Unless the EU puts a stop to it, or unless you have at least €1m in liquid assets that open up investment strategies to avoid it, the Spanish ‘Worldwide Asset Declaration Form’, known locally as ‘Modelo 720’, is a serious problem for Spanish-resident expats with offshore assets worth €50,000 or more that have to be declared to the Spanish tax authorities in a process that is fraught with risks and ruinous penalties.

Though not a problem for non-residents buying second-homes in Spain, it’s a reason for expats with less than €1m in liquid assets to think twice before investing in a home that the Spanish taxman can embargo in the event of problems with the Modelo 720.

With its impractical reporting requirements, and crippling fines for even innocent mistakes, the Modelo 720 leaves you at the mercy of the imperious Spanish tax authorities even if you act in good faith. “All on its own merit, in recent years the Modelo 720 has become the terror of taxpayers with assets abroad,” comments Spanish lawyer José María Salcedo, who specialises in pursuing appeals against the tax authorities. Even Spanish courts are starting to rule that the Modelo 720 penalties are out of all proportion.

I suspect that the 720 form’s onerous reporting requirements, and extortionate penalties, put many foreigners off relocating to Spain, leaving the country poorer for it. Introduced back in 2012 in the depths of the economic crisis by Treasury Minister Cristóbal Montoro from the rightwing People’s Party, the Modelo 720 was supposed to be, in the words of Montoro, a “carrot and stick to regulate the submerged economy,” but it turned out to be all stick to beat innocent expats more than corrupt Spanish politicians like many of Montoro’s buddies from the PP.

The aggressive way it is designed to punish offshore wealth hits expats the hardest, as few Spaniards have wealth to the tune of €50,000 or more outside of Spain, whilst tens of thousands or more of expats do. So the Modelo 720 looks suspiciously like a cynical trap designed by the Spanish tax authorities to relive expats retirees of some of the wealth they built up during a lifetime working and saving outside of Spain. That said, I don’t think it’s a cynical trap, I think it’s just very badly designed tax law, as is often the case with Spanish tax regulations.

Your Spanish home is the first thing the tax inspector will embargo if you trip over the Modelo 720

At least in theory your Spanish home is the first asset the tax inspector will embargo whilst pursuing you for ruinous fines if you fall foul of the Modelo 720. So even if you decide to move to Spain for the unbeatable quality of life, the Modelo 720 should make you wary of putting wealth into Spanish property, where it is within easy grasp of the high-handed Spanish tax authorities.

At the very least, the Modelo 720 gives you a reason to think twice before investing in Spanish real estate, which you can’t move offshore in the event of trouble with Spain’s 720 Worldwide Asset Declaration obligation. As an expat in Spain, perhaps renting is a better option if you have wealth offshore.

If, on the other hand, you have €1m or more in liquid assets, then investment strategies become viable that allow you to avoid the Modelo 720 problem altogether. As usual it’s the average expat with a bit of wealth back home, rather than the wealthy expat with lots of wealth outside of Spain, who is most at risk from the Spanish Modelo 720 Worldwide Asset Declaration threat.

‘Modelo 720’ Worldwide Asset Declaration form under pressure from Europe

Even though the Modelo 720 gives Spain a bad reputation abroad, and probably reduces tax revenues at home, the current Spanish Government shows no signs of scrapping it, because on the surface that would look like going soft on wealthy tax cheats hiding their assets abroad, or at least that’s the way the hard-left Podemos party the Socialists need to support them would see it.

But at least the EU is showing an interest in putting Spain under pressure to do something about it. The European Commission is taking Spain to the European Court of Justice (ECJ) over the Modelo 720 for being disproportionate and discriminatory, and for infringing fundamental liberties of the EU. So far Spain has ignored all advice from Europe to reform the Modelo 720, and now it will have to go to the ECJ to defend it. That might lead to improvements in the next few years.

Investment solution that gets round the Modelo 720 problem

There is an investment solution that allows expats living in Spain to invest any amount offshore without having to declare those investments in the 720 form. The solution I have found also comes with additional tax breaks that make it attractive from a fiscal point of view. However, the setup and running cost of this investment vehicle only make sense for people with €1m or more of liquid assets to invest. This solution will be advertised in the services section when ready. Check there for more information if currently available.