INTERNATIONAL TAX COMPLIANCE REGULATIONS IN (PART 17): SPAIN
By Santaiago Lapausa, JC&A Abogados
The Code of Good Tax Practice, released by the State Tax Agency in 2010, sets out a series of recommendations and guidelines to enhance transparency and mutual trust. Law 31/2014 amending the Capital Companies Law, established specific tax responsibility for the managing bodies and introduced obligatory tax governance rules.
Law 34/2015, partially amending Spanish General Tax Law 58/2003, provided for the obligation to identify the residence of persons holding or controlling certain financial accounts and the reporting obligations of such accounts in the context of mutual assistance. Spain has fully adopted the provisions of the Council Directive 2011/16/EU on administrative cooperation in the field of taxation and the OECD CRS for the automatic exchange of financial account information, as of January 2016.
Spanish law 10/2010, on prevention of money laundering and financing of terrorism, is an adaptation of the EU law 2005/60/CE. The obligation to disclose the ultimate beneficial owner (UBO) in front of a notary when signing any document related to a corporate structure started in 2012. Notaries make this information available to the authorities, as part of the fight against money laundering.
A new quality standard from the Spanish Association for Standardisation, UNE 19602 “Tax compliance management systems: Requirements and guidance”, was released in February 2019, offering a model of best practice in tax compliance (much like ISO), helping organisations to prevent and effectively manage their tax risks.
Foreign Tax and Financial Reporting Requirements for Spain
1. Main types of business and taxes for each entity
a. SA (Sociedad Anónimia), with a minimum capital of EUR 60,000 divided into shares or SRL (Sociedad de Responsabilidad Limitada) with a minimum capital of EUR 3,000, divided in quotas. A shareholder’s liability to third parties is limited to face value of its shares or quotas. The management body of the company must prepare annual accounts, duly approved and signed by its members, within the first three months after the end of the financial year (normally the calendar year). Such accounts must be approved by the shareholders’ meeting within the first six months. Since 2017, it is compulsory to disclose the UBO who directly or indirectly holds more than 25% of the corporate structure, so this information is now public.
b. Branch of a foreign corporation. A non-resident company may operate in Spain through a branch rather than a subsidiary. A branch is not a legal entity separate from its head offce, but it does have certain autonomy; arm’s length principles apply, and separate accounts must be kept. It is considered a permanent establishment (PE) and taxed under the same rules of subsidiaries (corporate income tax [CIT]). It is subject to a branch profits tax on the remittance of profits to the foreign head offce, unless located in an EU member state. It requires a notary deed and registration at the Mercantile Registry.
c. A representative offce is not a separate legal entity and has no power to conclude contracts with clients in Spain.
d. A company is resident in Spain if it is incorporated in Spain, has its registered offce in Spain or its effective management.
Tax havens may be presumed to be tax resident if main assets consist of real estate property or rights located or executed in Spain or the main business activity, unless it can demonstrate effective management there and valid business reason.
e. ETVE (“Entidad de Tenencia de Valores Extrajeros”) is a special tax regime on foreign securities for Spanish holding companies.
The standard CIT rate is 25%. Companies are taxed on worldwide income except of branches. The tax period is the calendar year by default. Companies have unlimited loss carryforward. Participation exemption, transfer pricing rules, CFC rules, and BEPS measures are applicable.
2. Types of trusts, foundations and tax rates for each structure
Trusts are unusual structures for Continental Civil Law and Spain has not subscribed to or ratified the Hague Trust Convention 1985 on the Law Applicable to Trusts and on their Recognition.
Trusts are not regulated by Spanish private international law or domestic law.
Trusts are disregarded for tax purposes in Spain (look-through regime) and the settlor remains as the owner, as in Spanish domestic civil law it is not accepted that the ownership has really been transferred from the settlor to the trustee, as the trust itself is not recognized. The new UK-Spain tax treaty includes UK trusts (resident of the UK under its domestic law) in the definition of “persons” to benefit from the tax treaty provisions when the income is taxed either in Spain or in the UK.
3. Tax compliance requirements for owners of foreign assets such as bank accounts, insurance policies, shares, etc. (for residents in Spain)
a. ETE: Survey for the Central Bank of Spain. This form should be filed when the value of foreign financial assets exceeded EUR 1 million at the beginning or the end of tax year, or when transactions to and from abroad of more than EUR 1 million are made.
b. D-6: Declaration of ownership of foreign marketable securities for the Ministry of Economy, Industry and Competitiveness. The value of the securities at the end of the year should be declared and there is no minimum amount to be held for being obliged to declare.
c. Form 720: Informative tax return for the tax authorities on foreign assets. There are three blocks to report on accounts, securities, and real estate, considering the value at the end of the year and the average balance of the last quarter. This should be reported if this is your first year as tax resident in Spain and the global value of any of the three blocks exceeds EUR 50,000, or the value has increased by more than EUR 20,000 compared to previous tax returns, or when assets previously reported are no longer held. The settlor of a trust must declare it, as well as beneficiaries of an irrevocable trust. This tax form has been denounced to the European Commission, opening an infringement procedure.
4. Tax compliance requirements for estate and wealth planning matters
Spain is divided into 17 autonomous regions. Wealth tax is shifted to regional governments and taxation varies substantially, starting from zero tax in Madrid. Wealth tax liability is limited to the amount of income. Residents declare worldwide assets, non-residents only assets located or executable in Spain.
5. Tax compliance requirements on sale of real estate
Non-residents (individuals and corporations) pay capital gains tax at 19% of the difference between sale value (sale price minus sale costs) and purchase value (purchase price plus taxes and costs). Residents (individual) integrate capital gains as part of the saving taxable income of the annual personal income tax (marginal tax rate of 23%). Spanish companies and branches integrate capital gains as part of the yearly corporate income tax.
Collaboration with Other GGI Members
The core business of our firm is about tourism-related residential properties in the south of Spain. We have helped clients of GGI members to invest privately or through corporate structures in holiday homes or real estate development.
Future Developments, Outlook, and Summary
2020 has started with a new Government after four general elections in four years. Spain will have its first coalition government since 1978, when our Constitution was approved, with a thin margin of two votes. With just 155 seats over 350, the new government of a strong leftist character will face an uphill struggle to implement its planned reforms.
Unlike 2019, a year with little legislative development due to the impossibility of forming a government, 2020 appears to be a year full of new regulations and from a very different angle and perspective.
Santiago LapausaGGI member firm
Law Firm Services, Tax
T: +34 952 925 646
JC&A Abogados is a firm based in the city of Marbella, Spain, comprised of lawyers and economists aimed at providing local, national, and international professional advice. They speak Spanish, English, French, Russian, German, and Dutch.
Santiago Lapausa is Partner of JC&A Abogados. With a BA in economics and business studies, he joined the firm in 2003 to found and develop the tax department. Santiago is involved in all areas of general tax practice and specialises in non-residents and international tax planning.
Published: Working Together to Optimise International Tax Compliance, No. 2, Spring 2020 l Photo: pkazmierczak - stock.adobe.com