Private Wealth 2021

Last Updated August 12, 2021

Spain

Law and Practice

Authors



GTA VILLAMAGNA is a tax and legal consultancy firm founded in 2012 by Felipe Alonso Fernández and Ernesto García-Trevijano, both of whom are highly regarded professionals with successful careers not only in public administration but also in the legal profession. GTA Villamagna is based in Madrid but co-operates with law firms in a large number of countries. Its private client legal and tax advice services cover all relevant matters that affect both the personal/familial and wealth sphere of high net worth individuals, their relatives and businesses. In particular, value-added advice is rendered in legal and tax matters connected with inbound/outbound investments and divestments, residence and nationality, matrimonial property regimes, and succession legislation. GTA Villamagna also provides specific assistance in the organisation of corporate governance of family businesses and their generational renovation. The firm is particularly recognised for its valuable assistance in relation to all kinds of complex contentious matters.

Individuals can become taxable in Spain if they become residents for tax purposes in that territory or they obtain income and/or capital gains from a Spanish source. Individuals resident in Spain are subject to personal income tax on their worldwide income, as well as wealth tax and inheritance and gift tax on their worldwide assets, subject to tax treaties. Non-residents are subject to the same taxes (non-resident Income Tax) on their Spanish-source income and Spanish assets, as qualified under internal rules and tax treaty provisions.

Personal Income Tax (PIT)

Spanish-resident individuals are subject to PIT for their worldwide income, regardless of where it may have been generated and regardless of the payer's residency. Depending on the type of income, PIT is split into two categories: general taxable base (including income derived from personal work and income from real estate properties) and savings base (including dividends, interest and capital gains derived from the transfer of assets). The PIT rates for the general taxable basis are progressive and depend on the Autonomous Community of residence (authority over PIT rate has been partially handed over to the Autonomous Communities) and ranges between 18.5% and 50%. The rates for the savings basis are also progressive, ranging from 19% to 26%, no matter the Autonomous Community of residence.

The following special PIT rules merit further explanation.

Special tax regime applicable to workers relocated to Spanish territory (impatriates tax regime)

Pursuant to the PIT Law, individuals who become tax-resident in Spain as a result of relocating to Spain for work-related reasons, can choose to be liable under NRIT rules provided that certain requirements are met – ie, individuals would be subject to Spanish-sourced income, maintaining their status as taxpayers of PIT during the tax period in which the residence change was made and during the five following tax periods, despite retaining their status of tax-resident in Spain.

The progressive tax rates applicable under this special regime range from a 24% rate for a taxable base of up to EUR600,000 per annum and 47% for EUR600,000 upwards per annum.

Inheritance agreement

The Tax Fraud Prevention Act establishes a restriction on lifetime planning of assets that were to be passed on in the future through inheritance. In this way, the legislature is attempting to avoid the possibility of a mechanism or tool for succession planning whereby real estate transmissions made under an inheritance agreement do not update the acquisition date and value. This is to avoid eventual lower taxation. 

Exit tax

Spanish tax residents who change their tax residence are liable in Spain on unrealised capital gains derived from shares in any kind of company (provided that the taxpayer has been tax-resident in Spain for at least ten of the 15 years preceding their departure). In the case of taxpayers who opt to be taxed under the special "impatriates tax regime", the ten-year deadline starts from the first year in which the special tax regime ceases to be applied.

The Exit Tax applies if the market value of the shares exceeds, jointly, EUR4 million, or the percentage of interest exceeds 25% and the market value of such shares exceeds EUR1 million.

The capital gains should be included in the last tax return of the taxpayer as a tax resident in Spain. If the change of residence is to another EU country it will only be necessary to file a tax form, but taxes will not need to be paid until the assets are transferred.

If the change of tax residence is temporary:

  • for labour reasons to a territory which is not regarded as a tax haven from a Spanish perspective; or
  • for any other reason to a territory which has signed a tax treaty with Spain for avoidance of double taxation with an exchange of information clause,

subject to prior request by the taxpayer, the payment of this tax debt can be broken down into equal amounts over a period of five years .

Controlled foreign companies (CFC)

CFC rules apply to foreign subsidiaries controlled (by holding, directly or indirectly, individually or jointly with related parties, 50% or more of the share capital, equity, results or voting rights) by Spanish residents who have been subject to a tax which is lower than 75% of the tax that would have been paid under Spanish corporate income tax rules.

Spanish tax law sets out an allocation rule pursuant to which the "total income" (and not only the passive income) of a CFC entity should be attributed to the Spanish controlling shareholder. However, this rule only applies if the CFC entity does not have enough "substance" to carry out its activity, unless it can be proven that:

  • activity is carried out with human and material resources of another non-Spanish resident entity belonging to the same group; or
  • the subsidiary’s incorporation or operation is grounded on sound business reasons.

If the subsidiary has "substance", only certain types of income (in general, passive income) are subject to the CFC rules.

In the case of holding companies, CFC rules will not apply to income derived from real estate property owned by a non-resident affiliate, or dividends and capital gains from shareholdings, where certain substance requirements are met.

No CFC rules will apply to entities resident within the EU (even though they obtain passive income) provided that the taxpayer can demonstrate that the CFC was set up for valid economic reasons and is engaged in business activities. However, the approach that the Spanish Tax Agency (STA) will adopt regarding their interpretation of valid economic reasons/substance requirements (which preclude the application of the CFC rules within the EU) is still uncertain.

Non-resident Income Tax (NRIT)

Non-residents shall be subject to NRIT on Spanish-source income/capital gains at a general 24% flat rate. However, taxpayers who are EU tax-resident are taxed at a 19% flat rate.

In this regard, it is worth noting the effects that Brexit may have on Britons who become taxpayers in Spain under the NRIT. Post-Brexit, those who were receiving Spanish income/capital gains will be taxed under the general 24% flat rate.

It is worth mentioning that certain types of income, such as dividends, interest and capital gains derived from the transfer of assets, are always taxed at a 19% flat rate.

Inheritance and Gift Tax (IGT)

Spanish rules governing IGT are quite complex and require, in order to assess the global tax effect of lifetime gifts in Spain, consideration not only of the tax residence of the beneficiary and the location of the assets and/or rights to be gifted, but also the tax residence of the donor, who could be subject to PIT (if the donor is tax-resident in Spain) or NRIT for the capital gains arising in relation to the gift. Unlike the gifts, the deceased will not be subject to PIT on the capital gain arising from the mortis causa transfer.

The beneficiary or heir/legatee (in the event of a mortis causa transfer), however, will be taxed under the IGT in Spain, irrespective of the location of the property gifted/assets or rights received, if Spanish tax-resident. In this case, the tax residence of the deceased is the only relevant aspect that must be taken into account; not only in Spain but in the particular Autonomous Region, due to this fact being taken into consideration to determine the applicable law. Sums received as a result of life insurance policies of which they are a beneficiary will also be subject to IGT (in the case of non-resident beneficiaries, only where the policies were taken out with Spanish insurers or taken out in Spain by foreign entities operating in Spain).

However, as certain items of the IGT have been partially handed over to the Autonomous Communities, most of these territories have established their own rates and allowances applicable either in the event of real estate located in an Autonomous Community or, in all other cases, where the beneficiary or the deceased has lived for the highest number of days during the last five years in an Autonomous Community (eg, Madrid provides a 99% allowance in the case of gifts/transfer mortis causa between relatives established in Madrid).

In the event that the beneficiary or the heir/legatee is non-resident in Spain, they will only be subject to IGT for the gifted assets/rights for tax purposes, which are located in Spain, or the rights gifted that could be exercised within this jurisdiction. Even in these cases, the legislation of the Autonomous Community could be applied, depending on the location of the gifted or transferred assets/rights and on the residency of the taxpayer.

In general, non-residents are subject to the State IGT Law (without the possibility to apply special Autonomous Communities’ rules). Nevertheless, following a decision of the Court of Justice of the European Union (CJEU) and the recent Tax Fraud Prevention Act, the treatment of non-resident taxpayers who reside for tax purposes in the EU, EEA or a third country has been standardised, so that they can be taxed under regional rules (depending on the residence of the taxpayer and on the place in which the majority of the assets are located).

The IGT taxable base is formed by the fair market value of the transferred assets/rights, and it is taxed at the rates contained in the scale provided by the IGT Law, which ranges between 7.65% and 34% pursuant to State IGT Law (in each case, as previously mentioned, the tax scale of the relevant Autonomous Community should be considered).

It is worth noting that State IGT Law provides for a reduction of 95% (this allowance can be improved by certain Autonomous Communities) on the value of the transfers of "family undertakings" or "family businesses" (both for resident and non-resident companies) in either lucrative inter vivos or mortis causa transfers, under certain circumstances and provided the following requirements are met.

  • The company is engaged in a business activity. The entity will not be considered to be carrying out a business activity (and will not benefit from the exemption) if, during more than 90 days in the taxable period:
    1. the majority (more than 50%) of its assets are securities (less than a 5% shareholding); or
    2. the majority of its assets are not engaged in business activities.
  • The individual must own at least a 5% stake in the entity, individually, or 20% together with the individual’s spouse, ascendants, descendants or collateral up to the second grade.
  • A Spanish tax-resident individual belonging to the family group described here must carry out management activities in the company, and remuneration received for this must be the source of more than 50% of the individual’s total business, professional or dependant employment income.

The tax liability should be multiplied by a co-efficient (which ranges from one up to 2.4). This ratio depends on:

  • the degree of kinship between the transferor and the acquirer; and
  • the pre-existing net wealth of the donor/heir.

The application of the multiplying coefficients could increase the applicable tax rate by up to 81.6%.

Wealth Tax (WT)

Individuals are subject to WT. Residents in Spain are liable for their worldwide net wealth, whereas non-residents are only liable on their net assets located in Spain or that can be exercised in Spanish territory.

This tax has been completely handed over to the Autonomous Communities (although State WT Law acts as a framework) – therefore, as they have legislative authority over WT, there are differences between territories. The Autonomous Community of Madrid, for example, has decided to provide 100% tax relief of the WT debt. This tax relief applies if the taxpayer becomes tax resident in this Autonomous Community.

In general, non-residents are subject to the State WT Law (without the possibility to apply special Autonomous Communities’ rules). Nevertheless, as in the case of inheritance and gift tax, on the occasion of the entry into force of the Tax Fraud Prevention Act, the treatment of non-resident taxpayers who are residing for tax purposes in the EU, EEA or a third country has been standardised, so that they can apply the Autonomous Communities' rules in which their higher-value assets are located.

This new rule would allow them to benefit from the Autonomous Communities' tax benefits or their respective tax rates. In this sense, the application of particular Autonomous Community legislation will depend not on the will of the taxpayer, but on where the majority of their assets are located.

The taxable base of WT is the individual's net wealth (total assets minus total liabilities), taking into account objective valuation rules provided by the WT Law.

For some time now, there has been a desire within some of the constituent parts of the Spanish government to limit the powers and capabilities of the Autonomous Communities to legislate with regard to certain aspects of WT. The purpose of this limiting would be to harmonise rates upwards. A new Wealth Tax might be proposed someday; however, to date nothing has been ruled in this regard.

Exemptions/reductions

The WT Law provides for certain exemptions. There is a common minimum exemption threshold of EUR700,000. Additionally, the State WT Law has established other exemptions related to the ownership of certain qualifying assets, such as:

  • habitual residence with a maximum of EUR300,000 threshold (only for residents);
  • individual pension schemes; and
  • family business assets and shares of family businesses, provided that certain requirements are met.

Additionally, Autonomous Communities have established their own tax benefits.

Non-residents may also benefit from the WT exemption on assets that generate NRIT exempt income (ie, stocks).

The applicable WT rates may vary depending on the Autonomous Communities. For instance, as mentioned previously, Madrid provides a 100% allowance, so that its residents do not have to pay any wealth tax, regardless of their net worth. However, according to the State WT Law, the rates ranges from 0.2% to 2.5%.

The WT quota, together with the PIT quota, cannot exceed 60% of the taxable base of the latter (there is no limit for non-residents). In the event that this limit is exceeded, the WT quota should be reduced down to this threshold (with the limit of 80% as for the WT quota).

Local Taxes

Real estate tax

An individual's real estate property is subject to local taxes, such as real estate tax (which depends on the location of the real property, meaning that both resident and non-resident individuals who own real estate located in Spain are subject to this tax).

Tax on increase in urban land

A tax on an increase in the value of urban land is levied on the transfer of urban real estate properties. The taxable base has been determined under an objective scheme which takes into account, essentially, the cadastral value of the property and the number of years that it has been held. However, since 2017, this issue has been repeatedly challenged before the Spanish courts.

Although the legislation has not been modified, case law establishes that this tax will not be levied if there has been no gain or increase in the value of the land since it was acquired or during the last 20 years.

A problem therefore arises as to what is known, and can be evidenced, about the non-existence of a gain or increase in the value of the land transferred or about a lower increase than has been supposed by the law. It should be borne in mind that the taxpayer is the one who must prove the said circumstances.

The regulation has not yet been modified so it is currently being regulated based on court rulings.

Reporting obligations

Spanish tax residents are obliged to inform the STA about the ownership of assets (basically, current accounts, stocks, bonds, insurance products and real estate assets) held abroad with a value of over EUR50,000 (through Form 720: Declaration of Assets Deposited Abroad).

In addition, the Tax Fraud Prevention Act has introduced an obligation to provide information (via Form 720) on the balances held by holders of virtual currencies (cryptocurrencies).

However, this obligation has been challenged by the European Commission and it is expected that changes to the current regulation will be implemented.

In conclusion, Spain currently offers special tax regimes, a special impatriates tax regime, and IGT/WT exemptions/reductions (in the case of holding and transmission, respectively, of family businesses) that may be used for estate tax and WT planning. 

However, when relocating to Spain, implications other than Spanish taxation must be carefully assessed by prospective taxpayers, in particular, whether the wealth and estate legal and tax planning done before the change of residence is as efficient in Spain as it would have been in their home countries, mostly due to the lack of recognition of certain entities in the Spanish legal system (trusts, private foundations, etc).

Spanish national estate and transfer tax laws have not changed significantly in the last 30 years.

However, as anticipated in 1.1 Tax Regimes, it is important to bear in mind that Autonomous Communities have used their legislative capacity to amend the IGT, WT and transfer tax rates and allowances that are applicable to their tax residents.

This has created notable differences in taxes borne by taxpayers, depending on the Autonomous Community in which their assets are located or where they are resident for tax purposes.

Recent ECJ judgments have had a notable impact on non-residents' tax and estate planning, as non-residents (both EU and non-EU) have recognised the possibility of applying regional legislation. However, as ECJ judgments have not been fully implemented in the Spanish tax system, the situation for the WT and IGT purposes of each non-resident will be carefully assessed to confirm tax rules applicable in their particular situation.

Current discussions on estate and transfer taxes are focused on simplifying and unifying tax rules applicable to taxpayers, regardless of where assets are located or whether individuals are tax-resident. It is unlikely that the crisis caused by COVID-19 will result in any changes in this matter.

Spanish tax legislation provides two general anti-avoidance rules (GAAR), which are based on the idea that the transactions performed use a legal form or configuration which does not match the underlying aim they pursue.

Abuse of the Law Provision

On the one hand, so-called "conflict in the application of the tax law" is an anti-avoidance rule based on the abuse of legal constructs to create an artificial tax result. Fraud is therefore deemed to exist where a taxable event is partially or completely avoided or where taxable income and/or tax liability is decreased by means of actions or transactions:

  • which, considered individually or collectively, are manifestly artificial or inappropriate for achieving the result obtained; or
  • which do not have relevant legal or commercial effects other than tax savings; and
  • whose effects could not have been obtained by means of usual acts or transactions.

This anti-avoidance rule works on a similar basis to anti-fraud techniques already known in the common law as "substance over form" and the "business purpose test".

Tax-Sham Provision

The second general anti-abuse provision is intended to correct the effects of a "tax sham". A tax-sham provision is essentially the same as a civil sham – ie, a sham transaction exists where another different business purpose is concealed under the guise of a normal legal transaction, which may be contrary to the very existence of the transaction ("absolute sham"), or aimed at the performance of another different transaction ("relative sham"). What differentiates a sham is the shared will of the parties to conceal a specific unlawful reality. Accordingly, the sham involves a desired and deliberately provoked discrepancy by the parties between a transaction's true nature and its external manifestation, for the purpose of creating a legal appearance that conceals its nature from third parties.

The Spanish tax administration makes frequent use of these legal institutions. This means that every tax planning initiative should bear in mind its existence and potential application.

Exchange of Information

Additionally, Spain is fully committed to the efforts of the international community to prevent tax evasion and tax fraud and, in particular, to the implementation of exchange of information agreements. Most of the double taxation treaties (DTT) signed by Spain include the exchange of information clause, and specific agreements with traditional offshore jurisdictions have recently come into force (eg, the Bahamas and Curaçao) or are currently under negotiation (eg, the Cayman Islands, Bermuda, Macao and Guernsey).

Since 2014 (in the case of FATCA) and 2016 (in the case of CRS), Spain has fully implemented the Automatic Exchange of Information reporting standards. Under these regulations the Spanish tax administration is provided with relevant information about financial assets held abroad by their residents and, conversely, provides other countries with relevant information about financial assets held in Spain by residents in other countries.

It should be highlighted that the Spanish tax administration has highly developed automated information-processing systems that allow it to handle all the tax-relevant information it receives with agility.

Additionally, on the occasion of the transposition of the EU DAC 6, an automatic exchange of information obligation was introduced in relation to certain cross-border arrangements which may be qualified as potentially aggressive tax planning.

The succession regime established by the Spanish Civil Code has not been subject to relevant changes for centuries. Present-day society is therefore demanding an update of the regime to adapt it to suit the transformation of the family model, which has changed dramatically during the last 25 years.

In Spain, the common succession regime, applicable in most of the country, co-exists with the particular regional legal institutions of certain territories (territorios forales), which traditionally incorporate significant exceptions. In addition, Spain has incorporated the EU succession regulations.

Spanish citizens can determine the applicable succession regime by changing their residency for civil-law purposes (which is not necessarily the same as tax residency) within Spanish territory. Likewise, this can also be achieved by changing their residency within the territory of the EU, as the European regulations allow a testator to elect to apply the succession regime of the member state of their usual residency.

The main characteristic of the Spanish regimes is the protection they grant to the family. For this reason, with very limited exceptions in some specific territories, the freedom of what a testator can dispose of by granting a will is restricted. This protection, in general, grants preference to the blood bond over marriage.

The Spanish regime distinguishes between succession with a valid will (testate succession) and without it (intestate succession), which can substantially affect the manner in which the assets of the hereditary estate are distributed. Most high net worth families therefore regulate their succession in detail by granting a will. 

From a tax standpoint, protection (tax neutrality) is granted to the mortis causa transfer of family enterprises with fewer requirements in the case of transfers as a result of succession than in the case of donations.

As regards economic activities, the following traits must be highlighted:

  • there is still a very limited number of families that have adequately resolved corporate governance of family businesses and generational renovation, and the number of business groups that survive the third generation is very limited; and
  • many steps have to be taken to achieve effective attribution of decision-making power within the company with respect to the next generations (which have been raised in a global market).

Over the last few years, Spanish investments in foreign countries have significantly increased, thereby multiplying the number of investments through – or the search for – investment vehicles/structures that may be adequate, fundamentally, to achieve tax efficiency.

As explained in 1.1 Tax Regimes, it must be borne in mind that non-residents with investments in Spain may be subject to PIT, WT and IGT for the transactions they carry out in Spain.

Even though, in the last few years, Spain has notably developed its network of tax treaties associated – and not associated – with the EU, in respect of succession taxation, only three have been formalised (with Greece, France and Sweden).

Indeed, international tax planning is mainly aimed at achieving efficiency in the repatriation of funds, with the highest degree of tax neutrality on the taxation of dividends, interest and capital gains, rather than attempting to achieve efficiency from a succession standpoint. Nevertheless, the creation of these structures may have evident impact on the legal implications of the succession, especially if they involve legal structures from other jurisdictions (namely, trusts) which are not recognised by Spanish law.

Spain provides different succession regimes, depending on the personal civil residence of the deceased. The Autonomous Communities of Galicia, the Basque Country, Navarre, Aragon, Catalonia and the Balearic Islands have their own succession laws which are different from the Spanish common succession regulations.

However, except for Navarre and some parts of the Basque province of Alava, all the regimes rule forced heirship obligations in favour of descendants, who are entitled to inherit between one quarter and two thirds – in the common regime – of the net value of the heritage.

For those who die without progeny, the common, Catalan and Balearic regimes consider surviving parents and even any other surviving ascendant as forced heirs with respect to, at least, one quarter of the net value of the inherited estate, depending on whether or not they concur with the surviving spouse.

Finally, except in some parts of the Basque Country and the Balearic Islands, the surviving spouse has the right to the usufruct of all or part of the inheritance assets, depending on the applicable civil regime.

Typical Marital Property Regimes

The default marital property regime in common civil legislation in Spain is community of property (sociedad de gananciales). Under community of property, spouses will jointly own all income earned and property purchased during the marriage, while each one will separately own all his or her prenuptial assets and all those inherited or acquired by a donation, or in any way, without consideration. In general terms, this economic regime allows spouses to manage, jointly and severally, the community property and to buy new common assets. However, in order to sell or charge them it would be necessary to get the agreement of both spouses.

By (prenuptial or postnuptial) agreement of the spouses, they can opt for a separate heritage regime (separación de bienes) in which they will not have joint property (although there are limitations regarding the use of the marital home, regardless of who is the owner). This separate regime is the default marital property regime in some regional civil regulations and is applicable to those with regional legal residence. This separate regime does not exclude the right for a compensatory payment or pension in the event of divorce.

Another legal regime spouses can expressly opt for rules completely separate ownership of the income earned and assets purchased but provides for automatic compensation of the increase or decrease of the separate heritages once the marriage ends (participación en las ganancias).

Despite these three typical marital property regimes, spouses can largely freely agree on how to manage and share (or not) their income and assets in a marital property regime agreement (capitulaciones matrimoniales) as long as they keep equal rights and obligations for both spouses.

It is possible to change from one economic regime to another as many times as this is decided by postnuptial agreement.

Even though a change of marital property regime should not trigger direct or indirect taxation, such situations should be carefully analysed to confirm this conclusion.

Prenuptial and Postnuptial Agreements

The Spanish Civil Code and the regional civil regulations that are still in force in Spain rule the marital property regime of marriages if no prenuptial or postnuptial agreement is signed between the spouses. Nevertheless, nuptial agreements can be entered into before or during the marriage, and can also be amended from time to time. These agreements allow the spouses to rule the joint or separate ownership of their assets and the management thereof, as well as the economics of a future divorce should it happen (eg, destiny of the common heritage or compensation payments). These economic arrangements will be respected by the courts.

Although the nuptial arrangement can also provide agreements regarding relations with the children in the case of a divorce, the Spanish courts are not obliged to follow the parents' agreements in these matters.

In principle, the acquisition of assets by way of a gift or succession, as well as by way of any kind of onerous transmission, involves an updating of the cost for tax purposes for the purchaser.

However, in the case of donations to which the tax benefits (reduction of 95% in tax base discussed in 1.1 Tax Regimes) of the "family business" are applicable (in which the donor is not subject to taxation), the acquirer/beneficiary does not update the value of the assets received for tax purposes (ie, they subrogates in the acquisition tax cost of the donor).

As explained in 1.1 Tax Regimes, transfer of "family businesses", either inter vivos or mortis causa, is the easiest way to transfer assets to the next generation without bearing tax costs in Spain (for both the donor/deceased and the beneficiary/heir).

Additionally, due to the current legislative situation, mortis causa transfers of assets (different from "family businesses") to which Madrid's IGT rules apply (which shall be whenever the deceased had their tax residence in Madrid at the time of their death) may benefit from a 99% tax quota bonification (provided that the heir is/are descendants, ascendants or spouses) and, additionally, the heir should not bear taxes upon acquisition.

In case of inter vivos transfers that may benefit from Madrid IGT rules (which will be in the event the assets were located in the mentioned Autonomous Community) the same 99% tax quota bonification may apply. However, the capital gain for PIT purposes arising for the donor must also be considered. In the last few years, many high net worth individuals have made cash donations under Madrid IGT rules.

Transfer of partial interest, as discussed in 4.3 Transfer of Partial Interest, is also a way (partially) to transfer assets, reducing the tax costs.

In the case of non-residents, the donation of assets located outside Spain is not subject to IGT in Spain. In addition, subject to the analysis of the tax implications arising in other territories, donations of cash to non-residents may not trigger tax costs.

A few recent criteria issued by the STA regarding cryptocurrencies all refer to PIT and WT. According to such binding rulings, cryptocurrencies are treated for WT purposes as assets that should be integrated into the WT taxable base. The tax treatment of these assets for IGT purposes should be in line with WT, and therefore, cryptocurrencies should be integrated into the total estate with no exception. For PIT purposes, cryptocurrencies do not qualify as a payment method, which impacts taxation of capital gains/losses upon transfer/use.

As explained in 3.2 Recognition of Trusts, trusts are not recognised under Spanish law and, therefore, are not commonly used in Spain for estate and wealth planning. Private foundations are not used for these purposes, either (see 10.2 Common Charitable Structures).

Unit-linked insurance contracts – ie, those in which the policyholder bears the risk of the investments in the assets underlying the insurance policy – are clearly inspired by the regulation of trusts and are fully recognised under Spanish and other civil law systems, as well as by common-law countries. Unit-linked insurance contracts achieve a similar outcome to that obtained through the creation of trust structures.

Even though trusts are largely used in common-law legal systems, the Spanish legal system does not recognise or regulate the trust institution, and no special civil or tax law provisions on this institution have been put in place.

Moreover, the Spanish civil system does not provide for the possibility of having dual ownership (ie, formal/legal and beneficial/economic), of an asset or a right.

Spain has not ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition, in force since 1 January 1992, which specifies the law applicable to trusts and governs their recognition in the countries that have signed this convention.

Obligations Relating to Trusts

Only certain regulations, related to the obligation to provide the Spanish tax administration with information on assets deposited abroad and the updating of regulations regarding the combating of money-laundering and terrorist-financing, consider the existence of this legal institution and attach certain legal consequences to the relationships created under a foreign trust – eg, to impose reporting obligations (for anti-money laundering and tax purposes) on Spanish trustees that manage assets held by a trust and/or on Spanish resident settlors, trustees and beneficiaries in relation to both formal and beneficiary ownership of assets held by a trust.

Additionally, certain double taxation treaties (DTTs) signed by Spain specifically recognise the existence of trusts (eg, those signed with Australia, Canada, the United Arab Emirates, the USA, New Zealand, Singapore, Turkey and the United Kingdom). In particular, the Spain-UK DTT includes trusts in its general definition of person and recognises eligibility for the benefits of the DTT to certain items of income obtained by trusts. To date, the Spanish General Directorate for Taxation (GDT) has not issued any interpretation in relation to the Spain-UK DTT provisions related to trusts.

Therefore, to date, there is no reliable legal/tax framework that makes it possible to ascertain the legal/tax position in Spain of the settlor, trustees and/or beneficiaries of foreign trusts.

Despite the lack of recognition of trusts in Spain, there is some administrative and academic doctrine that can be used to establish general guidelines on the approach that the STA might take regarding the tax treatment of trusts under Spanish tax law for the purposes of PIT, NRIT, WT and IGT.

It should be noted that rulings containing such guidelines do not describe thoroughly the legal relationships created under the trust and therefore cannot be directly relied upon to ascertain the tax treatment applicable to other trusts. Moreover, tax effects must be analysed on a case-by-case basis considering the wide range of legal relationships that, according to experience, can be created under a trust.

Administrative Doctrine

The GTD has issued multiple administrative binding rulings in recent years (eg, V2033-20 June, 19 and V3316-20 November, 6). In all of them it reaches essentially the following conclusions.

The main tax effects of the legal relationships created under a trust in each of the Spanish taxes mentioned in this section can be drawn from the administrative doctrine available to date.

  • As a general principle to be considered when dealing with the taxation of trusts, it must be highlighted that the GDT disregards the existence of the trust for tax purposes. According to its interpretation, since the trust cannot be the subject of rights and obligations, it must be considered as tax-transparent in Spain.
  • Transactions carried out under the trust are deemed to be arranged directly between the settlor and the beneficiary.
  • According to this approach, in transactions carried out between the settlor and the beneficiary, the trustee, as a mere fiduciary deemed ineligible to participate, would not obtain any more income than they would receive as a manager of the trust.

Tax Implications

Based on our vast experience with clients with interests in several jurisdictions (mainly in the Latin and/or Anglo-Saxon world), we recommend that all those who moving to Spain, for whatever reason, should review their asset structures in advance to avoid any future tax contingencies.

Thus, considering the uncertainty surrounding the tax treatment of trusts in Spain, it is highly advisable to carry out an analysis of the relations created under the trust and clarify tax implications arising therefrom prior to entering into any trust involving Spanish tax residents or assets/rights located/to be exercised in Spain.

As regards the tax implications of unit-linked insurance contracts, neither the policyholder nor the beneficiaries are subject to PIT on the income arising from the assets underlying the insurance policy, provided that certain conditions are met (ie, essentially, the management of the underlying assets remains with the insurance company).       

As long as unit-linked life insurance policies do not have surrender value during the contract term (eg, if an irrevocable designation of beneficiary has been made), they may not be subject to WT. However, this tax treatment is currently under review and certain territories (eg, the Basque Country) have already implemented measures to tax the underlying assets in the hands of the policyholder.

For IGT purposes, transfer of the underlying assets from the policyholder to the beneficiaries is deemed to take place when the contingency occurs.

The beneficiary of a unit-linked insurance policy may be irrevocably designated. 

In such cases, assets may not be subject to WT, either in the hands of the policyholder or in the hands of the beneficiaries. However, this tax treatment is currently under review and certain territories (eg, the Basque Country) have already implemented measures to tax the underlying assets in the hands of the policyholder.

Although Spanish law establishes measures to protect the assets of minors or disabled individuals, it does not recognise legal institutions that are familiar to common-law practitioners such as trusts, which extract assets from the economic sphere of an individual, in favour of third parties (typically, descendants) to protect them from potential liabilities incurred by that individual.

Consequently, the main mechanism of asset protection in Spain is the incorporation of family holding companies. Certain elements must be taken into account when structuring these vehicles, depending on the nature of the assets to be contributed and the structure of the family (the number of family branches, descendants, etc). These are:

  • the corporate structure adapted to the family;
  • adequate tax planning of the vehicle and the contribution of the relevant assets;
  • succession provisions adapted to the structure of the family company and business; and
  • regulation of the operation and governance of the family holding company and the incorporation of future generations into the family business, through the execution of family shareholders.

It is important to highlight that a relevant measure of asset protection is the marital-property regime applicable upon marriage. In Spain, the community of property regime (régimen de gananciales) entails that liabilities incurred by the spouse of an individual may potentially affect the assets of that individual. Thus, it is relevant that, in those territories in Spain where the separate heritage regime (régimen de separación de bienes) is not applied by default, spouses opt to apply for it in the form of the relevant matrimonial property arrangement public deed (escritura de capitulaciones matrimoniales).

Finally, Luxembourg and Irish insurance companies have an asset-protection system, which combines effective ownership of assets by the insurance company with a special privilege for policyholders, which makes the use of unit-linked insurance policies attractive from an asset-protection perspective.

Succession-planning strategies for family businesses entail the use of holding companies which allow family groups to combine tax efficiency (see 1.1 Tax Regimes) upon transfer of wealth and control to new generations with an adequate definition of the optimal corporate governance structure.

Additionally, considerations regarding asset protection (see 4.1 Asset Protection) and transfer of partial interest (see 4.3 Transfer of Partial Interest) will also be considered for succession-planning purposes.

Generally, when a partial interest is transferred either inter vivos or mortis causa, the value to consider from a tax standpoint is the market value, determined on the basis of the value of the underlying assets.

The value of the usufruct rights is determined on the basis of an objective valuation rule, established by law, which takes into consideration the value of the underlying assets and the duration of the usufruct right. The value of the bare ownership (nuda propiedad) is calculated as the difference between the value of the usufruct and the total value of the underlying assets.

It often happens that, in gratuitous transfers of the partial interest, only the bare ownership is transferred, and the donor retains the lifelong usufruct.

In onerous inter vivos transfers of a partial interest (ie, for consideration) the transferor will be subject to PIT for the capital gain obtained, without the application of any tax allowance.

With regard to gratuitous inter vivos transfers of a partial interest over a company (provided it complies with requirements to benefit from the tax exemptions applicable to the transfer of family businesses) to certain beneficiaries belonging to the close family (ie, direct descendants and/or spouses), subject to certain requirements, a tax deferral of the PIT of the transferor (which will entail that the acquirer assumes the acquisition cost of the transferor) may be achieved. Subject to the same requirements, the acquirer will also enjoy a tax bonification in IGT (in the territories in which it is not almost totally exempt, such as Madrid and Andalusia).

The taxation criteria applicable to inheritance of a partial interest are also applicable to transfers, but with fewer requirements.

Arbitration and mediation are alternative ways to solve wealth disputes, requiring less time and money than the judicial proceedings of ordinary jurisdictional bodies.

Although these methods are broadly regarded as applicable to succession disputes under Spanish law, they are currently not commonly used as a way to solve disputes relating to an inheritance. However, this trend may change in the future with the increased incorporation of arbitration clauses in testaments, together with non-contest clauses (cautela Socini).

Spanish Succession Law limits the amount of assets an individual can freely dispose of during their lifetime or upon their death. For the most part, the assets of the relevant individual have to be bequeathed to their forced heirs (the relevant percentage varies according to whether they are descendants, ascendants or spouses – see 2.3 Forced Heirship Laws).

To this effect, there are measures in Spanish law to protect forced heirs against disposals made by an individual (whether it be during the individual's life or at the time of death) that diminish their inheritance. The heirs may initiate actions to contest any such unlawful disposals and claw back the assets transferred to the detriment of the inheritance of forced heirs.

As explained in 3.2 Recognition of Trusts, trusts are not recognised in Spanish legislation, nor is the institution of the trustee, or the other similar institutions with fiduciary responsibilities that are widely used in common-law jurisdictions.

Furthermore, although there are institutions that operate in a similar manner to fiduciaries (such as agents), they do not have the same legal nature attributed to fiduciaries in common-law jurisdictions.

Under Spanish regulations, institutions similar to fiduciaries are regulated by the Spanish Civil Code as a way to transfer assets in the context of mortis causa transfers (fideicommissary substitution/sustitución fideicomisaria). Under a fideicommissary substitution, the fiduciary, or trustee, acquires the property as designated by the testator in their will and is obliged to manage and keep the assets and to transfer part or all, depending on the will, of the inherited assets to a third person (the fideicommissary).

However, the use of these institutions for wealth and estate planning is not common practice in Spain, just as corporate fiduciaries are not prevalent in Spain.

There are no fiduciary liabilities because corporate fiduciaries are not prevalent in Spain.

There is no fiduciary regulation because corporate fiduciaries are prevalent in Spain.

There is no fiduciary investment because corporate fiduciaries are not prevalent in Spain.

In general terms, foreigners other than European Union nationals can stay in Spain for 90 days every semester with or without a visa, depending on their nationality.

Non-lucrative Residency

Furthermore, non-lucrative residency can be granted to those who have sufficient financial capacity for their expenses – as determined by the government from time to time – during the period they wish to reside in Spain, without the need to develop any work or professional activity in Spain, and if they have public or private health insurance with an insurer authorised to operate in Spain. EU nationals are also required to have sufficient financial capacity but the minimum amount established by the applicable regulations does not apply to them, as this requirement is deemed to be met as long as the EU national does not become an economic burden on the Spanish authorities.

Acquisition of Citizenship

The acquisition of citizenship is mainly achievable by legal residence in Spain (ie, ten continuous years, which is the general term required). However, in some cases the period of residence required is reduced, such as the two-year term required for nationals of Ibero-American countries, Andorra, the Philippines, Equatorial Guinea, Portugal and people of Sephardic origin, whatever their nationality. Also, only one year of residence is required for those who were either born in Spanish territory, have been married for one year to a Spaniard or who are a widow(er) of a Spaniard.

It is possible to acquire Spanish citizenship by naturalisation at the discretion of the government by royal decree, though only in exceptional circumstances. There is, in addition, the possibility of acquiring Spanish citizenship by what is called "acquisition by option", which is a benefit that the legislation offers to foreigners in certain circumstances (eg, those whose father or mother was Spanish and born in Spain).

Although there is no expedited process for acquisition of citizenship, in some cases the residence permit can be expedited under the so-called Entrepreneurs Law. These golden visas are granted to, among others, the following.

  • Foreigners who invest, to a value equal to or greater than EUR2 million, in Spanish public debt securities, or to a value equal to or greater than EUR1 million, in shares or social participations of Spanish companies or bank deposits in Spanish financial institutions.
  • Foreigners who prove the acquisition of real estate in Spain with an investment of EUR500,000 or more without liens or charges over the real estate acquired.
  • Foreigners who submit a business project to be developed in Spain which is considered and accredited to be of general interest because of the innovative nature of the project or the investments provided. This residency permit will also be granted to those who plan to enter and stay in Spain for a period of one year in order to carry out procedures to develop an entrepreneurial activity. This is a Residence Visa for Highly Qualified Professionals (TAC).
  • Foreigners who travel to Spain within the framework of an employment, professional or professional training relationship, with a company established in Spain or in another country.

Spouses and Children

These permits are extended to the spouse and children under 18 years of age, or of legal age who are not able to provide for their own needs due to their state of health, when they meet or accompany the applicants. Consequently, they may request, jointly and simultaneously or successively, a family residence visa, after proof of compliance with the requirements indicated here.

In last year's edition of this Guide, we discussed the GTD's conclusion that people who had stayed in Spain because of the confinements due to the COVID19 pandemic could become Spanish tax residents. Spain was thus departing from the OECD recommendations on this matter.

However, the GTD has very recently issued a binding ruling (eg, V0862-21 April 13) in which it concludes that such periods will not be taken into consideration from a domestic perspective for acquiring tax residency. Moreover, it clarifies that this rule will be applied when the country of residence of the person who has been confined against their will has signed a Double Taxation Agreement with Spain.

It is, in any case, a matter of proof that will undoubtedly raise problems in future tax audit procedures.

In order to protect minors and adults with disabilities, Spanish regulations provide what are called "protected patrimonies" for people with disabilities.

The objective of this regulation is to favour the constitution of these patrimonial funds linked to satisfying the vital needs of people with disabilities. In this respect, a series of measures has been adopted to favour gratuitous contributions to protected patrimonies, reinforcing the tax benefits in favour of persons with disabilities.

Parents may appoint guardians or conservators for their children in case of their early demise or the personal disability of any child. However, the Spanish Civil Code determines that it is the responsibility of the public prosecutor's office to supervise guardianship, foster care or custody of minors and that the courts are not bound by the parents' will when appointing a guardian. Furthermore, guardians will be subject to court scrutiny and approval for some special management deals.

The Spanish Civil Code has traditionally established a number of measures on the basis of which family members must assist their ascendants economically and take care of them in the event of their disability.

Spanish law, pursuant to the terms of the Dependency Law (Ley de Dependencia) also provides for the granting of public assistance (including financial aid) to individuals who take care of a dependent family member.

Finally, it is relevant to point out that Spanish law provides certain measures that individuals can adopt to protect themselves in preparation for future situations of incapacity or terminal illness, by means of the granting of documents which are commonly known as “self-protection arrangements”. These documents permit the appointment of representatives who will manage the assets of the individual in any of the situations referred to here.

These documents are filed with the Civil Registry and are taken into account by the relevant judges as part of incapacitation proceedings.

Spanish legislation treats all biological children equally, whether or not they are born of married parents, as well as adopted children, except for the inheritance of Spanish peerages or titles of nobility, which might require a person to be born in wedlock.

Same-sex marriage is fully recognised in Spain, with equal rights.

Domestic partnerships are also recognised in Spain, with similar rights to marriages, apart from specific widow-inheritance rights and some family subsidies.

Spanish tax legislation provides for a special tax regime applicable to foundations, associations of public use and other non-profit-making organisations that meet certain conditions. This regime provides for a total exemption in relation to contributions and donations received by such entities and for income from businesses, provided that they are connected with its general interest purpose. Non-exempt income is taxed at a rate of 10% in the case of foundations and associations of public use, and at 25% in the case of other partially exempt entities.

Together with this special regime, tax credits in respect of donations made to certain qualifying foundations are available for individuals and corporations for income tax purposes, together with the exemption of capital gains arising for the donor as a result of the donation of the asset.

Individuals may benefit from a tax credit of 75% for donations of up to EUR150. Higher amounts may benefit from a 30% tax credit, rising to 35% in the case of recurrent donations made to the same organisation. Tax credits may not exceed 10% of the taxpayer’s overall personal taxable income.

For corporations, there is a 35% tax credit on the amount of the donation/contribution, capped at 0.1% of the company’s turnover. Recurrent donations made to the same organisation may benefit from increased tax credits of up to 40%.

Spanish charitable entities aim to promote private investments in general interest activities. They are therefore compelled to use the contributions received and the proceeds obtained in activities related to their statutory purpose.

In the case of foundations/public-use associations, founders, patrons, trustees, associates, statutory representatives or members of the organisation (or their relatives up to the fourth degree) can neither be the main beneficiaries of the activities carried out by the foundation or association, nor receive a salary for their work. In the case of dissolution, funds must be allocated to another organisation which is subject to a similar regime or to a public non-foundational organisation pursuing general interest objectives similar to those set out in the by-laws of the organisation being dissolved.

Charitable structures are used in Spain in cases where high net worth individuals who are committed to activities of general interest wish to devote a portion of their estate to the performance of such activities. It is accepted that the funds used for such purposes are irrevocably drawn out of their estate.

GTA VILLAMAGNA

C/ Marqués de Villamagna, 3, 6º
28001
Madrid

+34 917 813 528

+34 915 757 685

gtavillamagna@gtavillamagna.com www.gtavillamagna.com
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Trends and Developments


Authors



Lener is a law firm made up of more than 300 professionals, lawyers and economists, who have specialised, for more than 35 years, in resolving complex situations in the legal, tax, financial and bankruptcy fields. The firm's professionals are valued for their versatility, involvement and creativity in the generation of solutions and business opportunities for their clients. Lener has extensive experience in tax advice to HNWI and UHNWI (including family businesses), with national and international presence. In the private wealth field, its services include advice on pre-entry planning for individuals and businesses, including a review of pre-existing asset-holding structures such as trusts and private foundations to ensure that these structures are compliant and efficient after migration; efficient generational transmissions of wealth, via donations or inheritance; estate planning; advising individuals and families on the taxation of specialised domestic and foreign investment and savings portfolios; drafting of family protocols and patrimonial aspects of divorces; and tax structuring for real estate investment, domestic and cross-border.

Political Environment

Spain has recently gone through a period of political instability that ended with a coalition agreement between the centre-left and left-wing political parties at the end of 2019. This uncertain political environment had already delayed the approval of relevant tax bills promoted by the government when COVID-19 struck.

It comes as no surprise then that, starting in the last quarter of 2020, many of these tax measures are finally moving forward, reinforced by the idea that taxpayers, in particular high-earners and large companies, must contribute to soften the impact of COVID-19 on the public finances.

On a regional level, Madrid underwent elections in May 2021, where the centre-right government was confirmed with a vast majority. This election provided some certainty to taxpayers that no changes in the existing tax benefits for wealth tax (WT) and inheritance and gift tax (IGT) will be driven by the regional government in the coming years.

Main Tax Measures that Entered into Force in 2021 for Individuals

Law 11/2020 of 30 December 2020 (The General Budget Act for 2021 – GBA) introduced several relevant measures affecting private wealth for tax years starting on 1 January 2021.

Firstly, the rates of personal income tax (PIT) have increased for high earners. The maximum federal rate has been raised from 45% to 47% for net taxable income allocated to the general tax base that exceeds EUR300,000. These maximum bracket and rates can be increased or decreased by regional governments regarding their 50% portion of the PIT due (for instance, Madrid’s maximum tax rate is 45.5%).

Also relevant is the increase in the tax rates for savings income (dividends, interest, capital gains, etc) which has risen from 23% to 26% for income exceeding EUR 200,000.

No significant changes have been approved for the Special Inbound regime for workers (popularly known as the "Beckham law") besides adjusting their already taxable income to the new rates.

The GBA also dropped the ceiling for contributions to pension and welfare programmes that benefitted from a reduction in the PIT’s taxable base from EUR8,000 to EUR2,000, increasing to EUR10,000 for qualifying employers' contributions. The new measure has made these programmes considerably less attractive from a tax perspective.

After some controversy triggered in inspection procedures under the former regulations, the GBA amended the regulations applying to tax credits for investment in the production of films, audio-visual series and live shows of performing arts and music to provide certainty, to simplify and to give access to this tax credit to all “funders” that fulfil the requirements established in the law. The tax reform has raised the interest of high earners in this tax benefit.

In the WT field, in practice, Spain had had a temporary elimination of the WT due for the period 2008–11. In 2011, the WT was “temporarily” reinstated, although this measure was annually extended every year until 2020. For 2021 onwards, the GBA has provided WT with a “permanent” status.

More relevant is the increase of the WT rate applicable to the highest tax bracket of the federal WT tax scale, rising from 2.5% to 3.5% for individuals with a net worth over EUR 10.7 million (with a tax-free allowance of EUR700,000). These federal tax rates are applicable when the regional regulations are not. This is why rates may vary significantly from region to region, where the maximum WT rate in force may be below 3.5% (for instance, 2.75% for Catalonia and a 100% exemption for Madrid).

Finally, also impacting on private wealth, shareholders of holding companies in particular, an amendment in the corporate income tax act (CITA) for tax periods beginning on or after 1 January 2021 has reduced the former 100% domestic “participation exemption” regime (for the purpose of avoiding double taxation) over qualifying dividends and capital gains to a 95% exemption. This 5% reduction of the exemption was grounded on non-deductible management costs.

The curtailment of the participation exemption regime will generally lead to an effective taxation of 1.25% over formerly fully exempt dividends and gains arising from qualifying portfolios. Because of this, several provisions of the CITA have also been amended accordingly (for instance, in relation to international tax transparency rules, tax group rules, and international double taxation credits). Due to the new measure, many taxpayers are considering simplifying their corporate structures to prevent being hit more than once by this tax when distributing dividends up the holding chain.

Spanish Tax Enforcement Plan for 2021

These Plans are annually released by the General Directorate of Taxes (GDT) listing those areas to which the tax authorities will pay special attention in their inspections and reviews in a given year.

The 2021 Plan included several relevant points for individuals.

  • Spanish tax residence – introduction of AI tools and big data for targeted audits of potential Spanish residence status. This also includes residence status among the different regions of Spain.
  • International exchange of information – automatic exchange of information in order to control assets held abroad by individuals and income obtained therein. In particular, automatic exchange of information regarding current accounts held abroad by individuals under the OECD's Common Reporting Standard (CRS).
  • Simulated service companies – new tools to be implemented, or improvement of the current ones, in order to identify simulated service companies with the sole purpose of deviating taxable income from individuals or deducting expenses.
  • Related-party transactions – to review transactions between individuals or family groups with related companies. 
  • Introduction of tools for risks management with a special focus on individuals that own, directly or indirectly, significant wealth. 
  • Cryptocurrency transactions.

Tax Residence and COVID-19

Lockdown measures caused some individuals to become stranded for several months in Spain, which in some cases triggered concerns under the “permanence test” for determining the Spanish tax residency.

Whereas the initial position of the GDT seemed to diverge from the OECD guidelines on this matter, a more recent ruling has nuanced the criterion.

A binding tax ruling dated 17 June 2020 (V1983-20) ruled in a case of a Lebanese couple unwillingly stranded in Spain during COVID-19 and therefore exceeding the 183-day presence rule. At that time, the tax authorities’ criterion reflected that the permanence test was an objective test, irrespective of the actual intention of the individuals to stay or not in Spain. Consequently, the GDT concluded that the lockdown period should not be discounted for this purpose. It cannot be ruled out that the GDT was influenced by the fact that Spain has not signed a Double Tax Convention (DTC) with Lebanon and that this is currently a black-listed country and that travel restrictions were lifted on 21 June 2020, meaning that there was indeed a window for the couple to leave the country without exceeding the 183-day threshold.

However, as anticipated, the GDT has recently issued another tax ruling dated April 2021 (V0862-21), nuancing the initial criterion. This new ruling involves an individual tax resident in Morocco, a country that has signed a DTC with Spain, and rules that the lockdown period should not determine, per se, the Spanish tax residence of the individual, but the tie-breaker rules of the DTC should solve the residence conflict. All in all, the existence of a DTC in force seems to be the key-factor for concluding issues of tax residence.

Upcoming Tax Measures Affecting Private Wealth

The Spanish House of Representatives passed, on 30 June 2021, the Anti-Fraud Act (AFA) including several measures with the aim of aligning Spanish domestic legislation with the EU Anti-Tax Avoidance Directive (ATAD).

The AFA will enter into force in 2021, the day after its publication in the Spanish Official Gazette.

Some key tax measures passed affecting individuals are set out below.

New rules for determining the value of real estate

The tax appraisal of real estate is a source of many tax disputes. Additionally, the existing valuation rules differ among the different taxes (WT, IGT, transfer tax, etc). To harmonise these valuation rules and with the purpose of ensuring that they properly reflect the market value of the real estate, a new “reference value” will be introduced to be determined by the Cadastral Register (Catastro inmobiliario) based on the data collected from transactions over equivalent assets from public notaries. These new values will be published and they will most likely increase the WT and IGT due.

Unit-linked insurance wrappers

Unit-linked policies will become liable to WT even if the policyholder does not have the power to exercise the full surrender right on the date on which the tax accrues. In such cases, said unit-linked policies would be taxable at the policyholder’s level, and their valuation will be calculated at the value of the mathematical provision at the time the WT accrues (December 31st).

Cash payments

Cash payments will be restricted to EUR1,000 for business transactions (currently the limit is EUR2,500) and from EUR15,000 to EUR10,000 for Spanish non-resident individuals.

The limit for transactions carried out by Spanish tax resident individuals will continue at EUR2,500.

Rejection of the Spanish holdover relief for investments in ETFs

Spanish tax resident individuals are excluded from benefiting from this deferral regime on capital gains triggered upon the transfer of units or shares in a listed investment fund and a listed sociedad de inversión de capital variable (SICAV) (ETFs), regardless of the regulated market or multilateral trading system in which they are listed.

Cryptocurrencies included in the list of foreign reportable assets

A new obligation has been established in order to disclose and report the ownership and transactions carried out regarding virtual currencies (ie, cryptocurrencies).

Dynamic list of “non-cooperative jurisdictions” to be updated periodically

The concept of a “tax haven” is to be replaced with “non-cooperative jurisdictions” and it is also extended to territories:

  • that facilitate the conclusion of offshore companies to attract profits that derive from no real economic activity carried out in such country;
  • with opacity and lack of transparency or those without an effective exchange of information agreement regarding ultimate beneficial owners;
  • with zero or low taxation; and
  • with preferential tax regimes giving non-residents favourable tax treatment over tax residents.

Public list of tax defaulters

The threshold to appear in the public list of tax defaulters is reduced from EUR1 million to EUR600,000.

Prohibition of tax amnesties

This provision specifically states that all tax amnesties are banned. Spain underwent a tax amnesty in 2012 promoted by a centre-right government.

Late payment surcharges reduction

With the aim of promoting taxpayers’ voluntary disclosure and compliance, surcharges for late payments will be reduced to a 1% surcharge per month during the first year, and to a fixed 15% surcharge plus interest when the delay exceeds 12 months.

Penalty reductions

In the event that an inspection’s tax assessment is signed in agreement, the penalty reduction will increase from 50% to 65%. Additionally, if the payment is made in due time, the reduction increases from 25% to 40%.

Final Overview

A centre-left/extreme left coalition government, coupled with the impact of COVID-19 on the public finances, has unsurprisingly led to a tax agenda that has mainly hit high earners, private wealth and large companies.

Despite this, Spain remains an attractive region for HNWI and UHNWI, mostly due to the Special Inbound regime for workers and directors migrating to Spain, the 100% WT exemption offered by Madrid and the several IGT benefits in force in several regions of Spain (Catalonia, Andalusia, the Balearic Islands, among others).

Private wealth is a key focus area for tax enforcement and tax review activities. Clear evidence of this is the creation of a Central Unit of Private Wealth that is actively processing information collected from national and international exchanges of information (in the context of the CRS, FATCA, DAC 6, and tax treaties, among others) particularly targeting HNWI and UHNWI with high tax-risk profiles.

All in all, 2021 will likely be a key year for reviewing existing international asset structuring with a Spanish connection to ensure that it is fully compliant and efficient, and, in particular, for transferring wealth to the next generations without outstanding tax liabilities.

Lener

Avda. Diagonal 431 bis
8th Floor
08036 Barcelona
Spain

+34 933 426 289

+34 934 583 884

guadalupediazsunico@lener.es www.lener.es
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Law and Practice

Authors



GTA VILLAMAGNA is a tax and legal consultancy firm founded in 2012 by Felipe Alonso Fernández and Ernesto García-Trevijano, both of whom are highly regarded professionals with successful careers not only in public administration but also in the legal profession. GTA Villamagna is based in Madrid but co-operates with law firms in a large number of countries. Its private client legal and tax advice services cover all relevant matters that affect both the personal/familial and wealth sphere of high net worth individuals, their relatives and businesses. In particular, value-added advice is rendered in legal and tax matters connected with inbound/outbound investments and divestments, residence and nationality, matrimonial property regimes, and succession legislation. GTA Villamagna also provides specific assistance in the organisation of corporate governance of family businesses and their generational renovation. The firm is particularly recognised for its valuable assistance in relation to all kinds of complex contentious matters.

Trends and Development

Authors



Lener is a law firm made up of more than 300 professionals, lawyers and economists, who have specialised, for more than 35 years, in resolving complex situations in the legal, tax, financial and bankruptcy fields. The firm's professionals are valued for their versatility, involvement and creativity in the generation of solutions and business opportunities for their clients. Lener has extensive experience in tax advice to HNWI and UHNWI (including family businesses), with national and international presence. In the private wealth field, its services include advice on pre-entry planning for individuals and businesses, including a review of pre-existing asset-holding structures such as trusts and private foundations to ensure that these structures are compliant and efficient after migration; efficient generational transmissions of wealth, via donations or inheritance; estate planning; advising individuals and families on the taxation of specialised domestic and foreign investment and savings portfolios; drafting of family protocols and patrimonial aspects of divorces; and tax structuring for real estate investment, domestic and cross-border.

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