2023 ENG

Now that we are familiar with the “temporary” tax on large fortunes, and after having received resolutions from the Tax Agency in which it seems that they are not in favour of giving their arm to twist in favour of the taxpayer, at least in the first instance (later we will see who wins the battle), we consider of special relevance to point out the importance of the analysis of the Double Taxation Agreements and their implications in this new “temporary” tax that has given us so many headaches, as well as in the Wealth Tax.

As a complement to a blog published by our firm in May 2023, in this case, we would like to highlight the importance of analysing the Double Taxation Agreements and their tax implications in each specific case presented by the taxpayer, before delving into the interpretation of the internal regulations of our country.

We are all aware of the modifications introduced by Law 38/2022, of 27 December, in terms of the regulatory changes affecting the taxation of companies not resident in Spain, but if there is anyone who is not aware of them at this time, we will explain them below:

New wording of 5.One.b) of the Wealth Tax Law real obligation:

“For these purposes, securities representing equity interests in any type of entity, not traded on organised markets, at least 50 per cent of whose assets are directly or indirectly made up of real estate located in Spanish territory, shall be considered to be located in Spanish territory. For the purpose of calculating the assets, the net book values of all the assets entered in the accounts shall be replaced by their respective market values as determined on the date on which the tax accrues.

In the case of immovable property, the net book values shall be replaced by the values that must be used as the tax base in each case, in accordance with the provisions of Article 10 of this law”.

Following the aforementioned amendment, our firm has received many enquiries from non-resident clients with direct or indirect participation through companies with real estate located in our country.

But the question is, does this modification affect all non-resident taxpayers who asked our firm? The answer to this question is that it is important to analyse each specific case, and in tax terminology, each Double Taxation Agreement in question.

In order to summarise whether or not the modification introduced in the aforementioned article 5.1.b) of the Wealth Tax Law has implications in your specific case, we summarise the tax implications in three large blocks:

– It will only affect countries without Double Taxation Agreements or with Double Taxation Agreements, but which do not contemplate Wealth Tax, so we would have to resort to domestic regulations: Andorra, Algeria, Australia, Brazil, Qatar, USA, China, Korea, Finland, Ireland, Ireland, Spain, France, Italy, Portugal, Spain and Portugal, China, Korea, Finland, Ireland, Italy, Japan, Portugal, Singapore; and with suspensive or resolutory character Saudi Arabia, Croatia, Albania, Cape Verde, Philippines, Hong Kong, Jamaica, Malaysia, Malta, New Zealand, Oman, Pakistan, Dominican Republic, Romania, Senegal, Thailand, Vietnam, Colombia, Egypt and Nigeria.

– It will also affect double taxation treaties with a real estate companies clause in the same terms as the current domestic law: Belgium, France, Panama, Germany, India, Israel, Luxembourg, Mexico, Norway, United Kingdom, Armenia, Azerbaijan, Belarus, El Salvador, Slovenia, Republic of Georgia, Kazakhstan, Uruguay, Iceland, Moldova and South Africa.

– And finally, and in this case of GREAT IMPORTANCE, it does not seem to affect double taxation treaties that contemplate Wealth Tax and that do not have a clause on real estate companies, as they are transactions NOT subject to tax: Argentina, Austria, Canada, Chile, Emirates, Greece, Holland, Hungary, Iran, Kuwait, Morocco, Poland, Russia, Sweden, Switzerland, Venezuela, Bolivia, Bulgaria, Czech Republic, Cyprus, Costa Rica, Cuba, Ecuador, Slovakia, Estonia, Indonesia, Latvia, Lithuania, Macedonia, Serbia and Tunisia.

After the above, and as a conclusion to this blog, it is important to highlight the importance of analysing, in the first instance, whether or not it is subject to the specific tax to be applied, and for this, the first thing to do is to analyse the double taxation agreement of each country, so that in the event that it is subject to the tax in its territory, the internal regulations of each country can be applied to see if any exemption, rebate or deduction, among other cases, can be applied.

Therefore, from our firm, we always advise and offer our clients good advice specific to each taxpayer, since the tax implications in each case differ from others, so in tax matters, the GENERALIZATION of a case from one client to another, is not good advice.

Leticia Cayuela.

The Foreigner Identification Number (NIE) is a crucial element for all foreigners who wish to reside or work in Spain, whether they are EU citizens or not. This number allows them to identify themselves in legal transactions and administrative procedures in the country. The NIE is essential for foreigners who study, work or carry out transactions in Spain for a period of three months or more.

There are two main categories, the assignment of a NIE number at the request of the interested party also known as the “White” NIE or the European Union Citizen Registration (CUE), popularly known as the “green” NIE.

 

Assignment of a NIE number at the request of the interested party.

The assignment of a NIE number at the request of the interested party is given in folio format and shows the holder’s personal data, including name, surname(s) and the identification number provided by the authorities. This NIE serves mainly as an identification and allows to carry out legal transactions, but does not confer any permanent residence rights.

The “White” NIE is issued to both EU citizens and foreigners of other nationalities. In some cases, such as when EU citizens wish to start working in Spain, they will need this number in order to register with the social security before obtaining their EU Citizen Certificate.

 

European Union Registration Certificate

The Certificate of Registration as a European Union Citizen (CUE) is a definitive or permanent identification. If an individual already has a “White” NIE, this number remains valid when obtaining the EU Registration Certificate.

To apply for a CUE, certain requirements must be met, depending on the individual’s personal situation, such as being self-employed, employed, a student or demonstrating sufficient financial resources, as well as having private health insurance without co-payments where this is required.

The documents required will vary according to the situation and may include a passport, the EX-18 form, proof of payment of fees and, in some cases, documents supporting the applicant’s status.

 

In summary, both the assignment of a NIE number at the applicant’s request and the Certificate of Registration as a European Union Citizen are essential for foreigners wishing to settle in Spain. The former is a provisional identification, while the latter is a permanent registration certificate for EU citizens who meet specific requirements.

In the field of real estate development and, specifically, in the execution of works carried out between developer and contractor, it is common to find the figure of reverse charge in this area; however, how does this figure work and how is it regulated?

First of all, it should be noted that reverse charge is the figure in which the legislation provides, in certain cases, that the taxable person is the business or professional who receives the supply of the goods or the provision of the service, being an exception to the general rule that the taxable person for VAT will be the business or professional who supplies the goods or provides the service. Thus, the recipient of the good or service will be the one who will charge VAT to himself, having input VAT and output VAT for the same transaction.

In the field of construction work, its regulation is contained in Article 84.1.2 letter f) in which the taxable person may opt for the inversion of the taxable person for this modality, with or without the contribution of material, as well as in the transfer of personnel, and which are the consequence of contracts directly formalised between the promoter and the contractor and whose object is the urbanisation of land or the construction or rehabilitation of buildings.

Thus, it is necessary to establish the definitions and requirements for VAT purposes for each of these modalities:

 a) Land development: according to the DGT, the development of land is all those actions that are carried out to provide the land with the elements provided for by urban planning legislation (road access, water supply and drainage, electricity supply, etc.).

 b) Buildings: the definition of buildings, in accordance with the provisions of Article 6 LIVA, which establishes that buildings are constructions permanently attached to the ground or to other real estate, both above and below ground, which can be used independently and autonomously.

 c) Refurbishment: the definition of refurbishment can be found in the tax regulations themselves, where Article 20.Uno.22.B) states that:

• That more than 50 percent of the total project cost corresponds to consolidation works or treatments of structural elements.
• That the total cost of the works referred to in the project exceeds 25 percent of the purchase price of the building under certain conditions.

For practical purposes, and once the necessary requirements have been met to be able to apply the reverse charge in the execution of the work, the invoice issued must include a legend expressly stating that the transaction is covered by this type of reverse charge.

Therefore, the reverse charge in the execution of works is a modality that facilitates the liquidity of high value works in the real estate market with minimal interference from a tax point of view, since by using this figure, companies do not find themselves in the position of having to advance payment of VAT, despite its future deductibility and/or refund by the Tax Agency.

The order amending the Regulation on the Special Regime for Impatriates (Bechkam Law) will be approved soon, which means that the new groups that the Start up Law made possible, will be able to apply (spouses, self-employed with innovative activities and teleworkers). Important data:

 

– All these new groups will have a period to exercise the option of 6 months from the approval of the Order. There may be situations of spouses who moved in the second half of 2022, for whom a new range of options is now open, as they have not been able to opt until the approval of the Order.

– The IRPF withholdings for these groups in 2023 must be in the General Regime, until they receive the certificate of acceptance. If they are withholding more than 24%, they will obtain a refund via Form 151.

 

On the other hand, when a taxpayer in the regime is covered by reason of an employment contract and is made redundant, the DGT considers that, if the period of unemployment is short, this taxpayer would not be excluded. This period of time should be 3-4 months and never exceed one year, following discussions with the DGT.

 

We remain at your disposal for any clarification.

 

MDG Team

Article 36 of the Law of the Consolidated Text of the provisions issued by the Autonomous Community of Andalusia in matters of assigned taxes, approved in Legislative Decree 1/2018, of June 19, amended by Decree Law 1/2019, of April 9, establishes a reduced rate of 2% for purchases of real estate in the Junta de Andalucía, meeting certain requirements.

 

As the name of the article itself indicates, this reduced rate was approved for the resale of real estate by real estate professionals, in order to encourage this market.

 

In the world of tax advice there is an issue that has always generated deep controversy: is it possible to rent a property whose acquisition, the owner has benefited from the reduced rate?

 

In our opinion, it would not be possible for the following main reasons:

– One of the requirements for the application of the aforementioned tax benefit is that the property be incorporated into the current assets of the company, in order to be available for resale. However, a rented property cannot form part of the current assets of an entity and should be accounted for as a fixed asset, so this requirement would not be met.

– The sole purpose of the acquisition of the property must be its resale, which is contrary to placing the property on the rental market.

 

This criterion has been the one defended and maintained by the Tax Authorities of Andalusia from 2015 up to date, having received knowledge ou firm of the reception of these liquidations by tax payers during the present 2023.

 

We hope you find this information useful. Should you have any query we remain at your disposal.

1/ If I am accepted by DNV, would I be a tax resident in Spain in the year of the concession?

DNV does not turn anyone into tax resident in Spain. The fact of holding a DNV does not mean that you have to pay taxes in our country.

 

2/ If accepted by DNV, would I be covered by the Beckham Law regime?

DNV holders are not automatically accepted under the Beckham Rule. The Special Regime of Personal Income Tax in Spain ( article 93 of Personal Income Tax Law, “Ley 35/2006, del Impuesto sobre la Renta de las Personas Físicas” ) requires an individual to follow an specific application process.

 

3/ What are the implications for DNV under the Beckham Law regime?

Acceptance to DNV presumes that the requirements of the Beckham Act regulations are met, but they are separate processes and the two should be carried out separately.

 

4/ Are the Beckham Act requirements presumed to be met in all cases where DNV is accepted?

No, the presumption only applies in the case of an employee of a company that is not resident in Spain relocating to Spain for work reasons.

 

5/ If I am self-employed abroad and come to Spain, will the DNV and the Beckham Law regime be granted?

The DNV would have to be accepted by Extranjería, whereas, in this case, there would be no presumption of compliance with the requirements of the Beckham Law regime. Thus, the Beckham Regime application could not follow the DNV route. In this case, we highly recommend to consult a tax advisor.

 

6/ If I am self-employed in a non-resident company in Spain, can I obtain the DNV?

Yes, you could obtain the DNV but, as in the previous case, it is not presumed that you meet the requirements for the Beckham Law regime, so you would have to go through the procedure proving all the requirements for it.

 

7/ How can I find out when I am a tax resident in Spain?

To be a tax resident in Spain you must stay in Spanish territory for more than 183 days a year; or your economic interests or the main core of your activity must be located in Spain.

 

8/ If I am a national of an EU Member State, can I benefit from DNV?

No, the DNV is granted to those persons who are non-EU nationals, since if you are a national of a member state of the European Union, there is free movement of persons and capital in European territory.

 

9/ If I am under the Beckham Act regime, can I apply for DNV?

The Beckham Law regime has tax effects in Spain, while the DNV regulates your residency status in Spain. If you are from a Non EU country and would like to relocate to Spain, you need to obtain first a VISA and then decide if you would like to apply for the Beckham Regime or not.

 

10/ Should I continue to be employed by the non-resident company in Spain if the DNV has been accepted?

The DNV is designed for international teleworkers who come to Spain to telework. The DNV would regulate your residency status in Spain, so it would be advisable to continue to be hired by the non-resident company, as otherwise your residency status could change.

On returning from the holidays and at the start of the new academic year, we may find ourselves faced with a commercial obligation which, despite being far removed from the fiscal, tax or corporate obligations that must be fulfilled before the Tax Agency, Social Security or the Commercial Register, is of great importance due to its informative nature before the Ministry of Industry, Trade and Tourism.

Form D4 is an annual report on the development of foreign investment in Spanish companies, with a filing deadline of 9 months from the end of the financial year in question. Therefore, the deadline for submission is 30 September for those companies whose financial year coincides with the calendar year.

This annual report is compulsory for certain companies that meet a series of requirements in relation to capital or equity and the participation of non-resident entities in Spain, which must be greater than 3,005,060.52 euros and that their total non-resident participation is equal to or greater than 50% of the capital, or if a single non-resident investor has a participation equal to or greater than 10% of the capital or of the total voting rights. These requirements extend to Spanish holding companies as well as to branches in Spain.

This annual obligation before the Ministry of Commerce and in relation to foreign investments or vice versa would not be the only one, as there are other declaratory obligations that must be filed before this Agency when the circumstances arise in accordance with the regulations in force, such as Form D-1A, D-1B, D-2A, D-2B, D-8, etc.

If you have any doubts regarding the informative declarations of foreign investments in Spanish companies or investments of Spanish companies abroad, please do not hesitate to contact our MDG team for advice on Tax Compliance.

For some years now, we have witnessed how Malaga has experienced a more than considerable increase in foreign investment, largely due to the search for the great potential offered by the province, whether from a business, private or tourism point of view.

Thus, in 2021, Malaga was consolidated as the largest pole of attraction for foreign investment in Andalusia, reaching 348 million euros and representing 32.47% more than in 2020, according to data published in La Opinión de Málaga.

In recent months, in addition to the English, Swedish or German presence (nationalities already consolidated in the province) Malaga is registering an increase in North American presence, who come to the province with a clear intention to invest and contribute to the economic development of the city through the establishment of their businesses and seeking the synergy offered by the city from all areas.

This was confirmed by Malaga’s own business climate barometer, which states that the United States is one of the main countries investing in the province of Malaga, with the technology sector being one of the most in demand. The US investment represents a clear upward trend in recent years, if we take into account that in 2018 the gross investment was 57 million euros, while in 2021 it was 162 million euros. Furthermore, it goes without saying that Spain is the third destination where foreign startups decide to invest and settle, only behind the US and the UK, and where there is a clear upward trend for the future.

At MDG Advisors we have focused for the last thirteen years on international tax advice, providing services to companies and individuals who wish to establish their business network on the Costa del Sol. That is why, in recent months, our clientele has been registering an increase in the number of North American clients.

If you would like to receive information on how to establish your business on the Costa del Sol from North America, please do not hesitate to contact our team to resolve all your doubts and receive appropriate advice on tax compliance.

Today we are excited to announce the launch of the 8th British Investment Barometer in Spain, which took place in Malaga. In this outstanding event, we are proud to have our company, Miriem Diouri García, as a speaker.

The British Investment in Spain Barometer is a fundamental tool for understanding the evolution of British investment in our country and its impact on the economy. As an active player in the business advisory industry, MDG Advisors is honored to participate in the launch of this report.

The presence of our company, Miriem Diouri García, as a speaker, reinforces our commitment to rigorous analysis and the exchange of knowledge in the field of British investment in Spain.

We thank all attendees for joining us in this important presentation and for the opportunity to continue collaborating with the business and financial sector in the future.