March 24th, 2014

Spain’s fabulous
weather, its rich culture, its relatively modest cost of living, and its close
proximity to other European countries, have always meant that it is a dream
destination for many, to reside and to savour all the country has to offer. For
those who are prepared to ‘take the plunge’, the demographic changes in Spain
over recent years; and the economic impact of the financial crisis have in many
ways only added to its desirability and feasibility as a potential country of
residence.

Official figures
confirm that 13% of Spanish nationals have emigrated from Spain in the last 2
years. And as a result of the impact of the economic crisis and concerns over
taxation changes, a huge number of non-Spanish nationals have returned to
residency in their countries of origin over the same period. So, the total
population of Spain now stands at around just 70% of the UK population. But
Spain is almost 4 times larger than the UK!

Also, the
over-building in Spain during the pre-crisis period and subsequent Spanish
property price crash mean that there remains a significant over-supply of
properties- in many cases, owned by very keen sellers. So, a relatively
under-populated country offering clear quality of life benefits and incredibly
attractive property investment opportunities…

OK, so where’s the
catch?!

Many who have abandoned
Spanish residency over recent years have expressed concerns about taxation- in
particular, the impact of the Spanish Wealth Tax and Spanish Succession Tax.

The Spanish
Government’s recent reintroduction of the Wealth Tax; and obligation for
Spanish nationals and Spanish residents to disclose (and be taxed on) overseas
assets, was met with dismay by many. But in fact, the impact has been found by
the vast majority to be far less harsh than was originally feared.

Also, much has been
made of the reductions in allowances in Spanish Succession Tax. But again,
under Spanish tax law, when expert estate planning advice is obtained and
implemented, there are many ways quite legally and legitimately to reduce the
impact of succession taxation.

As regards Spanish
income tax and other direct taxes, there are agreements and practice directives
in place between the Spanish Tax Authority and those of many other countries,
to ensure fair fiscal treatment in dual jurisdictional cases. So, for those who
are properly advised and correctly meet their tax declaration and payment
obligations, the position (in most cases) is neither as complicated nor as
onerous as might be feared.

Of course, individual
circumstances always need to be considered carefully- it is never a case of
‘one size fits all’ when it comes to Spanish taxation and estate planning.

Many factors are
relevant to determining tax liability, including even which part of Spain you
are dealing with.

In conclusion, we
always recommend that before any decision or investment commitment in Spain is
made, our clients take the opportunity to understand fully their fiscal
obligations, and to implement their tax and estate planning accordingly. By
planning intelligently to reduce tax liability as far as Spanish law permits,
and then promptly filing tax returns and paying the tax that is due, one
invariably achieves the most efficient result.

Ignorance of Spanish
tax law is no excuse; and equally, proper awareness and fiscal compliance (in
accordance with expert professional advice) need not be as financially
devastating as many fear to be the case.