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Spain and offshore assets 


As the Spanish government seeks to increase tax revenue, it has set its sights firmly on offshore assets. This particularly affects expatriates living here as they tend to own assets outside Spain, although it has also caught out Spanish nationals

The tax authorities have been building up their arsenal to fight tax evasion. The international move towards automatic exchange of information will now provide much more data on undeclared or misrepresented foreign assets and income.

There is absolutely nothing wrong with owning assets outside Spain, but you do need to ensure you fully declare them according to Spanish legislation. It is also worth reviewing your assets, with the help of an experienced tax specialist, to ensure they are in the most tax efficient vehicles for Spain. In spite of all the measures to increase tax revenue, Spain can still provide tax advantages for UK nationals living here if you have the right advice.

Residents of Spain are liable to tax on their worldwide income and gains. Worldwide assets also need to be assessed for wealth tax.

The government is aware that some people who meet the Spanish residency criteria do not declare themselves as such. The tax agency, the Agencia Tributaria, has been cracking down on this, for example by looking through utility bills and lists of foreign children registered in local schools.

Over the last couple of years we have been hearing more evidence that the tax authorities are using information received from abroad and writing to residents suspected of having undeclared funds abroad, in order to bring this money into the Spanish tax system.

A Voluntary Disclosure Procedure, a type of tax amnesty, was available last year to encourage taxpayers to regularise undeclared assets.

As reported by Expansion this July, the Agencia Tributaria is following this up by sending official requests to those who used the facility, asking for proof of the source of the funds declared or clarification on discrepancies with the data already on file. The requests are more numerous and detailed than before. Regular taxpayers are also being targeted.

The article concluded: “It is clear that offshore assets are being targeted for full investigation.”

The government promised to get tougher after the amnesty, and at the end of October 2012 published its new anti-tax fraud law. This included the obligation to report all assets and rights held outside Spain on Form 720.

According to the general guidelines of the 2013 Tax Control Plan, the tax office will look at taxpayers who did not submit Form 720, but who appear to conduct transactions abroad that imply that they do have assets and rights outside Spain’s borders.

Speaking in May, Prime Minister Mariano Rajoy said that 131,411 taxpayers had submitted Form 720, declaring assets worth! €87 billion.

According to GESTHA, the union of tax inspectors, this is a very low number since there are around 2.6 million foreign residents alone, the group most likely to have overseas assets.

This was reported in an article on the Sur in English website on 12th June 2013. José María Mollinedo, Secretary General of GESTHA, told the newspaper that this was a failure of the government’s awareness campaign for foreign nationals, many of whom did not find out about the obligation on time.

He said the government will now “seek to focus more on foreign residents in Spain, especially those from the US and those from EU member states”.

Spain has signed an intergovernmental agreement for automatic exchange of information with the US under its Foreign Account Tax Compliance Act (FATCA). EU Directives, soon to be widened, also provide for automatic sharing of information.

Along with its fellow G5 members the UK, France, Germany and Italy, Spain announced a new pilot scheme for the multilateral, automatic and standardised exchange of tax information in April. The Ministry of the Treasury pointed out this would also enable checks on information related to overseas assets.

In September the G20 pledged to introduce automatic exchange of information as a global standard.

All in all, it is really only a matter of time before the authorities discover undeclared foreign assets.

With the new asset reporting rules, the penalties for non-disclosure can be devastating. The tax authorities effectively have no limit as to how far they can go back to assess tax. When you add the various tax rates, penalties, interest and fines, it could add up to more than the value of the asset.

While this all sounds very worrying, it need not be. With expert professional advice you can structure your assets to be both tax efficient and fully compliant in Spain, and so that Form 720 need not be such a concern in future.