1. CURRENT TAXATION OF NON-RESIDENTS WITH ASSETS IN SPAIN

1.1. NON-RESIDENTS OF COUNTRIES WITHOUT DOUBLE TAXATION AGREEMENT [DTA, hereinafter, Spanish initials: CDI] WITH SPAIN OR WITH CDI WHICH DOES NOT INCLUDE THE WEALTH TAX [IP]

  • Real Estate appraisal
  • Deduction of charges or debts in relation to the properties
  • Applicable legislation and minimum exemption
  • Special tax on real estate of non-resident entities
  • Strategies to reduce or avoid the Wealth Tax [IP]

1.2. NON-RESIDENTS OF COUNTRIES WITH DOUBLE TAXATION AGREEMENT [CDI] WITH SPAIN THAT INCLUDE THE WEALTH TAX [IP]

1.2.1. Non-residents of countries with CDI without a section in reference to companies whose main asset(s) is constituted by real estate property[2]

1.2.2. Non-residents of countries with CDI with taxation by companies whose main asset(s) is constituted by real estate propert[3]

2. TAXATION STARTING IN 2022 OF NON-RESIDENTS WITH ASSETS IN SPAIN

2.1. NON-RESIDENTS OF COUNTRIES WITHOUT DOUBLE TAXATION AGREEMENT [CDI] WITH SPAIN OR WITH CDI WHICH DOES NOT INCLUDE THE WEALTH TAX [IP][1]

2.2. NON-RESIDENTS OF COUNTRIES WITH DOUBLE TAXATION AGREEMENT [CDI] WITH SPAIN THAT INCLUDE THE WEALTH TAX (AND NOW, LARGE FORTUNE SOLIDARITY TAX [ISGF])

2.2.1. Non-residents of countries with CDI without a section in reference to companies whose main asset(s) is constituted by real estate property[2]

2.2.2. Non-residents of countries with CDI with taxation by companies whose main asset(s) is constituted by real estate property[3]

3. TAXATION OF IMPATRIATES: SPECIAL REGIME FOR POSTED EMPLOYEES

[1] Albania, Andorra, Algeria, Australia, Brazil, Cabo Verde, Qatar, USA,  China, Korea, Philippines, Finland, Hong Kong, Ireland, Italy, Jamaica, Japan, Malaysia, Malta, New Zealand, Oman, Pakistan, Portugal,  Dominican Republic, Romania, Senegal, Singapore, Thailand, Turkey, Vietnam; and with suspensory or resolutive nature: Saudi Arabia, Colombia, Croatia, Egypt…..

[2] Argentina, Austria, Bolivia, Bulgaria, Canada, Czech Republic, Chile, Cyprus, Costa Rica, Cuba, Ecuador, Arab Emirates, Slovakia, Estonia, Greece, Holland, Hungary, Indonesia, Iran, Kuwait, Latvia, Lithuania, Macedonia, Morocco, Poland, Russia, Serbia, Sweden, Switzerland, Tunisia, Venezuela.

[3] Germany, Armenia, Azerbaijan, Belgium, Belarus, France, El Salvador, Slovenia, Republic of Georgia, Kazakhstan, Panama, Uruguay, India, Iceland, Israel, Luxembourg, Mexico, Moldova, Norway, United Kingdom, South Africa.

The Official Gazette of the Spanish Parliament [BOCG] of 18th of November 2022 published the amendments presented in relation to the Proposed Law for the establishment of temporary energy and credit institution charges, which is expected to be approved and enter into force before 31st of December this same year.

There are two amendments that will undoubtedly succeed, because they have been presented by PSOE/PODEMOS, and which very directly affect non-residents with real estate property located in Spain

We refer to amendment num. 99 which creates the “Impuesto de Solidaridad de las Grandes Fortunas” [Large Fortune Solidarity Tax] (hereinafter, “ISGF”) and amendment num. 102 which amends the “Ley del Impuesto sobre el Patrimonio” [Wealth Tax Act] in force (hereinafter, “IP”) so that the holding of real estate property in Spain through non-resident entities is taxed.

Below, we shall analyse the CURRENT TAXATION of the non-residents with real estate property in Spain; in reference to IP, depending on the country of residence of the titleholder of said properties and the location of their assets in Spain. Subsequently, we shall analyse what this TAXATION WILL BE LIKE STARTING FROM 2022 upon approval of that Act with the aforementioned amendments.

1-. CURRENT TAXATION OF NON-RESIDENTS WITH ASSETS IN SPAIN

1.1. NON-RESIDENTS OF COUNTRIES THAT DO NOT HAVE CDI WITH SPAIN OR THEY HAVE A CDI, BUT NOT INCLUDING THE WEALTH TAX [IP].

This is the case of: Albania, Andorra, Algeria, Australia, Brazil, Cabo Verde, Qatar, USA, China, Korea, Philippines, Finland, Hong Kong, Ireland, Italy, Jamaica, Japan, Malaysia, Malta, New Zealand, Oman, Pakistan, Portugal, Dominican Republic, Romania, Senegal, Singapore, Thailand, Turkey, Vietnam; and with suspensory or resolutive nature: Saudi Arabia, Colombia, Croatia, Egypt.

The individual residents in these countries PAY TAX in Spain on the Wealth Tax [IP] by REAL OBLIGATION (article 5. One, letter b), on ALL their assets and rights located directly in Spain: REAL ESTATE PROPERTIES, bank accounts, Spanish companies, vehicles, etc. 

However, THEY DO NOT PAY TAX on the assets and rights located abroad, although it involves a foreign company whose main asset(s) is constituted by real estate property in Spain.

  • Real Estate appraisal

In reference to the appraisal of the real estate property in the Wealth Tax [IP], the following must be taken into account:

– Article 10.1 of the Wealth Tax Act [LIP] in its draft in force starting from July 2021 with the Anti-fraud Act 11/2021, establishes that urban or rural real estate property shall be computed: “For the higher value of the three following cases: The cadastral value, the value determined or verified by the Administration for the purposes of other taxes or the price, consideration or value of the acquisition». 

This regulation does not expressly refer to the Cadastral Reference Value (“VRC”) introduced by this Anti-Fraud Act starting from 1/1/2022 for real estate property, however the Tax Administration (Frequent Questions in the Cadastral web page) has interpreted this precept in the sense that only when the VRC has been the taxable base in the tax that encumbers the acquisition of a real estate property, this shall be taken into account to apply the determination rule of the Wealth Tax [IP] taxable base, to which it is subject, where required.

Thus, the VRC can only affect the Wealth Tax [IP] for the real estate property acquired starting from 1st of January 2022. For the real estate property purchased prior to that date, the higher figure will be used: cadastral value, value verified by the Administration, acquisition price or value.

– There are several Binding Queries of the Directorate General of Taxes (hereinafter, the “DGT”), (for example, V2120-21, of 15/7/2021) which establishes that in the Wealth Tax [IP], to determine the “price, consideration or acquisition value”, it is necessary to add the expenses and taxes inherent to this acquisition paid by the buyer. Hence for example, if a property is purchased for a price of 2,000,000€ and the amount of 240,000€ are paid for expenses and taxes (Transfer Tax, VAT, etc.), a value of 2,240,000€ must be computed. In our opinion, this is highly questionable nonsense.

  • Deduction of charges or debts in relation to the properties

Article 9.4 of the Wealth Tax Act [LIP] permits non-residents, in order to determine their taxable base, to discount the CHARGES that affect the assets located in Spain, as well as “the DEBTS due to capital invested in said assets”.

In this regard, it is necessary to take into account:

-The DGT (V3112-20, of 19/10/2020), has accepted the deduction including the debts contracted abroad and without mortgage guarantee in Spain, although some Spanish National High Court judgement [SAN] had rejected this possibility (SAN num. 246/2019, of 25/05/2016).


-It is essential, in order to discount a debt, that the acquisition has been paid with the corresponding loan, although a Higher Court of Justice of the Balearic Islands judgement [STSJ] (STSJ num. 267/2021, of 28/04/2021) accepted the deduction, as a charge, of a mortgage loan requested subsequent to the acquisition.

  • Applicable legislation and minimum exemption

The Wealth Tax [IP] payable by non-residents is managed and collected by the State and it is not assigned to the Autonomous Communities. The state legislation establishes since 2011 (Royal Decree-Act 13/2011, of 16th of September), a minimum exemption of 700,000€, applicable both for residents in Spain (subjects by personal obligation) and non-residents (subjects by real obligation).

Until 2011, it established a minimum exemption of 108,182.18€ which only was “applicable in the case of non-resident taxpayers who pay tax by the personal obligation to contribute”. This is important for what we will see later in relation to the new Solidarity Tax.

Under state legislation, once the minimum exemption has been discounted, a progressive rate which ranges from 0.2% to 3.5% is applied on the taxable base. Applying this state legislation of the Wealth Tax Act [LIP], an individual would pay the following, based on their net equity:

Since 2015, the EU non-residents can apply the autonomous community legislation:

By means of Act 26/2014, an additional Provision four in the Wealth Tax Act [LIP] was introduced since 2015, which permitted the residents in EU countries or the European Economic Space [EES] to apply “the specific legislation approved by the Autonomous Community where the highest value of the assets and rights of which they are titleholders is located and for which the tax is required, because they are located, can be exercised or have to be fulfilled in Spanish territory”. 

Since there were Autonomous Communities that had increased the IP (reducing the minimum exemption and/or increasing the rate) and others that have reduced or even eliminated it (Madrid, with an allowance of 100%), the DGT Query V3054-16 has clarified that the EU non-residents had the right to apply the autonomous community legislation, being an option that they could exercise or not.

Consequently, the parties who had the majority of their assets in Madrid had the right to apply the Madrid legislation and its allowance of 100%, with no tax payable (but with the obligation to declare if the value of the assets exceeded 2M); while the parties that had the majority of their assets in an Autonomous Community like the Balearic Islands, the Wealth Tax [IP] increased significantly (the same minimum exemption of 700,000€ but with a much higher rate), could opt to apply the state legislation since it is more favourable.

For example, applying the Balearic Island legislation, an individual would pay the following, based on their net equity:

Since 2021, all the non-residents, also non-EU citizens can apply the autonomous community legislation:

Starting from 2015, the DGT indicated that the non-EU non-residents (not EU or EES) in any case could apply the most favourable autonomous community legislation (V0725-19, of 01/04/2019 and V0676-19, of 27/03/2019), where they should necessarily apply the state legislation.

However, through Anti-Fraud Act 11/2021 the additional Provision four of the Wealth Tax Act [LIP] was amended to permit all the non-residents, EU and non-EU citizens, to apply the legislation of the Autonomous Community where they have the highest value of their assets in Spain subject to IP. Hence, those non-residents with the majority of their assets in Madrid, or in Andalusia since 2022 (through Decree-Act 7/2022, of 20th of September, an allowance of 100% of the tax has been established), would pay nothing in the concept of Wealth Tax [IP].

  • Special tax on real estate of non-resident entities

It also proceeds to mention this special tax, regulated in articles 40 to 45 of the Non-resident Income Tax Act.

Since 2013, the only parties subject to said tax are the “resident entities in a country or territory which has the consideration of a tax haven, which are the owners or hold in Spain, by any title, real estate property or real rights for the enjoyment or usufruct on them”. After the Anti-Fraud Act 11/2021, it refers to resident entities in non-cooperative jurisdictions.

It entails the annual payment of 3% on the cadastral value, and if it does not exist, the same on the value determined according to the provisions applicable for the purposes of the Wealth Tax [IP].

  • Strategies to reduce or avoid the Wealth Tax

These non-residents from countries without a Double Taxation Agreement (“CDI”) with Spain, or from countries with a CDI that do not include the Wealth Tax [IP], could reduce or avoid the Spanish IP by acquiring their real estate property in Spain through foreign companies, reducing the taxable base by purchasing among several persons and/or financing the acquisition of their property (for example, instead of buying a €3M house by one person, buying it by a married couple in undivided halves, and financing 50% with a mortgage loan), holding most of the assets subject to tax in Madrid, thus avoiding having high balances in accounts/securities in Spain, etc.

1.2. NON-RESIDENTS OF COUNTRIES THAT HAVE A CDI WITH SPAIN AND INCLUDE THE WEALTH TAX [IP]

In turn, it is important to distinguish two cases:

1.2.1. Non-residents of countries with CDI without a section in reference to real estate companies, whose main asset(s) is constituted by real estate property

This is the case of: Argentina, Austria, Bolivia, Bulgaria, Canada, Czech Republic, Chile, Cyprus, Costa Rica, Cuba, Ecuador, Arab Emirates, Slovakia, Estonia, Greece, Holland, Hungary, Indonesia, Iran, Kuwait, Latvia, Lithuania, Macedonia, Morocco, Poland , Russia, Serbia, Sweden, Switzerland, Tunisia, Venezuela.

Most of what is explained in the above section applies, but with the major speciality that such non-residents, pursuant to the provisions of such CDI agreements, will only be taxed by a Wealth Tax [IP] on the value of the real estate they hold directly in Spain, on movable assets attached to permanent establishments they hold in Spain and little else (ships and aircraft). All other assets that they may hold in Spain (bank accounts, vehicles, investment funds, securities, and companies of all types, etc.) can only be subject to Wealth Tax [IP] in their country of residence, where they will not be, since few countries in the world continue to have a tax of this nature.

Consequently, the Wealth Tax [IP] should NOT be paid by Spanish or foreign companies, although their only or main asset(s) is comprised, directly or indirectly, by real estate property located in Spanish territory.

On the real estate property that they directly possess in Spain, they can discount the charges and debts for the capital invested in the same (article 9.4 of Wealth Tax Act [LIP]) and must pay to the State, and in principle, applying the state legislation (minimum exemption of 700,000€ and a rate from 0.2% to 3.5%). Since 2015, the EU citizens can apply the legislation of the Autonomous Community in which the higher value of these assets is found if it results to be more favourable than the state legislation (for example, Madrid with a 100% allowance, and Andalusia, with the same allowance since 2022), and since 2021, the non-EU citizens have the right to apply the Autonomous Community legislation.

As strategies to reduce or avoid the IP on their real estate property in Spain, they can simply resort to acquiring them through foreign or even Spanish companies, and they could reduce the taxable base by buying among several persons and/or relying of financing; since their respective CDI agreements make no provision for the holding of real estate in Spain through companies, hence Spain does not have the taxation authority to tax them.

1.2.2. Non-residents of countries with CDI with a taxation section for real estate companies, whose main asset(s) is constituted by real estate property

This is the case of: Germany, Armenia, Azerbaijan, Belgium, Belarus, France, El Salvador, Slovenia, Republic of Georgia, Kazakhstan, Panama, Uruguay, India, Iceland, Israel, Luxembourg, Mexico, Moldova, Norway, United Kingdom, South Africa.

Most of what is explained in the above section applies, with the following specialties:

Until 2020, the DGT considered that these non-residents had to pay taxes for the holding of foreign companies whose main asset(s) was constituted by real estate property in Spain.

According to that stipulated in these CDIs it is more than evident that these non-residents should pay the Spanish Wealth Tax [IP] on the real estate property that they directly hold in Spain (with the possibility of discounting the charges and debts stipulated in article 9.4 of the Wealth Tax Act [LIP]) and also by the SPANISH COMPANIES whose main asset(s) is real estate property in Spain, because this subjection to the taxation is permitted by the CDI and was stipulated in the Spanish regulatory law of the Wealth Tax [IP]. According to CDI, they should not pay tax on other assets which they hold in Spain (accounts, securities, funds, vehicles, etc.).

However, the DGT considered, in repeated rulings (V4968-16, V1452-14, V2521-13, V0905-13, V2675-13), that these non-residents also should pay tax on the foreign companies whose main asset(s) is real estate property located in Spain. Certainly, that taxation was stipulated and permitted by the CDI, but the specific Spanish regulatory law of the Wealth Tax IP`] did not subject to taxation the assets located outside of Spain, such as the shares or holdings of entities with registered offices abroad. This means, the DGT wanted to ignore the fact that the CDIs did not create taxable events, but were limited to allocating the taxation authorities.

As mentioned above, since 2015, the EU citizens were permitted to apply the most favourable Autonomous Community legislation and since, 2021, also to non-EU citizens.

To reduce or avoid the Spanish Wealth Tax [IP], real estate property in Spain could be directly bought by several persons and/or financing their acquisition, or even acquire them through Spanish or foreign companies allocated with reduced capital and a lot of external/banking financing or even from the specific non-resident shareholder (with more risk that the Treasury will question said party), or by ensuring that most of the asset(s) of these companies were not real estate property located in our country.

Since 2020, the DGT reconsidered and assumes that these non-residents should NOT pay tax by foreign companies whose main asset(s) was constituted by real estate property in Spain.

Through Query V3178-19, of 14th of November 2019, in reference to a non-resident individual with shares in a Gibraltar entity titleholder of a Spanish company with real estate property in Spain, the DGT assumes that said party does not have assets in Spain, therefore under Spanish law, said party is not subject to Wealth Tax [IP] (the real subjection of the Spanish legislation does not reach this case).

The Higher Court of Justice of the Balearic Islands judgement [STSJ] of 3/12/2020, num. 621/2020, in reference to an individual residing in Germany (whose CDI agreement stipulated and permits the taxation of real estate companies), with real estate property in Spain through a German company, rejected the subjection to the Wealth Tax [IP] because Spanish law does not contemplate it and because the CDI agreements do not create taxable events.

Finally, the DGT ended up assuming this criteria in Query V2070-21, of 09/07/2021, in reference to a resident in the United Kingdom, and more recently in Query V1947-22, of 13/09/2022, in reference to Germany, both countries with CDI that stipulated and permit Spain to subject foreign companies to taxation with real estate properties that are located in our country.

Consequently until 2021, it is evident that those non-residents that acquired their properties in Spain through foreign companies should NOT have to pay the Spanish Wealth Tax [IP], although their CDI would permit this taxation, because the internal Spanish Law did not include/permit it. Indeed, all the parties that have paid in previous years (because the DGT thus required it) can plan to request the rectification of their self-assessment and the refund of undue income.

STARTING FROM 2022, with the amendment stipulated in article 5 of the Wealth Tax Act [LIP], said parties would be taxed in Spain by their foreign companies with real estate assets in Spanish territory.

2-. TAXATION STARTING IN 2022 OF NON-RESIDENTS WITH PROPERTY IN SPAIN

If the planned amendments were approved and enter into force before 31/12/2022, which is what is foreseen, the non-residents with assets and rights in Spain would be subject to two state taxes, practically identical, on the same net equity:

  1. The new LARGE FORTUNE SOLIDARITY TAX (ISGF).

Without considering that the reasons about this new tax and its entry into force, already by 2022, could be unconstitutional, it is important to consider that the different CDIs subscribed by Spain which regulate the Wealth Tax [IP] state that the provisions relating to it will also apply to taxes of an identical or similar nature that are established after the CDI and that are added to the current ones or replace them.

This means, in spite of NOT being expressly included in the CDI, it will be understood to be regulated by said agreements, being applicable all the provisions that refer to the IP (since it involves a tax of an identical or similar nature). 

  1. The Wealth Tax [IP]

It has been amended to make foreign entities taxable whose main asset(s) consist of real estate property located in Spanish territory, since these entities are considered to be located in Spain. Indeed with the proposed amendment (excepting a last minute amendment), article 5 of the Wealth Tax Act [LIP] would be written as follows, in reference to non-residents (the added part is in bold print):

«One. They are taxpayers of the Tax: 

a) …..

b) By real obligation, any other individual for the assets and rights of which they are the owner when said assets/rights were located, could be exercised or had been fulfilled in Spanish territory.

For these purposes, securities representing equity interests in any type of entity, not traded on organised markets, at least 50 percent of the assets of which are made up, directly or indirectly, of real estate located in Spanish territory, shall be deemed to be located in Spanish territory. To carry out the asset computation,  the net book values of all assets entered in the accounts shall be replaced by their respective market values as determined on the accrual date of the tax. In the case of real estate property, the net book values will be replaced by the values that must be used as the taxable base of the tax in each case, according to that stipulated in article 10 of this Act. 

In this case, the Tax will be exclusively required for these assets or rights of the taxpayer taking into account that stipulated in section four of article 9 of this Act.»

In the justification of the amendment it is assumed that it took several years to recognise the Taxes and it is that: “the legal instruments embodied in the Double Taxation Agreements [CDI] are incapable of generating taxable events” and that “their main function …. consists in the distribution of taxation authority among the signatory states of the agreement”.

2.1. NON-RESIDENTS OF COUNTRIES THAT DO NOT HAVE CDI SUBSCRIBED WITH SPAIN OR THEY HAVE A CDI, BUT NOT INCLUDING THE WEALTH TAX [IP].

In this case: Albania, Andorra, Algeria, Australia, Brazil, Cape Verde, Qatar, USA, China, Korea, Philippines, Finland, Hong Kong, Ireland, Italy, Jamaica, Japan, Malaysia, Malta, New Zealand, Oman, Pakistan, Portugal, Philippines, Dominican Republic, Romania, Senegal, Singapore, Thailand, Turkey, Vietnam; and with suspensory or resolutive nature: Saudi Arabia, Colombia, Croatia, Egypt.

The resident individuals in these countries with assets in Spain would be subject by real obligation, to two different taxes:

  • Wealth Tax [IP]

They must calculate the IP on the value of their assets and rights of all types located in Spain (real estate property, money, Spanish companies, vehicles, etc.) and now also on the foreign companies whose main asset(s) is constituted by real estate property located in Spanish territory, since they are already considered located in Spain.

They will be able to discount the charges and debts of article 9.4 of the Wealth Tax Act [LIP], and they should declare to the State in principle with the state legislation (minimum exemption of 700,000€ and rate from 0.2% to 3.5%) but since 2021, all the non-residents (EU or Non-EU citizens) have the right to apply the legislation of the Autonomous Community where the highest value of their assets in Spain is located, if it results more favourable. If it is Madrid or Andalusia, they can apply an allowance of 100% and not pay, although they should pay if the value of their assets exceeds 2,000,000€.

Taxation on foreign companies

With the amendment introduced in article 5 of Wealth Tax Act [LIP], the individuals would pay tax who are titleholders of foreign companies whose main asset(s) (more than 50%), directly or indirectly, is real estate property located in Spain. In order to determine whether or not such taxation is applicable, the assets of these foreign entities will be computed by replacing the book value of the assets by their market value, and in the case of real estate by their value applying the Wealth Tax [IP] rules. Consequently for real estate property in Spain acquired before 2022, it will use the higher value of: (i) the cadastral value, (ii) the value verified by the Treasury for purposes of other taxes, or (iii) the acquisition price or value; and for real estate properties acquired starting from 2022 already with the Cadastral Reference Value (VRC), it will use the higher value of: (i) the cadastral value, (ii) the value verified or determined by the Treasury (VRC), or (iii) the acquisition price or value.

If the asset of a foreign company, computed in this way, more than 50% are real estate property located in Spain and appraised with the IP rules, in our opinion, the non-resident individuals only should pay tax on the value of this real estate property in Spain, and not on the total value of the foreign holdings. Thus for example, if an individual residing in the USA is the titleholder of 100% of a German company which has its asset in a real estate property in Mallorca appraised at 1,000,000€ and another real estate property in Miami appraised at 600,000€, we consider that said party should only pay the Wealth Tax [IP] on the value of the real estate property in Spain and not on the other assets that appear in the asset balance and which are located outside of Spain (as is the case of the real estate property in Miami).

Certainly, the CDI agreements that include the section in reference to real estate companies would permit Spain to require the Wealth Tax [IP] on the total value of these holdings in foreign companies, but in our opinion, this is not the intention of the Spanish legislator. Of course, it would be highly desirable to amend the text of the regulation to make it clear that in these cases it is only necessary to pay tax on the part of the value of the foreign company that corresponds to the real estate property in Spain, but with the current text of the amendment, the same interpretation would also be plausible and defensible (the last paragraph states that “the Tax will be exclusively required for these assets or rights, just after ordering for the real estate properties the replacement of their book values by the values of the real estate property that they must use as the taxable base of the Wealth Tax [IP] which would only be located in Spain).

  • Large Fortune Solidarity Tax [ISGF].

They must calculate the ISGF on the value of their assets and rights of all types located in Spain (real estate property, money, Spanish companies, vehicles, etc.) and now also on the foreign companies whose main asset(s) is constituted by real estate property located in Spanish territory, since they are already considered located in Spain. They should calculate the net equity discounting the charges and debts (refer to article 9.4 of the Wealth Tax Act [LIP]) and apply the stipulated rate:

Thus for example, an individual would pay, based on said party’s net equity:

ATTENTION: According to the amendment with which it is intended to create the new tax, it establishes a minimum exemption of 700,000€ but only applicable for residents in Spain, subjects by personal obligation. This minimum exemption, of high amount, cannot be applied to non-residents, subjects by real obligation, which in our opinion infringes the EU Law, in particular, article 63 of Treaty on the Functioning of the European Union [TFEU] (free movement of capital). 

In relation to the taxation of FOREIGN COMPANIES whose main asset(s) is real estate property in Spain, it is identically applicable to all that mentioned above.

We must consider that the amount paid in the Wealth Tax [IP] can be discounted, hence:

  • the non-residents with the higher value of their assets in Madrid or Andalusia will not have paid IP (upon applying the allowance of 100%) so they will be liable to pay ISGF if their net equity in Spain is above €3M.
  • the non-residents with the higher value of their assets in other Autonomous Communities will have paid IP (from 0.2% to 3.5% starting from minimum exemption of 700,000€), which they can discount, thus NOT being liable to pay the ISGF. There will be the obligation to file the declaration for the ISGF if it proves to be a tax payable.

2.2. NON-RESIDENTS OF COUNTRIES THAT HAVE SUBSCRIBED A CDI WITH SPAIN, WHICH INCLUDES THE IP AND CONSEQUENTLY ALSO THE NEW ISGF

In turn, it is important to distinguish two cases:

2.2.1. Non-residents of countries with CDI without a section in reference to real estate companies, whose main asset(s) is constituted by real estate property

This is the case of: Argentina, Austria, Bolivia, Bulgaria, Canada, Czech Republic, Chile, Cyprus, Costa Rica, Cuba, Ecuador, Arab Emirates, Slovakia, Estonia, Greece, Holland, Hungary, Indonesia, Iran, Kuwait, Latvia, Lithuania, Macedonia, Morocco, Poland, Russia, Serbia, Sweden, Switzerland, Tunisia, Venezuela.

They should calculate two taxes:

  • Wealth Tax [IP]

Most of what is explained in the above section applies, but with the major speciality that such non-residents, pursuant to the provisions of such CDI agreements, will only be taxed by a Wealth Tax [IP] on the value of the real estate they own directly in Spain, on movable assets attached to permanent establishments they have in Spain and little else.

All other assets that they may hold in Spain (bank accounts, vehicles, investment funds, securities, and companies of all types, etc.) can only be subject to Wealth Tax [IP] in their country of residence, where they will not be, since few countries in the world continue to have a tax of this nature.

Consequently, the Wealth Tax [IP] in Spain should NOT be paid by the Spanish or foreign companies, although their only or main asset(s) is comprised by, directly or indirectly, by real estate property located in Spain (in spite of the amendment of article 5 of the Wealth Tax Act [LIP], since the respective CDI does not grant tax authority to Spain in these cases).

On the real estate property that they directly hold in Spain, they can discount charges and debts for the capital invested in the same (article 9.4 Wealth Tax Act [LIP]) and they must pay to the State, and in principle, applying the state legislation (minimum exemption of 700,000 and rate from 0.2% to 3.5%), and since 2021, all the non-residents (EU and non-EU citizens) can apply the legislation of the Autonomous Community in which the higher value of said assets is located if it results more favourable than the state legislation (for example, Madrid with an allowance of 100%, and Andalusia with the same allowance since 2022).

  • Large Fortune Solidarity Tax [ISGF]

This new Tax shall be considered identical or similar to the Wealth Tax [IP] for the purposes of the Double Taxation Agreements [CDI], hence it can only be required in relation to the real estate property directly located in Spain and NOT on Spanish or foreign companies whose asset(s) is mainly constituted by real estate property located in Spanish territory.

It must be paid if the net equity (discounting charges and debts of article 9.4 of the Wealth Tax Act [LIP]) is higher than €3M, although we consider that this is contrary to the EU Law the fact that it is not permitted to discount the minimum exemption of 700,000€ established for residents in Spain, hence this discrimination should be rectified in the definitive text of the Law so that the non-residents also pay taxes starting from 3,700,000€.

We must consider that the amount paid in the Wealth Tax [IP] can be discounted, hence:

  • the non-residents with the higher value of their assets in Madrid or Andalusia will not have paid IP (upon applying the allowance of 100%) so they will be liable to pay ISGF if their net equity in Spain is above €3M.
  • the non-residents with the higher value of their assets in other Autonomous Communities will have paid IP (from 0.2% to 3.5% starting from minimum exemption of 700,000€), which they can discount, hence NOT being liable to pay the ISGF. BE CAREFUL: There will be the obligation to file the declaration for the ISGF if it proves to be a tax payable.

2.2.2. Non-residents of countries with CDI with taxation of real estate companies, whose main asset(s) is constituted by real estate property

This is the case of: Germany, Armenia, Azerbaijan, Belgium, Belarus, France, El Salvador, Slovenia, Republic of Georgia, Kazakhstan, Panama, Uruguay, India, Iceland, Israel, Luxembourg, Mexico, Moldova, Norway, United Kingdom, South Africa.

They should calculate two taxes:

  • Wealth Tax [IP]

They must pay tax on:

-The real estate property located directly in Spain,

– The Spanish companies whose main asset(s) is real estate property in Spain,

– The foreign companies whose main asset(s) is constituted by, directly or indirectly, real estate property in Spain (with the amendment of article 5 de la Wealth Tax Act [LIP], these entities shall be considered to be located in Spain and these CDI enable Spain to subject them to taxation).

We refer to that mentioned above, in the sense that with the amendment of article 5 of the Wealth Tax Act [LIP] it aims to tax foreign companies if more than 50% of their asset is comprised by real estate property in Spain, but only for the value corresponding to these properties.

This means, the residents of this set of countries are the main parties affected by the amendment of article 5 of the Wealth Tax Act [LIP], since in spite of the fact that their Double Taxation Agreements [CDI] do permit this taxation in Spain, the internal Spanish regulations did not include this taxation. However after said amendment and considering their CDI, they must begin to pay the corresponding Wealth Tax [IP] in Spain.

Thus for example, if an individual residing in Germany is the titleholder of 100% of a German company which has its asset in a real estate property in Mallorca appraised at 1,000,000€ and another real estate property in Berlin appraised at 600,000€, we consider that said party should only pay the Wealth Tax [IP] on the value of the real estate property in Spain and not on the other assets that appear in the asset balance and which are located outside of Spain.

As we stated, since 2021, all non-residents (EU and non-EU citizens) have the right to apply the legislation of the Autonomous Community where the higher value of their assets is located in Spain if it is more favourable than the State legislation (minimum exemption of 700,000€ and rate from 0.2% to 3.5%), such as what takes place in Madrid and Andalusia (allowance of 100%).

  • Large Fortune Solidarity Tax [ISGF]

As we stated, the Large Fortunes Solidarity Tax [ISGF] is treated in the same way as the Wealth Tax [IP] for the purposes of the Double Taxation Agreements [CDI], hence they must pay tax on:

– The real estate property located directly in Spain, 

– The Spanish companies whose main asset(s) is real estate property in Spain, and

– The foreign companies whose main asset(s) is, directly or indirectly, real estate property in Spain, but only on the value of said real estate properties.

It must be paid if the net equity (discounting charges and debts of article 9.4 of the Wealth Tax Act [LIP]) is higher than €3M, although it is considered contrary to the EU Law which does not permit discounting the minimum exemption of 700,000€ established for residents in Spain, hence this discrimination should be rectified in the definitive text of the Law so that the non-residents also pay taxes starting from 3,700,000€. We must consider that the amount paid in the Wealth Tax [IP] can be discounted, hence:

-the non-residents with the higher value of their assets in Madrid or Andalusia will not have paid IP (upon applying the allowance of 100%) so they will be liable to pay ISGF if their net equity in Spain is above €3M.

-the non-residents with the higher value of their assets in other Autonomous Communities will have paid IP (from 0.2% to 3.5% starting from minimum exemption of 700,000€), which they can discount, hence NOT being liable to pay the ISGF. BE CAREFUL: There will be the obligation to file the declaration for the ISGF if it proves to be a tax payable.

3. TAXATION OF IMPATRIATES, subject to the special regime for posted employees (article 93 of Spanish Income Tax Act [LIRPF]).

Article 93 of the Spanish Income Tax Act [LIRPF] establishes that the individuals who acquire their tax residence in Spain as consequence of moving to Spanish territory can opt to pay the Non-resident Income Tax [IRNR], with the special rules stipulated in section 2 of this article, maintaining the condition of taxpayers for the Spanish Income Tax [IRPF], during the tax period in which the change of residence takes place and during the next five tax periods, complying with specific conditions.

This same IRPF rule establishes that “The taxpayer who opts for the taxation by the Non-resident Income Tax [IRNR] shall be subject by real obligation to the Wealth Tax [IP]”.

This means, they would be individuals with tax residence in Spain but that they would pay tax on the IP by real obligation, only on the assets and rights located in Spain.

In reference to article 5 of the regulatory legislation of ISGF (“They are taxpayers of this tax, and in the same terms, for the taxes on the Wealth Tax [IP] according to that stipulated in Act 19/1991, of 6th of June, of the Wealth Tax [IP]”) these impatriates shall also be subject to the new Large Fortunes Solidarity Tax [ISGF], if they are the titleholders of a net equity in Spain above 3,000,000€ on the accrual date of the tax.

Palma de Mallorca / Madrid, on 22nd of November 2022

Alejandro del Campo Jiménez                                  Alejandro del Campo Zafra