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The entry into force of the Law on Measures against Tax Fraud (Law 11/2021 of 9 July) has meant a turning point in the taxation of non-EU non-resident taxpayers in relation to their assets located in Spain.

With the entry into force of this law, the taxation of non-EU non-residents is equal to the taxation of EU non-resident taxpayers, being able to pay Wealth Tax according to the autonomic legislation where the assets of greater value are situated, and there may be interesting tax benefits in comparison with national legislation (Disposición Adicional 4ª de la Ley 19/1991).

For further information, please do not hesitate to contact our team at info@mdgasesores.com.

Leticia Cayuela and Jesús Raya

Tax Compliance Department

We are writing this post on the occasion of the publication of the new Law 11/2021, of 9 July, on measures to prevent and combat tax fraud. This law introduces regulatory changes that affect taxation, which we highlight below:

1. The system of surcharges for late filing without prior notice is modified: according to (article 27.2 LGT): An additional 1% + 1% is established for each full month that the self-assessment or declaration is submitted late for the first 12 months, in the case of more than 12 months, 15% + interest is established.

2. Tax statute of limitations: For all tax returns for which the statute of limitations expires after 01/07/2021, the 78 days of suspension of the tax periods due to the pandemic are no longer counted.
3. Modification in the reduction of penalties:

• Conforming Minutes:

o   If the settlement is not appealed: The penalty is reduced by 30%.

o   If the settlement & penalty is not appealed and is paid in the voluntary period: the penalty is reduced by 40% on the amount already reduced by conformity.

o   If the penalty is appealed: the penalty is reduced by 30% but the 25% reduction will not apply.

• Minutes with agreement: reduced by 65%.

4. 4. Obligation to report on virtual currencies located abroad in model 720.
5. Taxes on Inheritance and Donations/ Wealth tax / Transfer tax: the taxable base will be calculated on the basis of the market value. In the case of real estate, the market value will be the reference value indicated by the Cadastro Inmobiliario on the date of accrual.
6. Tax on Economic Activities:

• Both resident and non-resident individuals are exempt from tax.
• When the entity forms part of a group of companies, the INCN (Net Turnover) will refer to all the entities belonging to that group, irrespective of the accounting consolidation obligation.

7. The maximum amount that can be paid in cash is reduced to € 1.000however when the payer is an individual who can prove that he/she is not resident in Spain, the amount paid in cash may be € 10.000.

Should you have any questions, we remain at your entire disposal.

MDG Advisors Team,

We would like to inform you that yesterday, 27th April, Decree-Law 7/2021 of 27th April was published in the Extraordinary  BOJA number 37, reducing the rate of Transfer Tax and Stamp Duty Tax (also known as “ITP/AJD” in Spanish) to boost and reactivate the economy of Andalucía in the face of the crisis situation caused by the coronavirus pandemic (COVID19).

With exclusive validity for taxable events accrued from the entry into force of the Decree-Law (today, 28th April) until 31th December 2021, the current scale of the Transfer Tax is replaced by a single rate of 7%.

Likewise, with exclusive validity for taxable events accrued from the entry into force of the Decree-Law (today, 28th April) until 31th December 2021, the rate applicable to the Stamp Duty Tax becomes 1.20%.

It is undeniable that BREXIT is deeply changing trade relations between EU countries and the UK, and in tax matters this change is not far behind.

 

Today we would like to report on a specific case of change in taxation in Spain that may affect certain structures of British companies and partners with real estate property located in Spain.

 

For some years now, the Spanish Tax Agency has maintained the criteria of imputing real estate income at market value to non-resident companies with a property in Spain, when the non-resident shareholders and/or administrators use the property for private purposes. In other words, due to the mere availability of the property, the non-resident entity will have to pay taxes on this imputed income.

 

In order to justify this taxation, the Directorate General for Taxation, on its the binding consultations, first refers to the Double Taxation Agreements to determine whether this income can be taxed by the Spanish government. Thus, in the case of the Double Taxation Agreement between Spain and the UK, we see in Article 6 that the Spanish State may tax income derived from the direct use of immovable property located in Spain, when the ownership of shares directly or indirectly entitles the owner of such shares the right to enjoy the immovable property.

 

Consequently, income derived from the use of the property may be subject to taxation in Spain, as is also regulated internally in Article 13.1.g) of the Non-Resident Income Tax Law, where the following, among others, are considered income obtained in Spanish territory: “g) Income derived, directly or indirectly, from real estate located in Spanish territory”.

With regards to the valuation of this income, since shareholders and/or directors are related parties with respect to the non-resident company, all transactions carried out between these related entities will be valued at their market value. Market value shall be understood as the value that would have been agreed by independent parties under conditions that respect the arm’s length principle.

Therefore, in accordance with the above, the non-resident company will obtain taxable presumptive income in Spain from the use of the property by the shareholders and/or directors.

This taxation, until 2020, was 19% for British entities as an EU member state with full deduction of expenses related to the property. After BREXIT, the United Kingdom no longer belongs to the European Union, and therefore, with effect from 01st January 2021, the taxation rate will be 24% on this presumed income due to the fact of having the property located in Spain, with NO deduction of expenses.

Therefore, British entities, after the BREXIT, have been seriously harmed in terms of taxation in this case by seeing their taxation increased by 5 percentage points, and the impossibility to deduct any expense. At MDG Advisors, we offer our services to check and analyse the new situation of British entities that are affected by this fact. Please contact us if you are in this situation so that we can assist you as soon as possible.

 

Relocating to Spain and getting lost with all the paperwork to be made? Let your hair down, we will assist you with all the necessary changes, so you can enjoy the weather and sunshine 🙂

 

Our helpful soft-landing service will make you to resolve the following (and numerous) issues:

 

a) Obtaining Social Security number

 

This step is the very first thing that we will help you with. IN order to sign your employment contract with your company, you will need to have the Social Security number.

 

Such number will provide you coverage in the Public National Health system in Spain.

 

b) Applying for residence (“Certificado de Registro”)

 

NIE is required in Spain for almost all paperwork. As soon as your employment contract is signed, we will be able to start the process.

 

c) Changing your tax residency to Spain.

 

In Spain, any person staying in the country for 183 days or more in a calendar year, is considered as Spanish Tax Resident.

 

The fact of obtaining a “Certificado de Registro” does not imply to change the tax residency country and therefore, in order to avoid any future misunderstanding with the Spanish Tax Authorities, we will inform them upfront of your new tax situation.

 

d) Opening a bank account

 

Your new company will be likely to require and Spanish IBAN in order to make the monthly payslip payments.

 

Due to the language barrier, as well as lack of contacts, opening a bank account in Spain can turn into a complicated matter for an expat, and therefore, if needed, we can put you in touch with the right person to complete the process.

 

e) Registration in the local Town Hall (“padrón”)

 

Once you have found your property, we can help you with your registration in the Town Hall. This will help you to receive the post correctly, and will make you appear on the Town Hall records.

 

f) Tax obligations in Spain.

 

When becoming tax resident in Spain, you will have to deal with some of the following tax obligations:

 

Model 100: Personal Income Tax declaration to be submitted between April and June each year.

 

Model 151: Personal Income Tax declaration for individuals accepted under the Special Regime for expats (commonly known as “Beckham Law”)

 

Model 720: informative tax declarations for individuals with assets abroad for a total value of Euros 50,000 or above

 

We will be pleased to assist you also with your tax obligations in Spain.

Relocating your business offers many benefits, yet also comes with its share of business challenges: designing systems and processes, managing cash flow, securing the appropriate talent and training staff at large, etc. Another consideration exists that is just as critical – especially since it often presents unforeseen issues: Compliance.

Failing to remain legally compliant can unleash a huge of serious consequences for businesses, including reputational harm, administrative sanctions or company responsibility.

To prevent such consequences, it helps to have a list of the common steps that new companies in Spain may take into consideration:

• Setting up a Company

 

Once the decision of relocating into Spain is final, the main actions to take are:

 

• Asking for shareholders and director’s NIE number, or NIF instead (check this point in section 2), in case of being foreigners.
• Possibility of giving a power of attorney to your lawyer or tax advisor to speed this proceeding, mainly during these transitory times that travelling is not easy.
• Asking for the possible company name before the Central Mercantile Register. 5 possible names are needed for this proceeding.
• Prepare the complete data of the shareholders and directors of the company. Also, the share capital (deposit in a bank account, cash, any asset…) and the mainly social activity, so the Notary can make the draft of the title deed quickly and efficiently, ready to sign in the moment the client wishes.
• The Notary or tax advisor itself, will ask for the provisional Fiscal Identification of the company before the Tax Agency.
• Bringing the title deed to the Mercantile Register to its registration.
• Consider this operation may take between 2-3 weeks to be completed, bearing in mind possible difficulties (Notary’s appointment, delays in the registration before the Mercantile Register).
• And finally, bearing in mind the costs involve Notary and Mercantile Fees, along with your tax or legal advisors’ fees, to mention the principle ones.

 

• Obtaining a NIF for tax matters, no need of NIE

 

For some Tax purposes, there is no need to obtain a NIE number, it is enough the ID number that the Tax Agency provides only for these situations.

 

Donations, Inheritances, property transactions… all these taxable operations can be easily fulfilled by your legal or tax advisor with no need of a power of attorney.

 

Therefore, this NIF (Fiscal Identification Number) will give the client the possibility of not moving into Spain. There is no need of being physically here neither granting a power of attorney, with an authorization would be enough. Your advisors will take care of this proceeding on your behalf.

 

Quite important could be this NIF for companies to be established in Spain, whose holding is a foreign company. This foreign company will also need this kind of Identification number to complete the setting up of the Spanish company, so the Tax Agency has a registration of the holding.

 

• Compliance for starting companies

 

Starting a new company in Spain can involve many administrative proceedings. For tax matters and to be compliant, you can find here the first steps the new company will have to take care of:

 

• Submit Model 036 (Census declaration) of registration before the Tax Agency and the main tax obligations of the company, and ask for the definite ID of the company. Not being correctly registered can produce administrative sanctions.
• Important to ask for the registration of the company in ROI/ VIES (Census of intracommunity operators) to be able to issue and receive invoices with no VAT in the corresponding situations. This is a formal condition, but needed before the Tax Office to avoid any unpleasant inspections.
• Request your tax advisors for the information about the monthly/ quarterly tax obligations your company may have (VAT declarations, retention on payslips declarations…). It is important to give all the useful information to your advisors, so they will be able to complete your tax obligations efficiently and again, avoiding possible sanctions and tax inspections.
• Also, ask for the social security costs of your employees monthly paid. This is an important cost, together with salaries, that every company needs to control carefully. There can be sanctions by the Social Security Office if the labour matters are not correctly fulfilled.
• Collect and save in a secure file all the invoices and documents produced every month, to have a finance and accountancy control of all inputs / outputs.
• Finally, bearing in mind every Spanish company has 3 main mercantile annual obligations: prepare and submit Corporate Tax, prepare and submit Accounting Books and Annual Accounts. Even if a company is dormant, it will have these 3 obligations that will not be able to avoid, until the company is liquidated.

 

All these steps may prevent surcharges and sanctions before the Tax Agency, so we always recommend to have well informed your tax advisors and ask your questions with every change it may happen.

Spain is commonly known as a country full of bureaucracy. Regardless the current COVID-19 crisis has led to a structural change, the reality is that public administrations in Spain still require loads of paperwork, especially in the business activities.

Companies and freelancers have to comply with numerous obligations, not only on the tax side, but also on the accounting, legal and corporate ones.

We summarize below main obligations (but not the only) that all companies need to look at when running business in Spain.

 

• Registration
• Tax payer census: if you are an individual you will have to register within the Tax Office records by submitting Model 030.
• Obtaining NIF: all companies operating in Spain need to submit an application (Model 036) and request a NIF from the Spanish Tax Authorities. BY doing that, the Spanish Inland Revenue ensures that all entities are within their files.

 

• Social Security: no matter if you operate through a company with personnel or as a freelance, you will have to inform upfront the Spanish Social Security.

 

• Electronic notifications: all companies in Spain must register on the electronic notifications system. In order to do so, it is required to obtain a digital certificate beforehand.

 

• Tax

 

• Model 036 or 037: before starting any economic activities in Spain, any company or freelance need to inform the Tax Office of what activities will be developed and the tax obligations that will apply by submitting an informative tax declaration called Model 036 ( Model 037 can be submitted by freelancers).

 

• VAT declarations (Model 303): depending on the type of activity, you may be required to submit VAT forms on month, quarter and/or annual basis. There are various VAT declarations (Model 303, Model 349, Model 390)

 

• Withholding tax declarations (Model 111, Model 216,Model 115…): In Spain, withholding tax is to be applied in numerous occasions. The payment of the withholding tax should be done by submitting different types of declaration.

 

• Corporation Tax (Model 200): all companies in Spain need to submit an annual Corporation Tax declaration, in order to report their results and financial statements to the Tax Authorities.

 

• Personal Income Tax (Model 100/151): all individuals (including freelancers) need to submit once a year a Personal Income Tax declaration, reporting their economic and personal situation.

 

• Accounting

 

 

All companies must maintain their accounts according to the Spanish Accounting Plan, using a double entry system.

 

The accounts of a company should show the true image of its activity through its financial statements, which include Balance Sheet, Profit and Loss Account and Cash-flow Statement, amongst others.

 

Any company must legalize Annual Accounts once a year at the Trade Register.

 

The information legalized at the Trade Register has public access and therefore, anyone can obtain a copy of the Annual Accounts of any company operating in Spain.

 

• Other legal obligations

 

• Data Protection Law: This legislation is mandatory for all companies/freelancers that collect and store data from individuals. The aim is to guarantee and protect, with regard to processing of personal data, public freedoms and fundamental rights of individuals.

 

• Risk Prevention Law: Companies and freelancers who have employees in charge need to design a prevention plan that carry out the necessary actions to avoid accidents in the workplace.

 

• Business Opening License: required procedure with the Town Hall, to ensure that the activity complies with the requirements and conditions established by the regulations.

Spain is commonly known as a country full of bureaucracy. Regardless the current COVID-19 crisis has led to a structural change, the reality is that public administrations in Spain still require loads of paperwork, especially in the business activities.

 

Companies and freelancers have to comply with numerous obligations, not only on the tax side, but also on the accounting, legal and corporate ones.

 

 

We summarize below main obligations (but not the only) that all companies need to look at when running business in Spain.

 

• Registration

 

• Tax payer census: if you are an individual you will have to register within the Tax Office records by submitting Model 030.

 

• Obtaining NIF: all companies operating in Spain need to submit an application (Model 036) and request a NIF from the Spanish Tax Authorities. BY doing that, the Spanish Inland Revenue ensures that all entities are within their files.

 

• Social Security: no matter if you operate through a company with personnel or as a freelance, you will have to inform upfront the Spanish Social Security.

 

• Electronic notifications: all companies in Spain must register on the electronic notifications system. In order to do so, it is required to obtain a digital certificate beforehand.

 

• Tax

 

• Model 036 or 037: before starting any economic activities in Spain, any company or freelance need to inform the Tax Office of what activities will be developed and the tax obligations that will apply by submitting an informative tax declaration called Model 036 ( Model 037 can be submitted by freelancers).

 

• VAT declarations (Model 303): depending on the type of activity, you may be required to submit VAT forms on month, quarter and/or annual basis. There are various VAT declarations (Model 303, Model 349, Model 390)

 

• Withholding tax declarations (Model 111, Model 216,Model 115…): In Spain, withholding tax is to be applied in numerous occasions. The payment of the withholding tax should be done by submitting different types of declaration.

 

• Corporation Tax (Model 200): all companies in Spain need to submit an annual Corporation Tax declaration, in order to report their results and financial statements to the Tax Authorities.

 

• Personal Income Tax (Model 100/151): all individuals (including freelancers) need to submit once a year a Personal Income Tax declaration, reporting their economic and personal situation.

 

• Accounting

 

 

All companies must maintain their accounts according to the Spanish Accounting Plan, using a double entry system.

 

The accounts of a company should show the true image of its activity through its financial statements, which include Balance Sheet, Profit and Loss Account and Cash-flow Statement, amongst others.

 

Any company must legalize Annual Accounts once a year at the Trade Register.

 

The information legalized at the Trade Register has public access and therefore, anyone can obtain a copy of the Annual Accounts of any company operating in Spain.

 

• Other legal obligations

 

• Data Protection Law: This legislation is mandatory for all companies/freelancers that collect and store data from individuals. The aim is to guarantee and protect, with regard to processing of personal data, public freedoms and fundamental rights of individuals.

 

• Risk Prevention Law: Companies and freelancers who have employees in charge need to design a prevention plan that carry out the necessary actions to avoid accidents in the workplace.

 

• Business Opening License: required procedure with the Town Hall, to ensure that the activity complies with the requirements and conditions established by the regulations.