Modelo 30 and other Spanish tax forms

My firm has just published a major new guide on its website:

Spanish tax forms explained

For anyone living in Spain or with fiscal interests there, should consider bookmarking it for future reference. Besides explaining what all of the most commonly used Spanish tax forms (modelos) are for, it also has links to their downloads.

The first one covered in the guide is the Modelo 30 which is the most commonly used of all the forms, for private individuals - as opposed to businesses - any way. As the guide says this is the form you use to sign up for Spanish tax in the first place. If you become liable to tax in Spain or think you may be due a tax refund (see Getting a Spanish tax refund) then it is necessary to register using this form. The same form is used if you become liable to Spanish NON resident income tax, which all foreign owners of Spanish property or assets probably are (unless they are residents).

A lot of people expect that if they are liable to tax in Spain they will find out soon enough i.e. they will be sent a tax return or demand and take action accordingly. Others think that by obtaining their NIE number or residency certificate, that identifies them to the Spanish tax authorities. Neither is true - the modelo 30 is the only way to register for Spanish tax.

Luckily it is an easy form. We process these for clients but you could do it yourself easily enough. Go to your local Agencia Tributaria and you will see a desk somewhere near the entrance where they hand out tax forms. Ask for a modelo 30 and fill it in there are then. It is relatively untaxing information like name and passport number. One tip is that if you are registering as a couple, you use one form and put a cross in both boxes 101 and 102 on section 1 (the other half is the "conyuge') . Then you fill in one spouse's personal data in section 2 and the other in section 3. Both sign at the end. Simples.

Note that the modelo 30 is also used to modify any aspect of your tax status and it is an offence not to do so. Things that would trigger a modification:

- change of adress (Spanish)

- change of residency status e.g. becoming a resident after previously paying non res taxes

- end of residency e.g. you are leaving Spain and are no longer liable for tax

- change of marital status

Trouble down at the Ayuntamiento

We have all heard about Spain's debt crisis at a national level and the proposed austerity drive, but I have been reading an interesting article in The Telegraph which suggests things may be even worse locally. According to this article - Spain Relying on Short Term Funding as Councils go bust - there is trouble brewing down at the Ayuntamiento (Spanish town hall) in the form of:

- tax revenues down 30% because of the property bust

- 20% cuts in central government funding for municipal councils

- 400 councils across the country not paying water, electricity or phone bills

- "most" councils in Andalucia bankrupt or surviving day to day

A mayor was quoted as saying:

"I am deeply ashamed to know that I won't be able to pay our staff. They have got mortgages, children. What am I supposed to do? We were not able to cover our payroll in June. Neither I nor our councillors have received anything for two years. I've had two heart attacks. My health is cracking. If we cannot solve this, I'm resigning."

Not only are council staff living in fear of not getting paid they are having more work to do. Once council (San Sebastian) has seen a 68% jump in applications for financial assistance in 4 years. Managers are calling for more resources and staff although everyone else is calling for councils to shed staff and costs as part of the solution.

Little surprise then that the councils have their begging bowls out. FEMP (the local government association) has demanded 3 billion € from the government to see cash-strapped authorities through. This would be in the form of easy credit. Councils already had racked up debt of €35 billion by the end of 2009.

Is debt the Spanish national disease? Or is it an addiction that is proving painful to kick? The truth is that Spain's position is similar to most of the rest of the Western world from Washington to London to Tokyo. The "solution" to the original economic crisis was more borrowing at national level, and we now seeing this false comfort slipping away.

latest article at Advoco.es:

Contracting in Spain

Are Spanish self employed / autonomos overtaxed?

As a British accountant operating in Spain I sometimes feel the need to defend the Spanish tax system against accusations of (a) unfairness and (b) expensiveness.

At times that is a bit like trying to defend a war criminal or the English back four's performance in that World Cup defeat to Germany - because it is indefensible. Mostly though it is the Social Security system that is the real villain not income tax. There are two main problems with social security in Spain:

autonomos (Spanish self-employed) have to pay a minimum of 250€ before they can legally operate and this does not go down even if they earn a big fat €0 during any given period. A big disincentive that I have talked about before on this blog (Spain won't recover without encouraging its autonomos). But there is at least some leeway - see this article lower rates of Spanish social security in our Autonomo guide.

Also employers have to pay a whopping 30% or so in NI contributions making it ludicrously expensive and risky to hire anybody.

At least you get something for social security - health and pension rights. But what about Spanish income tax? When self-employed clients or small businesses start rolling their eyes at all the tax they must pay on top of those nasty social security contributions, I have to remind them of a few points:

- the contributions themselves are set against the self-employed's taxable income (thus reducing the effective cost of social security by up to 43%)

- the UK's top rate is now higher than Spain's (50% vs 43%)

- Spain's allowances are more generous (see Spanish tax rates)

- there is more scope to create tax efficiencies in Spain. Say no more.

Part of the resentment about autonomo tax comes from a misunderstanding of retenciones and the quarterly income tax that the self-employed have to pay. Without going into all the details, besides social security, autonomos must pay income tax every quarter and (sometimes) suffer a sort of PAYE on their invoices, where the customer deducts up to 15% and pays it to the tax office. But both of these types of tax are kinds of advanced income tax and the autonomo gets credit for them when they do their tax returns. Retenciones are offset against the quarterly tax bill and that in turn is credited against any tax payable when the annual Renta tax return is due. Quite often this can mean a tax rebate to the self-employed taxpayer.

That's enough defending the taxman. I can't keep it up for long.

What England can learn from Spain's World Cup triumph

As the final whistle blew and Spain were crowned world champions for the first time, the cacophony of fireworks and horns began and didn't end until late into the night. As an England fan living in Spain my feelings were mixed: happy that my host country were in ecstacy, delighted that the best and most classy team won and also more than a bit jealous. It might have been bearable if England had at least got close and suggested they were possible contenders next time.

But England fans had better resign themselves to the drought between world cups going on for a while yet - they fell well short this time when pitched against one of the big countries and at times looked pedestrian even compared to the relative minnows like Slovenia.

If you look at the background and style of Spain's success there are two important lessons for England to learn if they are ever to be serious challengers again:

- Spain had class throughout the team but it's undoubted strength was in the midfield where they were so strong that even Fabregas was only used as a substitute. But also look at the type of midfielder they had and what they did - good on the ball, passed along the ground, kept possession, protected the back four, linked play. England has star names in midfield but they are almost all attacking types more intent on rushing forward than doing either the protecting role that players like Alonso, Schweinsteiger and Mascherano did for their teams or the linking/passing role that Iniesta and Xavi did so well. England haven't had a central midfield "string-puller" since Gazza and without one they will always struggle. How to produce such players?

- It has long been recognised that English coaching of young talent overemphasises competitive action over technique and the FA have been trying to address it. But looking at the young Spanish squad it shows just how far they have to go. The world cup win was a triumph of the Spanish youth development particularly that of Barcelona which provided the nucleus of the squad (including Fabregas who came from the club's cantera or quarry as they call the youth set-up). It's hard to see English clubs replicating this success without a firm incentive to produce English talent. Man U and Arsenal invest in youth but scour the planet for the raw material. If every PL team had to field 4 English players then suddenly they would be desperate to bring English kids through specifically. Young players like Jack Wilshire (a possible future "string-puller") and Adam Johnson would get more opportunities when they do break through.

It's got to happen or England can forget about enjoying what Spain has just done for decades.

From the Advoco website - contracting in Spain

Getting a Spanish tax refund

There aren't many nice things about being a tax accountant. It's not a great ice-breaker at parties and you sometimes feel a bit like a dentist or a doctor delivering bad news when you have reckoned up someone's liability and have to tell them. But then there are those lovely occasions when your client gets some money back and you get the "shoot the messenger" syndrome in reverse ("hug the messenger"?) because they are so surprised and grateful.

This scenario is particularly rewarding when you have come up with the idea that got the tax refund in the first place and the recent Spanish tax reporting season threw up some good examples of this.

Refunds can only occur when someone has paid too much tax during the year and they have submitted an annual tax return after the year is over which proves as much: the Agencia Tributaria will credit their bank account with the difference. What I mean by "paying too much tax during the year" is that the Spanish government take automatic retentions of tax from people's income as it arises and, as this is done on a flat rate taking no account of people's personal circumstances, too much can be taken. Examples of such retention payments taken by the government are:

- % deductions of bank interest

- retentions from salary (like PAYE in England)

- deductions from dividends paid by companies

- retentions paid on self employed earnings

- rental income retentions

The most common reason why people find they have paid too much out in retentions is that they have low income overall compared to their personal allowances (tax free income allowance). This often happens when people start work or start a business part way through the year so they get a full year's personal allowances to use against a part year's income. Also a married couple can claim the higher Spanish married couples allowance when only one of them is earning.

Such refunds are one good reason why it can often pay to do a tax return particularly if you take advantage of all the allowances available to you. There are allowances such as for young children (under 3) and against rent paid that can lead to a tax refund in the right circumstances.

Anyone wanting more details of how the Spanish tax system works should check out the Advoco page Spanish Income Tax 2010.

Residency for non-EU nationals through marriage

One of the most common enquiries we get is from married couples settling in Spain seeking to establish residency where one is an EU national and one isn't. There is no problem getting residency for someone outside the EU on this basis, at least not in law, but it can be tricky in practice.

In theory the procedure is as follows:

The EU citizen gets residency first in the normal way (see the Advoco guide toSpanish residencycertificates). This is simple and will result in one half of the married couple having their residency certified with a green A4 page stating that they are on the Register of Foreigners and showing their NIE number.

Next the non-EU spouse has to apply for residency but in there case they are asking for a residency card rather than a certificate. They use the same application form EX16 (downloadSpanish residency application form here) but it is a tougher process. For a start they probably cannot simply go to the local police station but may need to make a prior appointment at the main provincial Oficina de Extranjeros. They also have to produce more documentation (detailed on page 2 of the form) but principally - and naturally enough - they need to show a marriage certificate. This guide by the British embassy in Madrid makes this sound a very complex process:

http://ukinspain.fco.gov.uk/en/help-for-british-nationals/living-in-spain/marriage-in-spain/foreign-marriage

But in my experience dealing with the Malaga authorities, they are happy to accept certificates without a supplementary certificate from the Embassy and without being translated into Spanish. I have been assured that if the original language is in English or French then they don't need to be translated. The problem is that Spanish officialdom is not always consistent so don't be surprised if the translation suddenly becomes essential.

A more serious issue arises with certificates for marriages made outside of the EU altogther. EG because the couple did a romantic wedding in the Carribean or wanted to marry in the non-EU partner's home country. The authorities in Spain will definitely then want to see something that shows the marriage has legal force in the EU e.g. if a Brit marries a Australian in Antigua they will want to see that the certificate represents a valid marriage in Britain and this the whole EU. This will definitely involve a supplementary certificate from the relevant Embassy and, as the British Embassy link shows, this may open up other requirements. For example the guide talks about stamps from the Spanish embassy or consulate in the country where the wedding took place.

In summary, my advice would be to try and get residency without a translation/special stamps only if the marriage certificate is in English or French and is from an EU country. In other cases consult the embassy of the EU spouse. If you are planning to marry outside the EU do your research before you do so on what the rules are for the country of the wedding.