Five Spanish Non-Resident Taxes

If you own a property in Spain you should know that there are some taxes that apply, even if you are a non-resident.

Income Tax
All non-resident owners of a Spanish property have to pay an annual tax to account for their “share” of the property. Even though it is called an “income tax”, it is not actually based on your level of income, but on a “deemed” or “notional” income, which is a percentage of the rateable value of the property multiplied by the non-resident tax rate of 24.75%.
This tax is based on the calendar year and it is always due within 12 months of the end of the tax year. So, for the 2014 tax year, tax needs to be paid before 31st December 2015.

Property or IBI Tax
Property Tax in Spain is referred to as IBI and, like the United Kingdom, this tax will be levied by your local council in Spain. The council will assign a rateable value to your property and then, your rates or property tax will be a percentage of this amount. The percentage will depend on your council, but in most cases it will be somewhere between 0.5% and 1%. So, if you had a rateable value of €50,000 and your local percentage was 0.75%, then, your annual rates bill would be €375.
This tax is also based on a calendar year,and will normally be payable between June and September each year; again, this will depend on your local council.

Rental Income Tax
Up until the end of 2009, Rental Income Tax was 24% of the gross income you received on any rentals. So, if you generated €1000 by renting out your property, then, you would have to pay €240 in tax. You could not offset any expenses – i.e. cleaning, utilities, insurance, mortgage interest, marketing, management fees etc.
However, since January 2010, the rules have changed, which means that you can now offset expenditure when calculating what income, or effectively profit, will be subject to tax of 24.75%.
In theory, rental income tax returns need to be submitted each quarter, to account for income received in the preceding 3 months.

Capital Gains Tax
When non-resident owners sell aproperty, they make a capital gain or a loss upon the sale, which is the difference between what they paid for the property and the proceeds of the sale. The buyer of the property should always withhold 3% of the sales value and pay this to the Spanish tax office, as an “advance” of the buyer’s potential capital gains tax. It is then up to the buyer to calculate their gain or loss, and, if a gain has been made,it will be subject to 21% tax. The buyer should pay the 3% within 1 month of the sale date, and the seller then has an additional month to submit their calculation of a gain or loss and the corresponding tax returns.
Inheritance Tax
Inheritance Tax for non-residents is a tax on the beneficiaries and not on the deceased, as it is in the United Kingdom. The tax rates themselves can vary depending on the relationship of the beneficiaries to the deceased, the amount that is being gifted, their age, and even their wealth in Spain. In the very worst situationtax rates can reach levels of 81%!
The other major issue for Britishcitizens is that transfers between husband and wife in Spain are not tax exempt as they are in the United Kingdom. So, if a spouse were to die, then the surviving spouse, in most cases, will need to pay inheritance tax (as well as probate), in order to take on the additional 50% share of the property.
It will normally take about6 months to deal with the probate issues in Spain and pay any outstanding inheritance tax, before the property deeds can be altered.
No Inheritance Tax is payable if the property is owned by a British company, since even if a shareholder dies, the company can continue in existence and the shares passed on to a beneficiary under British rules. Please be advised that this requires SPECIALIST advice.

OECD launches Tax Inspectors Without Borders

10/05/2012 –  The OECD’s Task Force on Tax and Development, meeting in Cape Town, South Africa, has launched the concept of Tax Inspectors Without Borders/ Inspecteurs des impôts sans frontières – a new initiative to help developing countries bolster their domestic revenues by making their tax systems fairer and more effective. Building on that concept, the OECD will establish an independent foundation, to be up and running by the end of 2013, that will provide international auditing expertise and advice to help developing countries better address tax base erosion, including tax evasion and avoidance. The initiative was championed by Oupa Magashula, Commissioner General of the South Africa Revenue Service, Nhlanhla Nene, South Africa’s Deputy Finance Minister and Pascal Saint-Amans, Director the OECD’s Centre for Tax Policy and Administration.

The stakeholders from business, civil society, as well as OECD and developing country governments attending the Tax and Development Task Force unanimously welcomed the initiative which fills a gap in the existing provision of audit assistance. They agreed to work together to launch a sustainably financed independent organisation to host a Tax Inspectors Without Borders secretariat by the end of next year. This initiative complements several efforts by donor agencies, notably USAID, to mobilise expertise. Continue Reading

The average tax burden on earnings in OECD countries continues to rise

The average tax burden on earnings in OECD countries continues to rise

Published in OECD Tax News – 25/04/2012

25/04/012 – The average tax and social security burden on employment incomes increased in 26 out of 34 OECD countries in 2011 according to the new OECD Taxing Wages publication. Tax payers in Ireland, Luxembourg, Portugal and the Slovak Republic were among those hit with the largest increases. Those in New Zealand and the United States saw their tax burden fall. In Hungary, the average single worker without children was faced with the largest increase in the tax wedge, but for families with children, it fell.

In most countries the higher overall tax burden was due to personal income tax, rather than increased Social Security Contributions. Only 5 countries raised their statutory tax rates on average earnings. In most cases the rise in the tax burden was due to a higher proportion of earnings being subject to tax because the value of tax free allowances and tax credits fell relative to earnings. In a few countries including the Czech Republic, Hungary and Ireland they were actually reduced in nominal terms.

Taxing Wages provides nationally comparative details about the taxation of employment incomes and the associated costs to employers for different household types and at different earnings levels. These are the key factors in determining the incentives both for individuals to seek work and for businesses to hire workers. Continue Reading

UK Tax Budget 2012

UK Tax Budget 2012 – The Association of Taxation Technicians has produced a Special Report on the March Budget in their April 2012 Newsletter. The full Report is detailed below:

The contents of George Osborne’s third Budget were so well rehearsed that the real thing threatened to be an anti-climax. Was there anything left that the Chancellor could surprise us with, especially as he had such little fiscal room for manoeuvre?

The answer was both yes and no. After all the income tax rumours, Mr Osborne decided to make the change to 45% from April 2013. His 2013/14 increase in the personal allowance allowed him to start phasing out the age allowance – an unexpected revenue-raising ploy.

Income tax bands, rates and personal allowances All income tax rates for 2012/13 will remain at their 2011/12 levels. For 2013/14 the personal allowance will rise from £8,105 to £9,205 and there will be a £2,125 reduction in the basic rate limit from £34,370 to £32,245.

From 2013/14, there will be no increase in the age-related personal allowances and their availability will be restricted to people born before 6 April 1948 for the allowance worth £10,500, and 6 April 1938 for the allowance worth £10,660. The aim is to phase out the age-related allowances within a few years. For 2013/14 the additional rate of tax will be reduced from 50% to 45% (from 42.5% to 37.5% for dividends). The rates of tax for trusts will be similarly reduced.

A cap on unlimited income tax reliefs will apply to income tax reliefs that individuals will be able to claim from 6 April 2013. The cap will apply only to reliefs that are currently unlimited – e.g. qualifying interest payments. For anyone seeking to claim more than £50,000 in reliefs, a cap will be set at 25% of income (or £50,000, whichever is greater). Continue Reading

Tax Evasion: Pressure to End Tax Evasion Grows as the Global Forum Publishes New Reviews

05/04/2012 – The Global Forum on Transparency and Exchange of Information for Tax Purposes has just completed peer reviews of another 11 jurisdictions.

Reports on BrazilChileCosta RicaCyprusthe Czech RepublicGuatemalaMaltaMexicoSaint Vincent and the Grenadines and the Slovak Republic evaluate whether their national laws allow transparency and international exchange of tax information (Phase 1). The review of Korea also looked at the effectiveness of Korea’s exchange of information in practice (Phase 1 plus Phase 2). These reports bring to a total of 70 the number of peer review the Global Forum has completed since March 2010.

The Global Forum also issued 3 supplementary reports – for BarbadosBermuda and Qatar – which assess the whether these jurisdictions have acted upon the Forum’s recommendations to improve agreements and legislation. All three jurisdictions’ compliance with the international standards has progressing significantly. The Phase 2 reviews for Bermuda and Qatar will take place in the second half of 2012 and for Barbados in the first half of 2013. Continue Reading

Significant Tax Changes Announced in Spain 2012 Budget

On March 30, 2012, the Spanish government announced the 2012 budget. At the same time, the government approved Royal Decree-Law 12/2012, which introduces a number of relevant changes in the corporate tax area, including new limitations on the deductibility of interest expense.

Interest-capping rule

Following a trend started by other European governments, the Spanish government has introduced an interest-capping rule that replaces the existing thin capitalization provisions. The new interest-capping rule, which will apply to both related- and unrelated-party debt, limits tax relief for net interest expense to 30 percent of the taxpayer’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”), with some adjustments. For entities that are part of a tax consolidated group, this 30-percent limit will apply to the EBITDA of the group. Continue Reading

Spanish Tax Paradise

The Spanish Government has approved a special incentive to disclose untaxed cash amounts (black money) at a special 10% rate, without further interest, penalty and/or tax investigations.

This will allow residents and non residents alike to bring into the Spanish system any amount of undisclosed cash held anywhere in the world.

The constitutionality of this measure is to be seen and I personally have many other questions such as the procedure to be followed, KYC and compliance with international anti money laundering regulations.

An interesting way to open the Pandora box. Keep watching this space!

Tax: OECD to Simplify Transfer Pricing Rules

According to an article published by OECD on 28.03.12, at a meeting at OECD’s first Global Forum on Transfer Pricing tax, officials from 90 countries agreed on the need to simplify transfer pricing rules, strengthen the guidelines on intangible issues and improve the efficiency of dispute resolution.

Transfer pricing rules determine how international transactions within a multinational company must be priced to ensure each country receives its fair share of tax. Based on the OECD and UN Model tax conventions, the rules are meant to eliminate double taxation and ensure better compliance by companies. These rules now need to be simplified and made more robust. This is particularly critical in the area of intangible assets, whose location may have a strong impact on tax revenues.
Continue Reading

OECD Recommends Action on International Tax Loopholes

Aggressive tax planning – untaxed income, multiple deductions and other forms of international tax arbitrage – is a growing concern for all governments.

OECD’s new report Hybrid Mismatch Arrangements: Tax Policy and Compliance Issues describes arrangements that exploit national differences in the tax treatment of instruments, entities or transfers to deduct the same expense in several different countries, to make income “disappear” between countries or to artificially generate several tax credits for the same foreign tax. Continue Reading