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Form 720. What Do You Need To Do In 2016?
Tuesday, 01 March 2016

We are fast approaching 31st March, the deadline by which residents in Spain need to submit their annual Form 720 (Modelo 720) listing their overseas assets, where applicable.  If you have previously submitted a form, you only need to declare assets if they have grown a certain amount or you have sold or closed them. 

Besides confirming what you have to declare this year, this is also a good time to consider whether you are holding your assets in the most tax-efficient vehicles for Spain.  If you have investments that were set up with UK taxation in mind, you may be paying more tax in Spain than you need be.

Summary of the rules

There are three reporting categories, based on bank accounts, investments and immovable property.  You have to report all assets in a particular category if the value of your total assets in it amounts to over €50,000.  This only applies to assets located outside Spain. 

In general, you are obliged to report assets if you are the owner, a settlor of a trust, an effective beneficiary from a trust, authorised signatory, or you have the authority to dispose of the asset.  This includes assets held by a company, trust or fiduciary. 

You need to report even if your personal share of assets is less than €50,000.  With joint assets, each owner needs to declare the full value (not pro-rated) and indicate their percentage of ownership.

In most cases, assets are valued using the wealth tax rules as at 31st December each year.  For assets held within financial institutions (eg bank accounts), you also need to declare the average balance over the last three months of the year. 

You need to report the value of the assets in Euros, so any investments held in other currencies need to be converted using the official exchange rate as at 31st December of the relevant year. 

2016 declaration

For your 2016 Form 720, you declare the assets owned as at the end of 2015.

If you have already submitted Form 720 in the past few years, you only need to report again if:

The value of an existing asset grew by more than €20,000, or

  • You sold an asset/closed an account, or

  • You obtained a new asset.

Penalties

As a resident of Spain, you are legally obliged to correctly report all your overseas assets on Modelo 720.  There are severe penalties for failing to do so:

For failing to file Modelo 720 or filing it incorrectly:  €5,000 per infraction (minimum fine of €10,000 for each group of assets).

 

  1. For voluntary, late submission:  €100 per item (minimum €1,500 for each group of assets).

 

  1. In addition, the undeclared assets are treated as unrealised capital gains and consequently included in the general base of the income tax return for the earliest year Modelo 720 was established.

 

  1. An additional penalty of 150% of the unpaid income tax is also levied.

We have always stressed the importance of correctly declaring your income/gains and assets in Spain, whether on Form 720 or on your income and wealth tax returns.  This is even more critical today.  With the new global automatic exchange of information between tax authorities, omissions and inaccuracies will be uncovered by the Spanish tax office easily.

Where tax evasion exceeds €120,000 in a tax year it becomes a criminal offence in Spain and can result in a one to four years prison sentence. 

Challenge to Form 720’s legality

You still need to submit Form 720, even in light of the recent investigation by the European Commission (EC).  This focused on the disproportionate penalties imposed for the non-submission or incorrect submission of information, and whether having no statute of limitations on submissions infringes on EU law. We still have to see how Spain responds; in the meantime, you should submit your form as required.

Many Spanish residents are paying higher taxes as a result of Form 720.  However, Spain actually remains a tax-efficient country for British retired expatriates if you take specialist advice.   You may find that using other, legitimate arrangements would provide you with tax advantages you are missing out on now.  Using compliant tax planning structures can save you tax and provide peace of mind.  You should review your assets now to make sure they are in the best structures going forward.

David Bowern, Partner, Blevins Franks
Email:
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Tel: 952 809 212

Tax rates, scope and reliefs may change.  Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change.  Tax information has been summarised; an individual is advised to seek personalised advice.

To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com

 

 

 

 

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