Tax Residence, Why is it important for you? Why do you have to pay taxes in Spain?(Part II)

STEPHANE — Mon, 25 Sep 2017 05:33:36 +0000

Automatic translation from Google translate:

If you missed the first paper on the definition of the Tax residence in Spain and a few examples, follow this link.

Non-residents: Why do they have to pay taxes in countries other than their Tax Residence?

Obtaining income in another country?

The second type of situation, in which both individuals and legal entities are required to pay taxes in a country in which they are non-residents, is when they are obtaining certain types of income that are considered generated in that country. In this case, and always according to the domestic laws of each country, they are taxed as “non-tax residents.”

Double taxation?

It so may happen that, even if there is no conflict of residence for a person, he or she still suffers double taxation, since the same income may be taxed both in the country of residence (as “tax resident”) and in the country of origin (as “non-tax resident”). And again, these situations are alleviated by the domestic legislation of each country, which provide methods to palliate this double taxation, and, when they exist, the double taxation agreements (DTA), which rule the scope of the tax power for each country with exclusive or limited rights on certain income and provide methods in order to prevent double taxation.

Let’s look at two examples:

A tax resident in Belgium owns an apartment in Spain. The DTA between Belgium and Spain provides in Article 6 the possibility of a shared taxation of the income generated by the apartment between the two states.

Therefore, that person must pay tax on its worldwide income in Belgium, including income derived from the property located in Spain, and will also be taxed as a non-resident in Spain on the same income from the property.

This would lead to a double taxation case. Therefore, the DTA signed by both States provides itself a method for avoiding this double taxation in Article 23.2.a), whereby the income earned by the tax resident in Belgium derived from immovable property situated in Spain just may be taxed in Spain (country of source), but should be taken into account to calculate the corresponding income tax in Belgium.

Same example, but in this case the person who owns the apartment located in Spain is a tax resident in the United Kingdom. The DTA between Spain and the United Kingdom also provides in Article 6 the possibility of shared taxation of this concrete type of income between both States, so that we would again be subject to a double taxation: that person should be taxed for his worldwide income in the United Kingdom, including income derived from the property located in Spain, and shall also be taxed as a non-resident in Spain.

In this case, the DTA, signed by both States, provides in Article 22 (2) (a) a different method for avoiding double taxation, according to which in the United Kingdom (State of residence) that person is entitled to deduct the tax paid in Spain (Source State) in accordance with the provisions foreseen by the United Kingdom domestic tax law.

Having determined this, we must go to the Spanish domestic tax legislation on non-residents to know what the taxation on real estate income obtained in Spain by a non-resident is, which will be discussed in subsequent articles.

In conclusion

Having seen the importance at the tax level of the acquisition of the tax residence in a particular country, it is important to know details on this concept and make a proper planning before moving to any ground.

Specifically in Spain, although as noted the acquisition of a property is not a determining factor by itself, there are many other factors to consider: time of transfer, reasons for this, intentions to stay …

A good planning can optimize taxation, especially since our country enjoys special regimes of expatriates very convenient if the conditions to apply them are met.

Do you want to get in touch with her? Ask us for an introduction and benefit from the power of our network.

Find a property lawyer in Spain in our network?

Maite

Looking for a real estate lawyer in Spain? Follow the link and get one of our local lawyer.

Looking for another real estate expert in Spain: Mortgage, Insurance, Survey of property, Property hunting, …? Ask us directly one of our 100+ local partner!

The post Tax Residence, Why is it important for you? Why do you have to pay taxes in Spain?(Part II) appeared first on How to buy in Spain.

Tax Residence. Why is it important for you? Definition and examples(Part I)

STEPHANE — Mon, 18 Sep 2017 05:09:02 +0000

Automatic translation from Google translate:

Tax residence: What is it? Why do you need to understand it?

Tax residence is a legal concept of great importance internationally. It determines the obligations of natural and legal persons for paying taxes in a given state as “tax resident”. This means, in most jurisdictions, that you will pay taxes on your worldwide income: salaries, pensions, profit from economic activities, interest, dividends, property, capital gains and allocations of income, regardless of the place where they have been generated.

The tax residence is established in relation to each fiscal year (in Spain, January 1st. to December 31^st.), is not related to the nationality of individuals, nor necessarily to civil statute, nor is it free choice: it is a matter of fact, whose criteria are provided by the domestic tax laws of each country.

Although there is no complete homogenization on that subject, many countries use to establish similar criteria, like

Spending in the territory more than half a year (183 days or more)
The core or principal centre of economic interests
Where are family members living?

However, there may be different or additional criteria and practicalities in each country, or even presumptions that need to be known.

No impact if you buy a property

It is important to note that, in Spain, the acquisition of real estate property does not, by itself, have any impact on the determination of a person’s fiscal residence. It’s more the time you will spend in it that is important!

Bilateral agreements between countries

It can also happen that laws from two different states define you as a tax resident in their respective territories, which in principle would lead to a double taxation since you would be subject to tax on your worldwide income in both States. To avoid this situation among other reasons, many States have signed bilateral agreements, also known as Double Taxation Agreements (DTA), which incorporate specific criteria to resolve double tax residence conflicts that may arise between the two signatory States.

Ask for your Certificate of Tax Residence

In order to be able to prove the fiscal residence in a given state against another, it is essential that the person applies for a Certificate of Tax Residence before the tax authorities of his State of residence since, in practice, this is the first way to prove your Tax Residence. Other alleged pieces of evidence that could be used to justify a Tax Residence like utility bills, etc. don’t have any power if they are not accompanied by a Certificate of Tax Residence.

Next week we will go further into this subject: Do you have to pay taxes in Spain if you are not resident?