Fiscal residence in Spain: When are you "resident" and what does that mean?


05.04.2019

 

When I am talking to my clients I often notice that the subject "residencia fiscal“ (=fiscal residence) is unclear.

Thanks to the open borders in Europe and the opportunities to live and work wherever you want, it is normal for someone to have lived in several countries within a year.

 

Then many ask themselves the question: Where do I have to file my tax return now?

 

Therefore, today I want to explain when someone is considered tax resident in Spain and what impacts this has, first theoretically and then with some examples.

1. When are you considered resident in Spain?

The fiscal residence in Spain is linked to the "habitual residence", which is governed by Articles 9 and 10 of the Spanish Income Tax Law ("Impuesto sobre la Renta de las Personas Físicas", or "IRPF").

 

Thus, a natural person is "habitually resident" in Spain and thus fiscal resident in Spain if any of the following situations is given:

a) presence in Spain for more than 183 days within the calendar year,
b) center of vital interests in Spain,
c) special cases.

 

What does that mean in detail?

a) The person is present in Spain for more than 183 days during the calendar year.

Of course this is sometimes not so easy to determine, especially if you travel a lot.

But the Tax Office makes it easy, as long as one does not have his alleged tax residency in a tax haven.

What does that mean?

 

If you for example moved to Spain in June 2018, but then worked abroad for 3 weeks every month, are you tax resident in Spain for 2018? The answer is YES, because sporadic absences (even if they happen often) are included in the presence in Spain, unless you prove your tax residence in another country (via a so-called "residency certificate").

 

However, if you claim that you are located in a country that is considered a tax haven by Spain, the Tax Office may require you to prove your actual presence in this tax haven over more than 183 days of the calendar year (plane tickets, local expenses, ...).

b) The center of the person's vital interests lies in Spain, i.e. here is the focus of personal or economic interests (direct or indirect).

This means that for example if the total income of the person arises in Spain, or most of its relatives live in Spain, the center of the vital interests lies in Spain.

 

In this case, it is assumed that a person has his habitual residence in Spain if the spouse not living apart from him/her and the minor children dependent on him/her are habitually residents in Spain under the said rules.

 

So, if my minor children go to school in Spain, the Spanish tax authorities assume that I also reside in Spain.

c) The situation of the person is subject to a legally regulated special case, e.g.:

- a person of Spanish nationality that relocates to a tax haven (then is still treated as resident in Spain for a certain period),

- Diplomats, consular officers or other Spanish officials who habitually reside abroad for their activities, as well as their spouses and minor children, are nonetheless considered to be resident in Spain.

2. When are you considered non-resident in Spain?

If none of the above mentioned cases is given, you are a non-resident in Spain. 

3. What are the consequences of being a tax resident in Spain?

If you are a tax resident in Spain, you have to consider the following:

  • You do your income tax return (IRPF) in Spain, and have to include and tax all income from all over the world (although you can deduct part or the total amount of the taxes already paid abroad, according to the double taxation agreement between Spain and the other country). 
  • You have to submit the Modelo 720, the informative declaration about assets abroad, when the value of those assets exceeds 50.000 EUR. (Please read my article about that matter for more details.)
  • You are subject to property tax in Spain.

4. What are the consequences of being a non-resident in Spain for tax purposes?

If you as a non-resident generate income in Spain (e.g. in case you own a property in Spain that is leased or vacant, you receive income from employment or self-employed work, interests, dividends, royalties, profits from the sale of property in Spain), you have to pay taxes on those incomes.

 

This taxation is based on the income tax of non-residents ("Impuesto de la Renta de No Residentes", "IRNR").

 

Additionally, you have to include this Spanish income in your income tax return in the country where you were resident for tax purposes in that calendar year (world income). It is possible to claim back the taxes already paid in Spain on this income, depending on the provisions of the applicable double taxation agreement.

 

Please note that also as a non-resident it is possible to be subject to the Spanish property tax, depending on the value of your assets located in Spain. 

5. Examples: Am I a resident in Spain or not?

Now some typical examples to better understand the concept of fiscal residence, perhaps you find your own situation here:

a) Case 1: I live and work in Spain since 1st September 2018. Prior to that, I lived and worked in Germany.

Question: Where do I have to file my income tax return?

Answer: In Germany. You have to include the income from Spain and can deduct the taxes already paid in Spain.

Question: But what about the income from Spain, my employer made withholdings from my salary?

Answer: Your income from employment is subject to the income tax for non-residents (IRNR) as you stayed less than 183 days of 2018 in Spain. How much you have to pay in the end in Spain for this income depends on the double taxation agreement between Spain and Germany (in this example) and the characteristics of your employer (company based in Spain or not). In case you have to or want to file an income tax return for non-residents, the wittheld amounts from your salaries are taken into account.

b) Case 2: I live and work in Spain since 1st June 2018. Prior to that, I lived and worked in Germany.

Question: Where do I have to file my income tax return?

Answer: In Spain (IRPF). The income earned in Germany must be reported, and the tax already paid in Germany can be deducted to a certain extent.

Question: Do I have to file a tax return in Germany?

Answer: This is based on the German tax laws, to which I can give no information. This should be clarified with a tax consultant in Germany.

c) Case 3: I live and work in Spain since 1st February 2018. I am officially registered in Spain since 1st August 2018. I still have a registered address in Germany with my parents, although in fact I go there only for holidays.

Question: Where do I have to file my income tax return?

Answer: That depends. The official registration in Spain ("Empadronamiento") is not an incontrovertible proof, but justifies the assumption that the person lives since that time at the named place.

Due to the official registration date, the person could say that he is not resident in Spain (less than 183 days there).

But in fact the center of economic interests lies in Spain since February of 2018, so the person actually is resident in Spain. 

 

But: if you want to be tax resident in Germany for some reason, you can try to get from there a so-called "residency certificate". This would be issued by the Tax Office responsible for the area of the registered address in Germany. This certificate is then the proof against the Spanish Tax Office, that you are resident for tax purposes in Germany.

In this case, the taxation in Spain would be governed by the Income Tax Law of Non-Residents (IRNR) and you would have to pay tax on your worldwide income in Germany.

d) Case 4: I have more than one registered address in a couple of countries and am travelling most of the year. My income proceeds from different countries as well. I am not married and I have no children.

Question: Where do I have to file my income tax return?

Answer: To answer that, we need to have a closer look at dates, countries in question, amount of income from each country and personal circumstances. Please ask for a consultation with me


Conclusion:

Where you have to file your income tax declaration depends on the residency regulations of the respective state. Here the focus was to explain in which cases a person is considered tax resident in Spain and what consequences that has.

 

In the end, it always depends on the specific situation in each case, which is why I recommend to anyone whose situation is not totally clear, to contact a tax consultant for clarification.

 

If you are not sure about the status of your situation in Spain, please stop thinking and save time and nerves: just contact me now!

 

I analyze your situation and make things clear. It is that easy.

 

Remember: The period for filing the income tax return of 2018 has already started! The deadline is 1st of July of 2019!

(The same period applies for the income tax return of workers sent to Spain ("Beckham-Law") and the property tax return.)