Updated 18 February: I’m grateful to Paul Montague of Blevins Franks for the latest information about the European Commission’s action against what it considers Spain’s disproportionate penalties relating to Modelo 720 declarations. Blevins Franks says:
On Wednesday 15 February the European Commission sent a reasoned opinion to Spanish government giving them two months to amend the Modelo 720 penalty regime as the current penalties are considered disproportionate.
If there is no satisfactory response within this deadline, the Commission will bring the case to the European Court of Justice in order to obtain a ruling on this issue.
According to the Commission, Spain has the right to require its taxpayers to provide information about their overseas assets, however the sanctions and penalties established by the Modelo 720 law are considered to be disproportionate and discriminatory, thus conflicting with the European Union freedoms. The EC found that the penalties established for the Modelo 720 are much higher than the penalties imposed for other defaults such as late payment or late submission of Spanish income and wealth tax returns.
The European Commission has been arguing this case with Spain for the last two years after opening an infringement procedure. However, as no agreement was reached, the EC has decided to take a step forward against the disproportionate penalties for the Modelo 720.
This has been covered recently in some Spanish newspapers:
Blevins Franks say that they will keep everyone updated on the matter over coming months. In respect of this year’s declaration, please see the post immediately below with guidance for the completion of the modelo. Since I’m posting about Blevins Franks, moreover, I’d like to remind everyone about the presentation next Wednesday, 22 February, in Adeje Cultural Centre. Please see HERE for information about the meeting, which is about how best we can protect ourselves for whatever might be the outcome of the Brexit negotiations.
Updated 20 January 2017: Blevins Franks say that they are now approaching the time of year where they receive many phone calls regarding asset reporting, and so the London tax advisory team has just updated two documents that they find extremely useful when being asked about the completion of Modelo 720, the declaration that anyone tax resident in Spain has to make if they have assets of over €50,000 outside of Spain. I am grateful once again to them for letting me have both documents for readers to download here on this site: the first is a leaflet on Reporting Obligations (HERE), and the second is a guide to completing the modelo (HERE).
Updated 7 December 2015: I’m grateful to Paul Montague of Blevins Franks for the information that EC has opened an infringement procedure against Spain for its obligation on fiscal residents with assets of over €50,000 outside of Spain to submit a Modelo 720 declaring their worldwide assets.
The legislation has been reviewed by the EC due to the fact that it may infringe the EU’s basic principles. The Spanish Government has been informed that the infringement procedure has been opened, and Spain now has two months to make the corresponding claims and arguments.
Blevins Franks say that everyone who is currently required to submit Modelo 720 should continue to file the information until Spain changes its law. This will probably take a very long time, perhaps several years. The information sheet from BF can be downloaded HERE.
Update 23 February: Paul Montague has kindly provided the following clarification to try to help people determine their situations more easily. There’s a direct link to his contact details in the update immediately below for anyone who needs further or more detailed information.
You will become resident for tax purposes in Spain if:
a) you spend more than 183 days in one calendar year. You become liable whether or not you take out a formal residence permit. These days do not have to be consecutive. Temporary absences from Spain are ignored for the purpose of the 183-day rule unless it can be proved that the individual is habitually resident in another country for more than 183 days in a calendar year,
b) your “centre of economic interests” is in Spain, i.e. the base for your economic or professional activities is in Spain.
c) your “centre of vital interests” is in Spain – i.e. your spouse lives in Spain and you are not legally separated, and/or your dependent minor children do. In this case you are presumed Spanish resident, unless proven otherwise, even though you may spend less than 183 days per year in Spain.
In Spain, split year treatment does not apply. You are either resident or not resident for the whole tax year (subject to any period of residence in another tax treaty country before or after your Spanish residence commences or ends).
If you move to Spain in the latter half of the calendar year, then you are likely to find that you are regarded as non-Spanish resident during that year, assuming you have not spent 183 days there during the year. However, this will depend on previous visits made to Spain, and if these have been significant or frequent, the Spanish authorities could deem you to be resident in Spain from an earlier date, and may merely regard any subsequent time spent outside of Spain as a temporary absence.
Update 22 February 2015: It’s asset reporting time of year again, and Paul Montague of Blevins Franks says that he’s receiving an awful lot of enquiries for information about it. He hopes that people might appreciate THIS guide specifically to completion of the Modelo 720. Paul has also previously provided THIS general guide to taxes in Spain. Like him, I hope this helps.
Update 14 March 2014: Just a reminder that if you’re tax resident in Spain with assets outside of Spain worth more than €50,000 then you have until the end of March to submit model 720 to the Spanish Tax Office for the new declaration. If you did this last year – the first year that the declaration was required – then you only need to submit a new declaration if your assets have increased by €20,000 or more.
Update 9 April 2013: Blevins Franks has just answered one question that I’ve now been asked time and again, namely the status of a property in the UK that has a mortgage on it. To clarify: the owner is the individual named on the deeds, not the bank, which is considered simply to have a charge on the asset. As such, logically, and now confirmed, that charge is irrelevant for these purposes. The Spanish authorities want the value of a mortgaged UK property in total, disregarding the mortgage, and consider the value to be the original purchase cost. Further, BF says that the declared amount for the property going forward in future years is always the purchase cost as far as they can ascertain.
Update 8 April: An update to give clarification from Blevins Franks.The asset declaration applies to tax residents of Spain (or de-facto tax residents meaning those who live here full time but do not make a tax declaration). Under 99% of circumstances, a person is not deemed to be tax resident unless they spend 183 days or more in Spain so the swallows who spend 5 months a year in Spain for example, do not have to make a declaration for asset reporting.
Update 26 February 2013: There is an updated factsheet for the legal requirements on resident foreign assets reporting. Please click HERE to download it.
Original post 19 December: I am indebted to Blevins Franks for drawing my attention to the fact that as part of more wide-ranging anti-fraud/black economy measures (which include the ban on business cash payments over €2,500), Madrid has amended its fiscal requirements on foreigners’ assets held outside Spain. The new legislation is Ley 7/2012 of 29 October 2012, and the rules came into force straightaway.
The Hacienda (Spanish Inland Revenue) now requires residents to report any and all assets totalling more than €50,000 held outside Spain; after the first declaration, these assets will need to be declared again if they have increased by €20,000. The penalties are apparently very serious, so it is in everyone’s interest to be aware of the requirements. I’ve uploaded a pdf advice sheet from Blevins Franks, please click HERE to download it: BF’s own website is HERE.