BREXIT: THE END OF THE TRANSITIONAL PERIOD
Next 31st December 2020 the transitional period of Brexit will end. Even though there is a lot of uncertainty regarding the possibility of having a special tax agreement between UK and the EU, at present day, there is none and consequently, UK will be considered as a third country to all effects from 1st January 2021.
Historically, there has always been a very strong trade relationship between UK and Spain, and therefore, it is important for Spanish companies to understand the new tax scenario and prepare for it. Furthermore, especially in Costa del Sol, there is a significant number of property owners with British nationality, who will have different tax treatments in comparison with the current situation.
The main aspects that all entities should take into consideration are as follows:
- Border taxes: import of goods from UK will be subject to customs duty. The Spanish Tax Authorities will not let any goods come in our country without paying the import taxes, in case it applies. Likewise, when sending goods to United Kingdom, the British Border Authorities will require their import taxes, in accordance with UK tax legislation.
- VAT: when exchanging goods with the UK, we will be talking about imports or exports, instead of EU Operations. This implies a big difference: whilst currently no VAT is to be paid when buying/selling from/to UK, from 1st January 2021, the buying company will have to pay the VAT on the border of its country, in accordance with the VAT rates of such country, otherwise the goods will remain in the border.
- British companies owning a property in Spain will be taxed at 24%, instead of the current 19%. This will increase significantly the tax quotas, not only for the tax rate increase of five points, but also because it will not be accepted to deduct any rental expense.
It is commonly known that a huge amount of British citizens own properties in Spain, either for personal use or for rental purposes. Brexit will increase their tax bills in Spain as indicated below:
- Non Resident Taxes: EU citizens pay in Spain annually 19% of a deemed rent (2% of the cadastral value of the property, 1.1% if the cadastral value has been revised during the previous ten years). However, Non EU citizens should pay 24%.
When the property is used for rental purposes, EU citizens pay 19% of the rental profit, but Non EU citizens´ tax rate arises to 24%, with no deduction of expenses, which makes the tax quotas considerably greater for citizens outside the EU.
- Wealth Tax: Non Residents in Spain with properties located in our country with a total value of Euros 700,000 (or above), are subject to Wealth Tax each year. EU citizens can decide whether they are taxed according to the national legislation or autonomic legislation. However, Non EU Citizens cannot do so. Most of the times, the national Wealth Tax legislation is more tax expensive than the autonomic ones and therefore, the British Wealth tax bills are likely to increase after Brexit.
There are other tax implications which could affect in other cases. Companies that normally operate with UK and British citizens owning properties in Spain should plan for the post-Brexit era, always following the advice of professionals.
At MDG we are at your entire disposal to help you with any doubt you may have.