Spanish taxman says "Stand and deliver"

What an absurd song that was! Good fun video though. Certainly more fun than the tax nightmares that have been visited on innocent property owners in the Valencia province recently.

I read about this story on the Costa Blanca News website and am indebted to their reporter Tom Cain for his diligent reporting of this unpleasant situation which seems to be confined to Valencia at the moment. According to the article, property buyers are being hit with back tax demands, sometimes running into the thousands of euros.

Click on the link for the full story - Expats hit hard by property tax probe - but in essence it relates to the tax you pay on purchase of a Spanish home. This is commonly called "stamp duty" by expat buyers and does work like UK stamp duty except that the % you pay is higher - between 7-8% of the purchase price depending where you are buying.

Another difference with the UK is that tax avoidance is rife on property transactions where the sale price in the contract often bears no relation to the actual price agreed. This allows the buyer to save on stamp duty and the seller to reduce their capital gains tax liability. The difference is usually made up in cash and can run into tens of thousands of Euros.

The tax authorities have always known about this practice (it would be impossible not to being completely routine in some areas) but have usually been content to accept it so long as the declared contract price is not too much lower than expected market value. But in recent years some cash-strapped regional governments have sought to levy extra stamp duty on transactions they think have been falsely undervalued.

The article here talks about highly retrospective charges though running into the thousands with very little apparent justification in terms of valuations being too low. Hopefully it will be just something that applies to Valencia and will spread no further but it certainly should give property buyers cause to think twice before committing. Not exactly what Spain needs right now - another reason for foreigners to lack the confidence to buy property here.

See also on our main website - Spanish property taxes for non-residents

Spanish tax advice that could cost you dear

As I am sure the whole of Spain knows by now the annual tax return season has just ended. The Spanish tax office (Agencia Tributaria or more colloquially La Hacienda) have issued some interesting stats about the tax campaign which I have summarised below. But before coming onto that, I must point out an error on a website popular with ex-pats (Euroresidentes.com) which could have serious repercussions if anyone believed it. They say, in answer to the question “I am a foreign resident, I live in Spain and receive a monthly pension from England. Do I have to declare tax in Spain?”:

No. If you collect your pension in England must comply with tax laws of that country with respect to their income. Only people who have a job or a pension in this country have to declare that income in Spain.

This is absolutely incorrect as we describe on our website: Do I have to do a Spanish tax return?

Anyone who is tax resident in Spain – generally those living here more than half of a calendar year – has to do a tax return and declare all their income including income earned outside of Spain. The only exception is if this income falls below certain levels (see Spanish income tax rates 2011 for these) or if the overseas income is exempt from Spanish tax. There are few such exemptions, the most common being income from a “crown” pension (basically a UK government pension which is, because of the UK-Spain tax treaty, taxed only in Britain).

So I hope no one has read this kind of advice and decided they don’t need to do a tax return because they have no Spanish job or pension. If for example they are living off foreign savings (e.g. offshore bank account interest) it is highly likely that not declaring will come back to haunt them. It is also worth noting that all foreigners who become Spanish tax resident should declare in the first year of becoming resident regardless of the sources or level of their income.

As for the Hacienda’s stats (see Agencia Tributaria website), these revealed:

The average wage declared on tax returns was 22.596€. Given that the law paid do not have to do returns the average wage of all Spanish people must be a lot lower.

2/3 of taxpayers had wages less than 21.000€ a year. Only 3,8% declared gross salaries in excess of €60.000

There were around 1.5 million business declarations and 600.000 autonomos declaring

About 12.7 million declarations were made seeking a tax rebate and so far 6.2 billion € has been returned to taxpayers

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