significant over-supply of properties- in many cases, owned by very keen sellers. So, a relatively under-populated country offering clear quality of life benefits and incredibly attractive property investment opportunities…

OK, so where’s the catch?!

Many who have abandoned Spanish residency over recent years have expressed concerns about taxation- in particular, the impact of the Spanish Wealth Tax and Spanish Succession Tax.

The Spanish Government’s recent reintroduction of the Wealth Tax; and obligation for Spanish nationals and Spanish residents to disclose (and be taxed on) overseas assets, was met with dismay by many. But in fact, the impact has been found by the vast majority to be far less harsh than was originally feared.

Also, much has been made of the reductions in allowances in Spanish Succession Tax. But again, under Spanish tax law, when expert estate planning advice is obtained and implemented, there are many ways quite legally and legitimately to reduce the impact of succession taxation.

As regards Spanish income tax and other direct taxes, there are agreements and practice directives in place between the Spanish Tax Authority and those of many other countries, to ensure fair fiscal treatment in dual jurisdictional cases. So, for those who are properly advised and correctly meet their tax declaration and payment obligations, the position (in most cases) is neither as complicated nor as onerous as might be feared.

Of course, individual circumstances always need to be considered carefully- it is never a case of ‘one size fits all’ when it comes to Spanish taxation and estate planning.

Many factors are relevant to determining tax liability, including even which part of Spain you are dealing with.

In conclusion, we always recommend that before any decision or investment commitment in Spain is made, our clients take the opportunity to understand fully their fiscal obligations, and to implement their tax and estate planning accordingly. By planning intelligently to reduce tax liability as far as Spanish law permits, and then promptly filing tax returns and paying the tax that is due, one invariably achieves the most efficient result.

Ignorance of Spanish tax law is no excuse; and equally, proper awareness and fiscal compliance (in accordance with expert professional advice) need not be as financially devastating as many fear to be the case.