As many of you may have read, the Spanish authorities have been looking at people not paying tax, and, having offered a large carrot (the recent tax amnesty which ended on 30th November), they are now preparing a big stick.
Under a new law, introduced as part of Spain’s new anti-fraud law, all Spanish residents will be obliged to report all bank accounts and assets situated outside Spain as at 31st December each year.
There are several reported aims of this law.
– It is designed primarily to ensure that people do not hide their assets;
– To increase penalties for tax fraud and to help the Spanish authorities increase and improve tax collection.
– It also eliminates the application of the statute of limitations regarding undeclared assets, so, instead of being able to go back just four years to review unpaid tax, there will now be no limit.
This is simply a requirement to report it is not a tax form, and in no way does it affect the efficacy of your tax planning through Blevins Franks.
As Spanish residents, you are obliged to report your worldwide income, gains and wealth (if they do not fall within any exemptions) to the Spanish tax authorities.
If you complete a wealth tax return, this additional reporting is more of an inconvenience than anything else, as it simply duplicates the offshore assets from the wealth tax return.
Who does it affect?
Any Spanish resident who owns any of the assets listed below, or who is a beneficiary of a trust, as well as Spanish residents who are an authorised signatory of such an account, or where the assets are held by a fiduciary.
So, what do you need to do? If you are tax resident in Spain and fall into the above categories and hold the assets listed below, you will have to declare all the assets you own outside the country. A new official form will be released shortly for this purpose. This year you can file your report for 31st December 2012 in March or April, with a final deadline of 30th April.
In future years reporting must be done by the end of the first trimester each year, so by 31st March, and you will be able to submit your report anytime in January, February or March.
What do you need to declare?
If you own any of the following assets outside Spain, valued at 50,000 or more per asset class, you need to declare them.
- Accounts held with financial institutions
- All types of immovable property (real estate) and rights over such a property
- Shares and securities
- Life insurance policies,
- Temporary or lifetime income generated from the lending of money, rights or other assets (including immovables) to foreign entities.
If the total value of your assets in each class is less than 50,000, you are not obliged to report. For example, if you have four bank accounts worth 10,000 each, you do not have to report, but if you have one bank account with 55,000 deposited or six bank accounts worth 10,000 each, you do have to report.
Once you have reported the assets the first time, you do not need to report them again each year provided the value of all your reportable assets has not increased by 20,000 or more. Where their value has increased by more than 20,000, you will need to report them again by the next annual deadline. This only applies to this reporting form if you fall within wealth tax, you need to report accurate values each year on the wealth tax return.
So, if you have a Private Client Portfolio or Trust with Blevins Franks, you need to declare this asset on the reporting form. If you are one of a group of beneficiaries, please contact your Blevins Franks Partner to discuss this with them.
What values do I use?
The value to be reported for accounts with financial institutions, shares, securities, life insurance policies and other assets is that at 31st December. In the case of accounts with financial institutions, you also need to report the average balance over the last three months of the year. This category includes all types of bank accounts and deposits, including credit accounts, in all currencies, regardless of whether you have the right to withdraw the funds or not. For immovable property, the value is the cost of acquisition. You also need to provide information on the type of property, its location and date of acquisition.
What happens if I do not report?
If you fail to report any assets as required by the new law, penalties will be imposed if the omission is discovered. No-one should try to hide assets. Spanish residents are obliged to declare their worldwide income and assets, and there is a high level of exchange of information between countries these days. The penalties for failing to report are very high. You would have to pay all of the following:
- Income tax at the income tax scale rates even if the income would normally be taxed under the savings income regime. The top rate of these is over 50% compared to 27% under the savings income regime.
- Plus late payment interest for the last four years.
- Plus penalties, which can be as high as 150% of the total tax due on the asset.
- Plus a fine of 5,000 per each piece of unreported data, with a minimum fine of 10,000.
- The undeclared income arising from the asset will be deemed to arise in the last tax year which is not statute barred four years in most cases. This effectively abolishes the statute of limitations.
So, overall, this is likely to be inconvenient, especially if you do make a Spanish wealth tax declaration as you are simply repeating part of that declaration, but at the end of the day, that is all it is further paperwork. This does not change what you have, or how it is taxed in Spain, and certainly does not change how beneficial your Blevins Franks tax planning is for you nor the importance of investing in a tax efficient way, something that we specialise in advising clients on.
Please do not hesitate to contact us if you would like further information, or to discuss your investments.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
For more information and personalised advice, contact Blevins Franks on +34 971 719 181.
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This article was written on the 29th of January, 2013.