To be or not to be Tax Resident in Spain?
According to the Spanish Inheritance Law each individual who lives in Spain for more than 183 days a year should be a tax resident in Spain, and therefore should pay taxes in Spain for their worldwide income.
Many foreigners living in Spain permanently, (i.e. for more than 183 days a year), do not pay any taxes in Spain, neither do they submit annual income tax return. Some do not submit annual tax returns out of ignorance of the law, and others because they are afraid of paying high taxes, etc. Whatever the reason, is important to be aware that ignorance of the law is no excuse. The Tax return declaration should be submitted annually, and taxes should be paid when applicable by all tax residents in Spain.
To date, the Spanish Inland Revenue has not been controlling the situation of those foreigners living permanently in Spain, despite the fact that authorities are aware of this important group of people. Now the situation has changed, due to the economical crisis, the Spanish Government has intensified controls of this group of people (foreigners living in Spain) to ensure that they pay taxes where due.
One of the main reasons why Spanish Government has launched a new campaign in search of those who do not submit their Tax return is to avoid thousands of people receiving free health services without paying taxes and without having the legal right to get them. For that reason, they have strengthen the legal requirements that allow people to get Spanish health cards. Unlike in the past, now it will not be enough to just register with the local Town Hall (called “Empadronamiento”) in order to get treatment.
Therefore, now is the time to formally become a tax resident in Spain by submitting your annual income tax return for the tax year 2014, this should be done during the months of May and June 2015.
There are many good reasons for doing this. It will enable foreign residents to:
- Confirm to the Spanish tax authorities without doubt, that they, the tax resident, is living in Spain, and paying taxes when applicable.
- Have the legal right to receive a health card which allows access to the Spanish Public health system.
- Avoid the 3 % withholding tax when a real estate property is sold. This tax is applicable to foreigners who sell a property and cannot prove that they are a tax resident in Spain.
- Benefit from the inheritance tax advantages and allowances applicable to tax residents in Spain (i.e. no inheritance taxes between spouses on the main home).
- Be considered a tax resident in Spain, thus avoiding the income tax applicable to non-resident foreigners who are owners of a real estate property in Spain (tax form 210).
It is important to mention that most foreigners living in Spain are pensioners with low monthly pensions, so they should be aware that they probably will not have to pay any income tax in Spain, as the result of their tax return would most likely be zero, or if they do have to pay it would probably be a nominal amount. However, it is still recommendable to submit an annual tax return, (even if the result is zero and no tax has to be paid), to be able to take advantage of the above points.
Don´t wait any longer, if you are foreigner living permanently in Spain (for more than 183 days between 1st January 2014 and 31st December 2014) I would recommend that you submit an annual income tax return for the tax year 2014, during the months of May and June 2015. Thus confirming to the Spanish Tax Authorities that you are, without doubt, a tax resident in Spain, you will avoid any potential problems, or fines, and will have all the legal rights that the Spanish Laws recognizes are due to all individuals residing legally in Spain and duly paying their taxes here.
For further advice on this matter or others related to this, please contact Denise Molony or contact us here. The meeting with our lawyers is totally free and without obligation.
Senior Partner Malaga Office