THE tax status of people living in Spain has been subject to extensive debate and is still open to interpretation, particularly given taxpayers’ ability to travel freely within the EU’s borderless Schengen countries.
There’s no space, here, to detail all the intricacies of this interesting topic but the ten points below will help clarify the basis of tax residency status.
- The distinction between tax domicile and tax residency is a concept more associated with Common Law systems and virtually ignored by Spanish laws.
- Tax residency is, prima facie, demonstrated by means of a Fiscal Residency Certificate issued by the tax authority. It should confirm the taxpayer is a fiscal resident in that country and subject to tax on worldwide income.
- According to Spanish Courts, utility bills, bank statements, insurance policies, local taxes, civil registry and consular registrations are other means of proving tax status and, more importantly, the fact of declaring (or not) income obtained worldwide in a particular country.
- The Spanish Income Tax Act states that tax residency in Spain will be determined by one or more of the following: spending more than 183 days of a calendar year in the country; having the centre of economic interest or business in Spain; having a non-separated spouse and dependent children residing in Spain.
- The 183-day count ignores temporary absences except where the taxpayer demonstrates tax residency in another country with a certificate, as per point 2.
- Tax residency in more than one country is possible. Double tax treaties signed by Spain generally stipulate where such individuals should be taxed.
- Where the taxpayer invokes tax residency in a ‘tax haven’, the Spanish Tax Office may request proof of physically being there for more than 183 days, in addition to documentary evidence covered in point 2. Where a taxpayer of Spanish nationality changes tax residency to a tax haven, the Spanish tax authorities will still consider that individual a tax resident in Spain for the following four years.
- Where a taxpayer has economic interests in more than one country, the tax authorities will take into consideration the weight of each. They will look at the intensity of social, political and family relationships in each of such countries, and whether the individual has a permanent dwelling in, or nationality of, that country.
- Spanish authorities may apply for information from countries with whom a tax information exchange agreement has been signed. The UK is one such country.
- Double Tax Treaties are in place to prevent tax evasion, not to encourage it. This applies to the anomaly of using UK companies to avoid Spanish inheritance taxes.