In previous Posts I have spoken about what I call ‘the million dollar question’: I have Spanish residency, but am I a fiscal resident or not?
This is the ‘million dollar question’, as they say colloquially.
As a reminder: if you live in Spain for more than half of the year, for all intents and purposes you would be considered a TAX RESIDENT. Therefore, you have to count all of those days that you have been in Spain, up to December 31st of the year in question.
For example: we are in January 2020. What category should you be in? On the 31st December of 2019, did you spend a total of 6 months of that year in Spain or not? If the answer is ‘yes’, welcome to the wonderful world of TAX RESIDENTS.
When you are in Spain for the first time, you can say that you are in fiscal limbo.
AND WHAT IF YOU DO NOTHING? IF YOU DON’T TAKE ANY ACTION? IT MAY EVEN BE THAT YOU HAVE BEEN IN SPAIN FOR YEARS AND HAVING NEVER FILED A TAX DECLARATION YOU HAVE NEVER RECEIVED A LETTER FROM THE TAX OFFICE/HACIENDA
As I have already mentioned in another Post, the normal situation initially, is to be a NON-TAX RESIDENT (filing a 210 tax form every year if you have property).
PLEASE NOTE: If you don’t have a property, and for example you live in rented accommodation, you don’t have to do anything.
A TYPICAL CASE
This is the usual situation that we come across: Clients buy a home in Spain, and they come occasionally. But they do not file any non-resident’s tax declarations. They do not receive any letters. And finally, the time comes when they are RESIDENTS (take note, not tax residents, just declaring residency at the police station).
These people are in limbo, and here begins the problem.
“What the fiscal system does is: They cross check information.”
HACIENDA (INLAND REVENUE) COMPUTER: CROSS CHECKING OF INFORMATION
What the fiscal system does is: They cross check information.
In the computer system of the Tax Office (Inland Revenue) in Spain, there is information from all of the countries that make up the EUROPEAN UNION. An exchange of information exists, in such a way that in the Spanish database there is information about the pensions that are received in other countries. They cross check the foreign homeowners in Spain with the pensions in other countries. (They find the homeowners through the Cadastre)
If you appear in the system, but you are filing your declarations as NON-TAX RESIDENTS, you will most likely go unnoticed. However, if you appear in the system and you are not filing any declarations as a NON-TAX RESIDENT, they will send you a letter that could make you dizzy when you receive it.
Why? Because they are going to consider that, if you have taken out RESIDENCY at the police station, if you are domiciled in Spain, you are a TAX RESIDENT, and therefore, you have to declare taxes here on all the income you receive from everywhere around the world, especially, for the income you receive in your country of origin .
The figure you receive in the letter can be dizzying. And the thing does not stop there, you have to understand that they can go back 4 years, which can lead to a scandalous amount. I would not be deceiving you if I were to tell you that we have had a client who received a tax demand for more than € 6,000 for a single year (and this figure was before the fines and surcharges). Imagine the dire consequences of this.
It is at this moment when you are the one who has to PROVE that YOU ARE NOT A TAX RESIDENT, and start fighting against the heavy machinery of the Spanish Hacienda.
It is you, who has to prove that YOU ARE NOT A TAX RESIDENT HERE. And of course, the proof that you present will have to be evaluated by them. And if they do not consider the proof sufficient, they will go ahead and demand full payment, even if you appeal, the appeal and fight against these actions does not suspend the immediate payment demand.
Therefore, the picture is as follows:
– A HIGH FIGURE TAX DEMAND
– IF THEY ARE NOT ACCEPTED, YOU HAVE TO PAY
– EVEN THOUGH YOU APPEAL, YOU HAVE TO KEEP PAYING
– IF YOU DON’T PAY, THEY WILL EMBARGO YOUR BANK ACCOUNTS, PROPERTY, AND VEHICLES IN SPAIN
– IF YOU FINALLY WIN THE APPEAL, THEY WILL RETURN ALL THE MONEY YOU HAVE PAID
By now you will have realised that this is a nightmare (lasting months, and even years). And you need to know that once they start with one year, another three are on the way on the same terms
PROOF OF NOT BEING A TAX RESIDENT
In principle, the main proof they require is a CERTIFICATE OF TAX RESIDENCY IN ANOTHER COUNTRY. It seems easy right? However, trust me when I tell you that depending on which country is involved, these certificates are not easy to come by. Also, you have to take into account that in the letter you receive from the hacienda, they only give you 10 or 15 days to present said Certificate.
In the event that said residence certificate cannot be obtained, you are the one who has to prove you are a residence outside of Spain, by providing the evidence or indications that you consider appropriate (registration on the polling list, proof of children’s schools, possible rent payments, receipts of electricity, telephone bills, etc …), proof that you live outside Spain.
A TYPICAL AND REAL SCENARIO OF MANY OF OUR CLIENTS
They live here more than half the year.
They have a residence permit.
They are taxed in their country of origin, an acceptable amount.
If they were taxed here, they would pay much more.
They really want to be TAX RESIDENTS IN THEIR COUNTRY OF ORIGIN.
But legally, THEY ARE CLASSED AS TAX RESIDENTS HERE.
What do we do with a client with this profile?
What you are asking for borders on, to express it in some way, the interpretation of the law, since in this instance the key is being able to prove that you live more or less than half the year in Spain, and of course, that is something ONLY YOU KNOW THE ANSWER TO.
If you are in the limbo that I have explained before, the most obvious is that if you do not want to receive surprise letters, at least file your tax declarations as a NON-TAX RESIDENT. That does not guarantee that you won’t be inspected, but you will have far fewer chances.
And if you receive an Inspection or verification, you will have to fight it with the means of proof that I have already mentioned. But get ready for a HARD BATTLE.