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A Question Of Residence
Thursday, 04 August 2016

Brexit has brought the issue of residence into the spotlight, so it is worth taking a look at the Spanish residence rules and what you need to do.

It is very encouraging for expatriates that the new UK Prime Minister, Theresa May, continues to confirm her commitment to secure the rights of British nationals living in EU countries.  However, nobody knows exactly what a post-Brexit world will look like, so if you were considering taking actions it may be best to act now, under rules we understand, rather than risk doing so later when the rules may become more difficult. 

So if you intend to live in Spain post Brexit but have not yet officially registered your presence, it may be a good idea to get this sorted now.

Residence registration

Since March 2007, EU/EEA nationals wishing to settle in Spain no longer require the residence card commonly known as ‘residencia'.  EU/EEA nationals wishing to stay in Spain for longer than three months need to personally apply at the local provincial Foreigners' Office (Oficina de Extranjería) or a national Police station (Comisaría de Policía) to be registered in the Registro Central de Extranjeros.  A certificate is issued containing your name, nationality, address, Número de Identificación de Extranjero (NIE) and date of registration. This is called Certificado de registro de ciudadano de la Unión.

A right to permanent residence for EU/EEA citizens (called Certificado de residencia permanente de ciudadano de la UE) arises once you can demonstrate continuous residence for at least five years, or less than that in the case of workers in certain circumstances.

You need an NIE number if you reside in Spain but also if you own a property here. Most significant transactions require you to provide this fiscal identification number.  It identifies you to the Spanish tax authorities and is required when you pay your taxes or have any dealings with them.

Tax residence in Spain

There are three situations that could make you resident in Spain for tax purposes.

1.      If you spend more than 183 days in Spain in a calendar year, you become Spanish resident whether or not you take out a formal residence permit. These days do not have to be consecutive. Temporary or sporadic absences from Spain are ignored unless you can prove that you are habitually resident in another country for more than 183 days - i.e. you would need a tax residence certificate from that country. 

2.      Even if you spend less than 183 days a year in Spain, you are resident for tax purposes if your ‘centre of economic interests' is in Spain.  This is if the base of your economic and/or professional activities is in Spain. 

3.      You will also be considered resident of Spain if your ‘centre of vital interests' is here.  So if your spouse and/or your dependent children live in Spain, you are presumed Spanish tax resident even if you live and work in another country.   This is applicable unless you can prove otherwise - i.e. if you can obtain a tax residency certificate in another country this presumption will not apply.

If you are a resident of Spain, you are liable for income, capital gains and wealth taxes on your worldwide assets and subject to the Spanish succession and gift tax rules.  You will generally have to submit annual income and wealth tax returns, as well as Modelo 720 where you declare overseas assets over €50,000.

It can be possible to fulfil the domestic tax residency rules of two different countries. The double taxation treaty between Spain and the UK sets out a list of ‘tie-breaker' rules to establish which country the individual should be paying taxes in.  The treaty is independent of the EU and so not affected by Brexit.

It is surprising how many people pay tax in the wrong country.  Some think they are not liable to taxes in Spain when in fact they are resident here for tax purposes.  Others believe they are resident in Spain when they are actually UK tax resident.  Others may be trying to use the rules to their advantage but are getting it wrong. It has always been important to establish where you should be paying tax and fulfil your obligations under local tax law.  However, with Modelo 720 and Automatic Exchange of Information it is vital that you ascertain whether or not you are tax resident here and pay taxes accordingly.

The Spanish taxation regime may not be as taxing as you think, especially for retirees with investment capital.  There are compliant tax-efficient arrangements available in Spain that can make a considerable difference to how much tax you pay.  Seek specialist, personalised advice from a firm with a long history of advising British expatriates in Spain.

David Bowern, Partner, Blevins Franks
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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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