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Spanish Residency Tax and Trust Rules
Basis of Spanish Tax System
It is a relatively recent system and
virtually the entire current legislation came into being after General Franco's
death in 1975. Thus it drew on the experiences of other countries with histories
of tax legislation.
It is highly computerised
Totally self-assessment, subject to
review by administrative offices and inspection by highly qualified and
specially trained staff.
Every tax payer is identified by a
fiscal identity number, which never changes. For Spanish national this would be
D.N.I. For foreigner whether resident or not this is their N.I.E. For entity, it
is C.I.F (business or a community of owners have a fiscal identity number).
Income tax year for residents is the
calendar year, declarations are made between 1st May and 20th June.
Corporation tax year cannot be for
more than 12 months (could be less). Declarations are made some 6 months after
year end. Usually the corporation tax year is the calendar year but is what ever
is laid down in the deed of information.
Rules Determining Spanish Residency for
Individuals
You need to be physically in Spain for
more than 183 days in a calendar year. Temporary absences are ignored.
Main office or base of business or
professional activities or economic interest is based in Spain.
The person's spouse, not legally
separated, and any children under 18 years old have their habitual residence in
Spain. This is a presumption where proof to the contrary is required.
Split years are not part of Spanish
legislation, therefore in Spain all income is declared during the period 1st
January to 31st December, even if becoming a resident on the 1st June.
Consequences are the need to present
annual tax returns declaring worldwide income and wealth wherever the assets are
situated.
Trusts in Spain and their Taxation
Spain regards all well known offshore
centres as fiscal paradises and usually treats any dealings involving these with
suspicion and where appropriate taxes accordingly.
In common with most civil code
countries Spain does not
recognise trusts and has not ratified the
Hague Convention of 1st July 1985.
As a result Spanish tax authorities
attempt to characterise
trusts by using interpretation of the nearest compatible instrument existing
under Spanish law e.g. fiduciary agreements, mandate agreements.
As there are various types of trust
and various interpretation instruments, uncertainty prevails.
Some things are certain however when
dealing with trusts and Spanish residents. The Spanish authorities will treat a
trustee who is a Spanish resident as the owner of the asset and thus subject to
income tax and capital gains.
If property or land is registered in
the name of an individual trustee or trustees, then it is impossible to gift to
the beneficiary without paying Spanish inheritance or gifts tax under the law of
Spain.
You cannot normally rely on help from
double taxation treaties. Trusts are only mentioned in treaties with a small
number of countries.
If a Spanish resident settles property
into an offshore trust, then it is an event subject to Spanish capital gains
tax.
Spanish resident beneficiaries of
income in possession trusts would be subject to Spanish income tax on their
share of income. Irrespective of whether or not the monies are transferred to
Spain.
In summary if a trust is set up prior to a person
becoming a Spanish resident, with careful planning and a good commonsense
approach many of the pitfalls and disadvantages can be avoided.
We are qualified in British and International Tax and Estate Planning. We are
associated with Lawyers, Accountants and Financial Advisers in the UK, Europe
and Offshore.
To get peace of mind is priceless
and the potential financial savings are immeasurable.
The
first step is to call us on (00 34) 922 390851
We travel
throughout the UK, Ireland, Spain, Balearic and Canary Islands.
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