Fiscal residency

Spanish Residency  -v-  Fiscal Residency

 

 

By Noelia Poveda (Poveda & Associates)

 

 

I have decided to write an article on Spanish residency as there appear to be a great deal of confusion about this matter.  Many of our clients assume that once they have obtained their Spanish residence card they automatically become residents for tax purposes and therefore can be deemed as such.  Unfortunately, this is quite far from the truth.

 

Applying for a Spanish residence permit and obtaining a Spanish residence card entitles permission to live (and work if requested) in Spain.  However, in the event of EU citizens, this is no longer requested and therefore you are entitled to work and live in Spain without having to apply for “residencia”.  The only requirement is to have a valid ID or passport.  If, in spite of this, you apply for it, then you will be issued with a residence card.

 

Now, the confusion comes when holders of these cards assume that they will be taxed as residents in Spain.  Becoming a Spanish “fiscal resident” involves being taxed in Spain on their worldwide income and they need to reside in the country for over 183 days a year.  Therefore, a holder of a residence card will only become a fiscal resident if he/she pays taxes to the Spanish Inland Revenue (“Hacienda”) by way of filing their Income Tax (on their worldwide assets) or paying their social security taxes if currently employed.  Only once any of these taxes are filed they will be deemed as fiscal residents and will be granted a certificate from the Tax Offices stating this condition.

 

Sometimes this can lead to confusion, especially when buying a property.  If the vendor of a property is a fiscal non-resident the purchaser will have to retain from the vendor the 5% of the purchase price on account of the vendor’s future liability on his capital gains tax.  The only way to avoid this retention is if the vendor can prove that he is a fiscal resident, i.e. obtaining from Hacienda a certificate.  Hacienda will only provide this certificate to all residents that have filed their Income Tax, Social Security Tax, and Spanish Corporate Tax or are currently working in Spain.

 

In order to clarify matters, I have included below a table where you can compare how owners of a Spanish property are currently taxed depending on their fiscal status:-

 

 

Fiscal Residents

Fiscal Non-residents

*Capital gains tax15% (with a possible roll-over if you re-invest the sale proceeds of your main residence within two years, or if you are over 65 having lived in your main residence for the last 3 years)

*Capital gains tax:  35% (form 212)

No allowances

 -------------------------------------------------

Vendor is withheld 5%   (form 211)

Income Tax:  main residence is not imputed. Income taxed from 15% to 45% with allowances

Property Income Tax:  25%  (form 214 or 210)

 

Wealth Tax:  on property, with allowances

Wealth Tax: based on the escritura value, with no allowances (form 214 or 714)

 

* The Spanish Government has projected as from January 2007 a new fiscal bill that will tax both residents and non-residents at 18% on their capital gains.

 

 

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