Foreigners who are resident in Spain now have a new obligation to report all assets held outside Spain worth more than €50,000, including bank accounts.
Back in April, the Spanish government announced details of its draft new anti fraud plan. One of the proposed measures related to assets held outside Spain and would affect most expatriates living here. Confirmation was finally received at the end of October, with more information provided in mid-November.
Law 7/2012 of 29th October 2012 was published in the Official State Gazette the following day. It amends existing tax and budget legislation and adapts financial legislation to strengthen action to prevent and combat fraud. Most measures came into effect immediately.
It arms the Spanish Tax Authority with powerful weapons to fight tax fraud and the hidden economy – one of the main priorities of the Spanish government’s economic policy.
State Secretary for the Treasury, Miguel Ferre, described this new anti fraud plan as “the most ambitious legislation in this field since the 1970s”.
Under the legislation, residents of Spain now have a new obligation to report all assets and rights held outside Spain, where they are:
- Authorised signatories
A new reporting model will be created, in which all kinds of assets will have to be reported. There are three reporting categories, and you have to report all assets in a particular category if the value of your total assets in that category amounts to over €50,000. The reporting categories are:
- Accounts held within financial institutions (all cash and deposit accounts)
- Shares, securities, life assurance policies, annuity income, income generated from loans, rights or other assets
- All forms of immoveable property (real estate) and rights over such property
The value to be declared in most cases is the balance as at 31st December. In the case of accounts you also need to report the average balance over the last three months of the year. In the case of immovable property, it is the cost of acquisition.
The reporting deadline is normally the end of March, but this year it is the 30 April.
To repeat, you only have to declare assets where the total value of assets in each of the reporting categories (for example, cash in bank accounts) is €50,000 or over. You only need to report the asset/s again the following year if their value has risen by over €20,000.
Failure to comply with the obligation will have costly consequences when discovered by the tax authorities.
A €5,000 penalty will be imposed for each omitted data – with a minimum penalty of €10,000.
On top of this, an asset which has not been reported under this new system and is discovered by the tax authorities will be assumed to have been acquired with undeclared income, and will be treated as an ‘unjustified capital gain ’ for the most recent tax year which is within the statute of limitations.
Under Spanish law tax investigations can go back four years, so the income would be deemed to arise four years prior to the year the asset is discovered. It will be taxed at the marginal rates of income tax (so up to 52%, or 54% in Andalucía and 56% in Cataluña).
This effectively eliminates the statute of limitations for undeclared assets, so the tax authorities can go back indefinitely to assess undeclared income and tax it at maximum rates, plus interest and penalties. Since this will be considered a “very serious offence”, the penalty will be 150% of the tax due.
Although this is new legislation, the obligation to report overseas income is not new. Anyone who meets the tax residence criteria in Spain is already liable for tax on their worldwide income and gains and is obliged by law to declare them accordingly. Except for the years when wealth tax was effectively abolished, they should also have declared their worldwide assets on their wealth tax returns where a liability arose.
So what is new and important about this legislation is not so much the reporting obligation itself, but the new consequences for failing to report. The penalties are very severe and could be more than the value of the hidden asset/s.
Note also that this new law is not purely a tax obligation. Whether or not you have to submit a wealth tax return, you still need to report all your overseas assets.
Professional advice is essential if you want to protect your wealth from unnecessary taxation and make sure your tax planning will stand up to scrutiny. A firm like Blevins Franks will guide you through your options for legitimate tax mitigation in Spain.
The 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 should take personalised advice.