Modelo 720- Declaration of Foreign Assets- 2017 update

It is now four years deeply unpopular Modelo 720, the declaration of foreign assets, has been with us. Happy birthday- not !  As of today, there have been no updates on the Agencia Tributaria website since last year, so for now we are assuming that nothing has changed in the rules.

After the initial bewilderment and even fear (looking at the kind of fines that the Agencia Tributaria propose for errors in declaration, produced by Modelo 720 when it was first released), I would say that things have calmed down now.  We have still not come across any Tax Office fines or penalties,  and it appears from correspondence received from them that they are mainly using the data submitted in Modelo 720 to check that income from foreign assets (e.g. rental income from a foreign property) is being properly declared in Spain- subject to the provisions of the relevant international Double Tax Treaties.

However we continue to advise that those filing this declaration take extreme care to fully and correctly disclose all details. I    wouldn´t want to take any risks with the Agencia Tributaria given their capacity for giving and enforcing sanctions and penalties.

As nothing has changed in the rules since last year, I am copying below our general guidelines and have added some more specific technical notes in a further post.

For more information and guidance, please visit our website

Obligation to declare

Spanish residents with foreign assets or income in any of the following categories exceeding 50,000 Euros on 31st December.

  1. Accounts in any kind of financial institution e.g. banks, building societies.
  2. a) Investments/ rights of representation in foreign companies or other entities.                                                                                                                   b) Investments in foreign collective investment institutions (e.g. unit trusts).                                                                                                                         c) Foreign life/ invalidity insurance; income from foreign annuities.
  3. Property and rights to property.

Note that the threshold is for the total value of each of the three categories.

Where assets are jointly held (e.g. with a spouse), it is the total value of the asset which is relevant. A separate return must be submitted for each person.

Presentation deadline

This tax return must be submitted by 31st March following the end of the year in which the taxpayer is obliged to declare.

Frequency of declarations

The Agencia Tributaria guidelines state the following:

After the initial return is presented, a new return must be filed when the total of any category of assets/ income increases by 20,000 Euros or more, either at 31st December or during the last quarter of the year.

Valuation of assets

Property: purchase price;

Investments which are traded on the open market: market value as at 31st December;

Other investments: value on last published balance sheet.

Penalties for non-disclosure

The guidelines mention “minimum” penalties of 30,000 Euros for non-disclosure ! I can’t envisage how such big penalties could be applied, or even if they would be enforceable if challenged under EU law.

Information is, in principle, shared very easily between financial institutions and Tax Offices in both EU and non-EU countries these days; this means that, in theory at least, the figures that you declare can be checked by the Agencia Tributaria.

The Agencia Tributaria FAQ’s imply that even the slightest error, even unintentional (e.g. in a bank account number) will be punished by a minimum fine of 10,000 Euros !

This would appear to be nothing more than scaremongering.  But the fact is, we don’t know.  To date we have not heard from any prospective clients who have received a fine,  so at this point we can only conjecture

For more information and guidance, please visit our website

Spain Accountants- our new payroll service

We are happy to announce that we are now offering  a payroll service for Spanish companies and Spanish branch offices of foreign companies.

Ou service includes the following:

  1. Registration of the client for employers´ Social Security;
  2. Processing of the monthly Social Security and quarterly income tax payments;
  3. Processing of particular situations such as maternity pay/ sick leave;
  4. Addition of new employees and deregistration of leavers.

Please visit our website or contact us for further details.

 

Registering as an Intracommunity Operator in Spain – VIES

In many European countries,  there is no distinction between the procedures for registering for local VAT, and registering on the European Union list of Intracommunity Operators, knows as VIES (VAT Information Exchange system). For instance in France, when a company obtains a French VAT number they are automatically assigned an EU VAT number, which is just their French / tax code with an “FR” in front. Simple and effective.

Immediately after registration, the company will be able to find themselves on the EU database of Intracommunity Operators.  There is a lookup page on the official EU site http://ec.europa.eu/taxation_customs/vies/ .

Spain is very different. When a company is assigned a Spanish tax / VAT code, it will not automatically appear on the VIES database. A separate application needs to be made using a general purpose form, Modelo 036. This form can be submitted online by anyone with an electronic certificate issued by the Spanish Tax Office. However approval times are very slow. The central Tax Office in Barcelona is now telling us to allow up to six months for processing.

So what is the situation for the company while their VIES application is being processed ?  The following specific situation is the one that has been causing some our clients problems: they have a supplier in another EU country who refuses to invoice them without VAT unless they can actually find them on the VIES database. So, for instance, a Dutch supplier will charge the client Dutch VAT. This VAT is not recoverable as part of the regular Spanish VAT returns.

So in order to recover the Dutch VAT, the client would need to submit a separate request which would need to pass via both the Spanish and Dutch tax authorities for authorisation. This could take some time to be processed (dare I say especially at the Spanish end !) and although the issuing state is required to pay interest for payments that are late, it is obviously not an ideal solution and worse for the business cashflow in the crucial start-up period of any business.

So this is a common problem that comes up with our clients. The advice which we give them is: “strictly speaking, your EU suppliers should be able to invoice you without VAT because you are registered for VAT in Spain. That is all that is required by EU Law- namely the Sixth Directive.  You can send them proof of your Spanish VAT registration (Modelo 036/037) to demonstrate this to them”. However, in practice we find that this is often not enough to convince the supplier.  A tax form in Spanish means nothing to them, and given that VIES registration in their country is most probably automatic with local VAT registration anyway, they understandably but wrongly assume that Spain is the same, and that if they cannot find their Spanish customer on the VIES then it means that they are not registered for VAT in Spain !

This bureaucratic mess designed by the the  Spanish Tax Authorities is not only causing a great inconvenience to newly established businesses here, but is putting off potential investors into Spain and prejudicing our economy.

Brexit, huh ? Part 1.

Ever since the Brexit vote we have received concerned enquiries from clients as to the impact of Brexit on their personal situation. And of course the answer is, nobody knows yet.

There are already tangible economic consequences within and outside the borders of the UK: the drop in the value of sterling, economists predicting slowed growth,  and EU companies such as Opel cutting staff hours in anticipation of reduced sales in the UK.   All these are based on uncertainty and judgment rather than political reality.

Personally, we remain calm and optimistic. We do not expect an exodus of our Spanish-resident clients, whether self-imposed anticipating Brexit or imposed by the Spanish authorities when (I still prefer to say if and when- see my comments below) Britain finally does leave the EU. We also do not anticipate any significant reduction of migration of British individuals and businesses to Spain after that point.

Here are my opening thoughts which focus on whether Brexit will actually happen. In my next blog I will examine the doomsday scenario of Brexit becoming a reality and what it could mean for all of us.

Will Brexit actually happen ?

So far, all we have is the result of a referendum which in itself is not legally binding under UK or EU law. Leaving the EU is an essentially political decision, with Article 50 to be invoked by the Prime Minister.  And there is currently intense legal debate as to whether this will first need to be approved by an Act of Parliament: think about what that would mean, with a majority of MP´s in favour of remaining in the EU !

PM Theresa May has committed to Brexit but has not given a date for Article 50, and we are getting messages from the politicians, direct and indirect, that this will definitely not happen this year.

I can´t understand why they would want to delay the process.  As we all know, uncertainty can have far worse consequences than actual reality, expecially in the markets.

Following the massive support in an online petition supporting a second referendum with a higher required winning threshold (60% based on a 75% turnout), MP´s are legally required to consider this, and the debate has been scheduled for 5th September. The majority of UK politicians are in favour of remaining in the EU. So it remains a possibility that the government may be forced to run a second referendum. The results of the first referendum suggest that 60% would not be achieved, and I there will be many who woke up of the morning of 24th June with a political hangover thinking “what on earth did I do last night ?”. With the gloomy economic forecasts that followed the result, I think that many already regret their choice and would vote differently in a second referendum.

All the time it is important to remember that Brexit is a political decision.  Any referendums are not legally binding because the final move, and the invocation of Article 50, must be carried out by the government in power. Governments can fall, or lose elections.  If Article 50 is invoked in 2017, and negotiations for Britain´s exit last significantly longer than the minimum prescribed two years, as economic uncertainty and political unrest grows as the negotiations are not going satisfactorily from a UK point of view, we could have the situation where Britain is still in the European Union at the next General Elections, which must take place by mid 2020.  Then with a new government and perhaps a new political party in power (Labour is strongly pro-Europe), the cancellation of Brexit would be a very real possibility.

 

 

Modelo 720- Declaration of Foreign Assets- technical details

 

Further to our general blog post of earlier today, here is some more technical guidance on the return.

Below are excerpts from the FAQs section of the Agencia Tributaria page for Modelo 720 along with our interpretation. The full original text can be found here.  Our translations are a summary of the main points rather than word-for-word.

For further information and assistance, please visit our website.

 

Pension Plans

1. ¿Existe obligación de declarar los planes de pensiones contratados en el extranjero?

No existe obligación de información sobre los planes de pensiones (de las aportaciones a los mismos) en tanto no se produzca la incidencia que da lugar al cobro de la pensión en modo de renta temporal o vitalicia.

Is there an obligation to declare foreign pension plans ?

There is no obligation to declare (the totality of) contributions towards such pension plans as far as nothing happens to cause payment of the pension in the form of an annuity/ regular payment.

Spain Accountants interpretation: Pension plans need not be declared until an annuity or other regular payment is drawn.

2. En el caso de que se lleve a cabo el rescate del plan de pensiones ¿debe informarse sobre la renta que se obtenga?

Si, cualquiera que sea la modalidad del rescate si como consecuencia se obtiene una renta debe informase de la misma.

If a pension plan is cashed in, is it necessary to declare the amount obtained from this ?

Yes, regardless of how the plan is cashed in, the amount obtained must be declared.

Obligations for Spanish companies

Las personas jurídicas y demás entidades residentes en territorio español que tengan registrados en su contabilidad los bienes y derechos en el extranjero de los que son titulares de la forma establecida en la normativa reguladora de las tres obligaciones de información ¿tienen obligación de informar sobre los mismos?

No.

A Spanish entity owns foreign assets and has these in its accounting records. Is it obliged to declare these ?

No.

The Special Regime for Expatriates (The “Beckham Law”)

Una persona física residente en España acogida al régimen fiscal especial aplicable a los trabajadores desplazados a territorio español previsto en el artículo 93 de la Ley 35/2006, de 28 de noviembre, del Impuesto sobre la Renta de las Persona Físicas, ¿tiene obligación de presentar esta declaración informativa sobre bienes y derechos situados en el extranjero?

No

A Spanish resident is registered under the Special Regime for Expatriates detailed in Article 93 of the Income Tax law 35/2006. Are they obliged to declare ?

No.

Revocation of authorisation in foreign bank accounts

Si una persona deja de ser autorizado (se le revoca la autorización) en una cuenta de una entidad financiera situada en el extranjero en el mes de junio de 2012 ¿existe obligación de presentar declaración informativa? ¿en el caso de que exista obligación, cual ha de ser el saldo y la fecha sobre las que se informe?

Existe obligación de declarar si el saldo que existía en la cuenta en la fecha de la revocación de la autorización hubiera determinado la obligación de declarar a 31 de diciembre, junto en su caso con el saldo del resto de cuentas objeto de esta obligación, siempre que no opere ninguna otra causa de exoneración sobre la misma.

If a person’s authorisation in a foreign account is revoked part way through 2014, are they obliged to declare ?

Yes, if the balance at the time, in conjunction with all other relevant accounts, was above the (50k Euros) threshold.

Leaving Spain

Si una persona física se traslada al extranjero una vez iniciado el ejercicio y debe presentar declaración del Impuesto sobre la Renta de Personas Físicas por este ejercicio. ¿Tiene obligación de presentar el Modelo informativo respecto a los bienes y derechos en el extranjero?

Sí, siempre y cuando de acuerdo con la regulación de estas tres obligaciones de información resulte obligado a informar de las mismas.

If a person leaves Spain part way through a year but still needs to submit a residents’ income tax return for that year, are they obliged to declare ?

Yes.

Bank overdrafts/ negative balances on accounts

¿Deben declararse las cuentas con saldos negativos en caso de que existan otras cuentas con importe superior a 50.000 euros?

Sí, deben declararse.

Must negative balances be declared when there are other accounts which total more than 50k Euros ?

Yes.

Exchange rate to be used for foreign property

En el caso de los inmuebles, el valor de adquisición, al igual que en el resto de bienes y derechos objeto de declaración, debe ajustarse al tipo de cambio vigente en la fecha 31 de diciembre del ejercicio al que corresponde la información declarada.

This is quite ambiguous. We assume that it means that the exchange rate at 31st December for the year being declared must be used. So for the 2015 returns, the rate at 31st December 2015 should be used.

As explained in our other notes, the amount to be converted is the cost of the property.

Modelo 720- Declaration of foreign assets – update

 

We have already reached the third year that Modelo 720, the declaration of foreign assets, has been with us.  Judging by the lack on any further information posted on the website of the Agencia Tributaria since last year, nothing has changed in the rules.

After the initial bewilderment and even fear (looking at the kind of fines that the Agencia Tributaria propose for errors in declaration, produced by Modelo 720 when it was first released), I would say that things have calmed down now.  We have not come across any Tax Office fines or penalties,  and it appears from correspondence received from them that they are mainly using the data submitted in Modelo 720 to check that income from foreign assets (e.g. rental income from a foreign property) is being properly declared in Spain- subject to the provisions of the relevant international Double Tax Treaties.

However we continue to advise that those filing this declaration take extreme care to fully and correctly disclose all details. I    wouldn´t want to take any risks with the Agencia Tributaria given their capacity for giving and enforcing sanctions and penalties.

As nothing has changed in the rules since last year, I am copying below our general guidelines and have added some more specific technical notes in a further post.

For more information and guidance, please visit our website

 

Obligation to declare

Spanish residents with foreign assets or income in any of the following categories exceeding 50,000 Euros on 31st December.

  1. Accounts in any kind of financial institution e.g. banks, building societies.
  2. a) Investments/ rights of representation in foreign companies or other entities.                                                                                                                   b) Investments in foreign collective investment institutions (e.g. unit trusts).                                                                                                                         c) Foreign life/ invalidity insurance; income from foreign annuities.
  3. Property and rights to property.

Note that the threshold is for the total value of each of the three categories.

Where assets are jointly held (e.g. with a spouse), it is the total value of the asset which is relevant. A separate return must be submitted for each person.

Presentation deadline

This tax return must be submitted by 31st March following the end of the year in which the taxpayer is obliged to declare.

Frequency of declarations

The Agencia Tributaria guidelines state the following:

After the initial return is presented, a new return must be filed when the total of any category of assets/ income increases by 20,000 Euros or more, either at 31st December or during the last quarter of the year.

Valuation of assets

Property: purchase price;

Investments which are traded on the open market: market value as at 31st December;

Other investments: value on last published balance sheet.

Penalties for non-disclosure

The guidelines mention “minimum” penalties of 30,000 Euros for non-disclosure ! I can’t envisage how such big penalties could be applied, or even if they would be enforceable if challenged under EU law.

Information is, in principle, shared very easily between financial institutions and Tax Offices in both EU and non-EU countries these days; this means that, in theory at least, the figures that you declare can be checked by the Agencia Tributaria.

The Agencia Tributaria FAQ’s imply that even the slightest error, even unintentional (e.g. in a bank account number) will be punished by a minimum fine of 10,000 Euros !

This would appear to be nothing more than scaremongering.  But the fact is, we don’t know.  To date we have not heard from any prospective clients who have received a fine,  so at this point we can only conjecture

For more information and guidance, please visit our website

Andalucia gets tough on holiday rentals

 

Over the last few days the Junta de Andalucia has signalled new legislation that will have a massive effect on owners of Spanish property who rent it out.  The legislation, which is technically an update of legislation from 2010, Decree 194/2010 on Tourist Apartments, will oblige property owners to register their rental activity with the Junta de Andalucia within three months of publication of the new legislation, which is expected to be made in May.

Big fines are proposed for property owners who contravene the new legislation, up to 150,000 Euros for serious offences.

The authorities are expected to target local real estate agencies and internet portals through which a high proportion of Spanish rental bookings are made. It is not clear how the new legislation will affect websites such as Airbnb who have no physical presence in Spain, however any property whose actual address is published on the internet is open to investigation.

There is currently a rise in demand for Spanish holiday rental property, for instance from certain markets such as Russian clients who have are moving away from destinations such as Turkey because of the political outfall from the war in Syria, and Egypt because of terrorist attacks on Russian citizens.

Spain is a safe go-to tourist destination in times of global turmoil and the Spanish Authorities realise that now more than ever, they are missing out on massive amounts of revenue because most property owners are not declaring their rental income.  Forcing property owners to register is likely to be a very effective way of ensuring that they pay tax on their income.

Properties can be registered in the Registro de Turismo de Andalucia on the Junta de Andalucia website at the following link: https://ws072.juntadeandalucia.es/ofvirtual/auth/autnocertjs .

If you are the owner of a property in Andalucia and would like further details in English on the legislation and requirements for the properties to be rented out, then a recommended website is Rental Tonic at www.rentaltonic.com .

If you would like any assistance in the preparation and filing of your rental tax returns then please visit our website at www.spainaccountants.com or contact us at info@spainaccountants.com .

Changes in Spanish tax for the year 2016

 

2016 is the second half of a two-year tax project which was published last year, so there are no surprises from a tax point of view. In this post we am looking at the rates for the year 2016. The tax rates have decreased further this year,

In our blog this time last year we commented that the cut in tax rates was to be expected for an election year. Well although the governing Partido Popular won the general elections in December, it was not enough to gain an absolute majority and Spain is, at this point in time, still without a permanent government. Clearly tax cuts will only take you so far ….

As always, you will find the full updated tax rates and allowances on our tax database starting www/spainaccountants.com/tax.html

Income tax

Tax bands (rates valid for Madrid)

Tax rates have decreased across the board, as follows:

From (EUR) To (EUR) State Tax % Regional Tax % Total Tax %
0 12,450  9.50  9.50 19.00
12,450 20,200 12.00 12.00 24.00
20,200 35.200 15.00 15.00 30.00
35,200 60,000 18.50 18.50 37.00
60,000 + 22.50 22.50 45.00

 

Personal allowances

The 2015-2016 tax project has seen big increases in the personal allowance and children’s allowances:

 Personal allowance

Under 65 years old 5,550 Euros
65+ 6,700 Euros
75+ 8,100 Euros

Children’s allowance

First child 2,400 Euros
Second child 2,700 Euros
Third child 4,000 Euros
Each further child 4,500 Euros

 

The system for calculating the employment-related personal allowance has been changed, as follows:

For taxpayers with salaries of less than 14,450 Euros and other income less than 6,500 Euros, there are the following deductions:

Earnings not more than 11,250 3,700 Euros
Earnings 11,250 to 14,450 3,700  –  1.15625 x (Earnings – 11,250)
Earnings 14,450 + 0

In addition, there is also a general allowance of 2,000 Euros applicable independent of the income of the taxpayer.

Tax on capital gains, savings and dividends

This has been reduced across the board, and in 2016 is as follows.

Capital gains

Residents

First 6,000 Euros:           19%
6,000 – 50,000 Euros:  21%
50,000 + Euros:               23%

Non-residents:                  19%

Savings and dividends

Residents and non-residents

First 6,000 Euros:           19%
6,000 – 50,000 Euros:  21%
50,000 + Euros:               23%

Tax credits and deductions

The tax credit for payments to rent a property, which was applicable to low-earners, was abolished from 2015 onwards.

The  1,500 Euros tax free amount on dividends was also abolished.  Further to the previous abolition of the proportionate tax credit on dividends which was much more beneficial, there is now no tax credit at all given for dividends received from Spanish companies. Although the tax on dividends has been reduced, this is rather harsh from a tax point of view, especially for companies owned by the taxpayer- as there is no compensation for the underlying company tax alread paid- so dividends are actually taxed twice.

Company tax

As of 1st January 2015, the general rate of company tax in Spain has been reduced from 30% to 28% in 2015 and 25% in 2016.

For small and reduced-sized companies, up to 2014 there were which have now been eliminated (as the reduction in the general tax rate renders them meaningless), except for a transitory period in 2015, when the rate is 25%, except for the profit over 300k Euros for medium-sized companies where the tax is 28%.

A company is defined as small if the turnover in the previous year was less than 5 million Euros and the company has between 1 and 24 employees.

A company is defined as reduced-sized if the turnover in the previous year was less than 10 million Euros.

As of 1st January 2015, there has been introduced a new lower tax-rate for newly-formed companies which applies to the first two years in which it obtains a taxable profit. The rate is 15%.

You can find further information on our services on our website www.spainaccountants.com .

Filing of the 2015 income tax returns – Renta

The Agencia Tributaria has now published their calendar for the year 2016. The key dates for filing the 2015 income tax declarations- La Renta, are as follows:

6th April: Tax return software (PADRE) available for download online. Tax returns can be filed online from this date.

25th June: Deadline for filing tax returns where tax is due and to be paid by direct debit (domiciliacion).

30th June: Deadline for filing of all returns.

You can find further details on our tax return filing services on our website www.spainaccountants.com

 

La Renta- 2015 tax calendar (for the tax year 2014).

The Agencia Tributaria has now published their calendar for filing the 2014 income tax declarations- La Renta. The key dates are as follows:

7th April: Tax return software (PADRE) available for download online. Tax returns can be filed online.

25th June: Deadline for filing tax returns where tax is due and to be paid by direct debit (domiciliacion).

30th June: Deadline for filing of all returns.