Spanish Solicitors
Torrevieja (Spain)

C/. Narciso Yepes,12 (La Siesta)
Telephone/Fax 0034 966 784 582
Bufete Padilla
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Taxes

SPANISH STATE TO REFUND 200M€ TO NON RESIDENTS
DUE TO ILLEGAL INHERITANCE TAX CHARGE

 

The Spanish State has charged over 700 million euro in the last eight years for the Inheritance Tax (hereinafter IHT) which has been applied directly to non resident citizens. However, according to first estimations about 200M€ will be refunded to this non residents, according to the EU Tribunal Resolution dated 3rd September 2014 which stated that Spain was breaching and not complying the EU Laws which established a ban to avoid discrimination in tax and fiscal terms between residents and non residents.

The discrimination was found when applying IHT to citizens, as in Spain different regions has got self power to legislate in order to establish and set taxes, tax deductions, exemptions or allowances regarding IHT. The wrong point was discovered when residents were charged even 90% or 99% less tax payment liabilities compared to non residents in some areas, for instance, according to family relationship or connection to the deceased, spouses and children could have an IHT allowance up to 99% in Asturias, Baleares, Cantabria, Madrid or Valencia Regions. Nevertheless, non residents were not applied at all this deductions and allowances, but had to declare the IHT to the National Taxes Authorities (AEAT) and pay around 34 or 40% tax instead. For example, for a Probate or Inheritance occurred in Madrid as the properties are located in this City, the deceased passed away and was resident in Munich, Germany, and the inheritor, his son, lives in Murcia, in this case IHT would be as low as 1%, but if the inheritor was resident in Munich the IHT would increase up to 30%.

In next articles we are explaining how the Government is planning to change the IHT laws in order to comply with the EU Resolution and Regulations, by charging the same no matter if you are resident or non resident.

On the other hand, Taxes Authorities in Spain are open to refund to those who claim and are entitled to this refund, providing that inheritors having IHT are Spouses and Children and within the last 4 years, otherwise refund would not occurr for not matching legal requirements. In Bufete Padilla Law Firm we could guide you and claim for your refund and your rights if you are one of these affected people.

 

THE UPCOMING INHERITANCE TAX (IHT) APPROVED BY THE GOVERNMENT

The PP party has presented a new Bill of Law at the Parliament, in order to rule how non residents in Spain could apply same IHT reductions and allowances as residents, to comply with the EU Tribunal Resolution since 3rd September 2014 commented in a previous article, wich established that IHT laws application in Spain were illegal and breached the EU Regulations for non discrimination.

This new Bill of Law prepared at Congress would include amendements in different Tax Laws, such as Income Tax Law (IRPF), IHT (ISD) Law, Non Residents Income Tax Law (IRNR) which is being under study for the past month of May.

New rules to avoid discriminations between residents and non residents take into consideration the effective relationship of the tax payer wih the regions where IHT or Income Tax must be paid and also with the nature or kind of asset to be inherited.

In case of an Inheritance, legacy or any similar inheritance matter, if the deceased person was resident in any EU or CE territory, the non resident tax payer could apply the same IHT allowance or reductions as if he/she was resident in this particular area, where most assets are located.

If the decased used to be resident in one of these regions, the non resident tax payer, who has address at any EU territory, would also apply for the same IHT reductions and allowances. Life insurance policies will apply IHT reductions of the region where Insurance company has got its domicile.

The IHT liquidation and return forms will have to submitted to the Non Residents Tax Office located in Madrid.

Regarding Wealth Tax, the future Law will establish that tax amount to be paid by the non resident will be calculated according to the region where most of the assets are located.

 

THE GENERAL TAXES OFFICE THOUGHTS ON NEW IHT SCHEME

The whole legal system in Spain was waiting for the thoughts and opinion regarding the new appliction of the former illegal IHT of one of the most important Institution or Office, and this is the General Taxes Office (hereinafter DGT).

DGT issued a Resolution after a consultation made last 18th February 2015 by a Spanish Resident who was going to inherit according to a Grant of Probate issued by German Succession Laws as the death occurred in this country where the deceased made his last Will and Testament.

According to the Resolution, the Spanish resident could apply same IHT rules of the region where this person lived, as if the Probate was issued in Spain.

The last 3rd September 2014, as I have previously commented in other articles in our website, the EU Court issued a Resolution which changed completely the IHT application rules in Spain, as this Resolution literally stated that the Spanish Government was not complying with the freedom of capital rules within the EU territory and was discriminating in fiscal terms between residents and non residents in Spain.

This EU mandatory and important Resolution made Spain Government to amend the IHT law in force since 1987 and some other laws in force since 2004 and 2006. This amendment was made through the 26/2014 Act introducing a new Aditional Section which established that EU residents or nin residents in Spain should be treated equally with no discrimination at all in IHT terms, notwihstandin the residence was such territory ori f assets were located in such region.

Therefore, successions or donations in which the inhertitor or donator was non resident in Spanish territory, or if succession had to do with any asset located out of Spain, for example, as in the case above mentioned dated in February 2015, which the inheritor was resident in Spain but probate and rights to inherit came from Germany, so as the deceased passed away and granted his Last Will in that Country, in this particular case the Spanish Inheritor could choose to apply the ITH law of the region where most assets where located, or if there were no assets in Spain, which was the case, he could apply the law of his residence luckylly with all the reductions and allowances, but having to submit his IHT Form to Madrid’s Non Resident IHT office eitherway.

NEW SPANISH RESIDENTS FISCAL DUTIES:


AGREEMENT BETWEEN THE KINGDOM OF SPAIN AND THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL AND PROTOCOL , MADE IN LONDON, 14 MARCH2013 (BOE 118 15 MAY 2014)

AGREEMENT BETWEEN THE KINGDOM OF SPAIN AND THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL
The Kingdom of Spain and the United Kingdom of Great Britain and Northern Ireland, desiring to conclude a Convention for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and on capital , have agreed as follows :

Article 1 . Persons covered
This Convention shall apply to persons who are residents of one or both Contracting States.
Article 2 . TAXES COVERED
1. The present Convention shall apply to taxes on income and on capital imposed by each Contracting State , its political subdivisions or local authorities , irrespective of the system they are levied.
2. Income taxes are considered and on capital all taxes imposed on total income or assets or any part thereof , including taxes on gains from the alienation of movable or immovable property and taxescapital gains .
3. Existing taxes to which the Convention shall apply are in particular:
a) in Spain :
( i ) the income tax on individuals;
( ii ) the corporation tax;
( iii ) the Income Tax Nonresident ;
( iv ) the wealth tax ;and
( v ) local taxes on income and on capital ;
( hereinafter referred to as " Spanish tax") .

b ) in the United Kingdom:
( i ) the income tax ;
( ii ) the corporation tax;and
( iii ) the Capital Gains Tax ;
( hereinafter referred to as "British tax") .

4. Convention shall apply also to any identical or substantially similar to be established after the signing of the contract , which are added to the existing taxes .The competent authorities of the Contracting States the significant changes which have been made in their respective taxation laws shall exchange .

Article 3 . General definitions
. 1 For the purposes of this Convention, unless the context otherwise requires a different interpretation :
a) the term "Spain" means the Kingdom of Spain and, when used in a geographical sense , means the territory of the Kingdom of Spain , including internal waters , airspace , territorial waters and maritime areas external to the territorial sea in whichunder international law and under its domestic law, the Kingdom of Spain exercises or may exercise in the future jurisdiction or sovereign rights with respect to the seabed , its subsoil and superjacent waters, and their natural resources;

b ) the term " United Kingdom " means Great Britain and Northern Ireland, including internal waters , air especio and the territorial sea and maritime areas external to the territorial sea in which, under international law and underits domestic legislation on the continental shelf, UK imposes or may impose in the future jurisdiction or right to sovereignty over the seabed, its subsoil and superjacent waters, and their natural resources;

c ) the terms "a Contracting State" and "the other Contracting State" mean Spain or the UK, as the context requires ;

d ) the term "person" includes individuals , trusts , corporations and any other body of persons ;

e) the term "company" means any body corporate or any entity which is treated for tax purposes;

f ) the term "enterprise" applies to the carrying on of any business ;

g ) the terms "enterprise of a Contracting State" and " enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

h ) the term " international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State ;

i ) the term "competent authority" means:

( i ) in Spain : the Minister of Finance or his authorized representative;

( ii ) in the United Kingdom the Commissioners for Her Majesty's Revenue and Customs ( Commissioners of the Ministry of Finance and Customs HM ) , or their authorized representatives ;

j ) the term "national" means :

( i ) in relation to Spain :

aa ) any individual possessing the nationality of Spain ;

bb ) any legal person , partnership ( partnership ) or association organized under the laws in force in Spain ;

( ii ) in relation to the UK, a British citizen or a British subject who is not a citizen of another country or territory of the Commonwealth , provided you have the right of abode in the UK ;and a legal person , partnership , association or entity organized under the laws in force in the United Kingdom;

k ) the term " business" includes the performance of professional services and of other activities of an independent character ;

l ) the term " pension plan " means:

( i ) in Spain :
plans or pension funds, mutual welfare and any other entity incorporated in Spain

(aa ) to manage the right of the people to whom they are to receive income or capital by age, survivors , widows, orphans and disability ;and

( bb ) whose contributions have with tax benefits in the form of netted from taxable income in the personal income tax ;

( ii ) in the United Kingdom:
plans , funds , trusts or other agreements entered into in the UK

(aa ) are generally exempt from tax on income ;and

( bb ) the principal purpose of the manage or provide pension or retirement benefits, or to generate income for the benefit of one or more of these agreements.

2 . For the implementation of the Convention at any time by a Contracting State , any term not defined therein shall, unless the context otherwise requires a different interpretation , meaning that at that time under the law of thatState concerning the taxes to which the Convention applies, any meaning under the tax on that term under other laws of that State law meaning.

Article 4 . Resident

1. The purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State , is liable to tax therein by reason of his domicile , residence , place of management, place of incorporation or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof . This term does not include , however , the person who is liable to tax in that State in respect only income or capital gains from sources located in that State or capital situated therein.the term "resident of a Contracting State" includes pension plans constituted in that State.

2. Where under the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

a) shall be deemed to be a resident only of the State in which he has a permanent home available to him ;if he has a permanent home available to him in both States , he shall be deemed a resident only of the State with which his personal and closer economic relations (center of vital interests);

b ) if the State can not be determined in which he has his center of vital interests , or if not a permanent home available to him in either State , shall be deemed to be a resident only of the State in which he has an habitual abode ;

c ) if habitual abode in both States or in neither did any of them , shall be deemed to be a resident only of the State of nationality ;

d ) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement .

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States , shall be deemed to be a resident only of the State in which its place of effective management is situated .

4. For the purposes of the application of this Convention. :

a) an item of income , profit or gain :

( i ) obtained in a Contracting State through a partnership, a trust, group of persons or a similar entity established in the other Contracting State;and

( ii ) considered by the tax laws of that other Contracting State as the income of the beneficiaries , members or participants of that partnership, trust or similar entity grouping ;
is eligible for treaty benefits to be granted if the immediate beneficiary was a beneficiary , member or shareholder of the partnership, trust, consortium or similar entity , resident of the other Contracting State , to the extent that such beneficiaries, membersor participants are residents of that other Contracting State and satisfy the other conditions laid down in the Convention, regardless of whether the tax laws of the State mentioned first is that income such as income beneficiaries, members or participants;

b ) an item of income , profit or gain :

( i ) obtained in a Contracting State through a partnership, a trust, group of persons or a similar entity established in the other Contracting State;and

( ii ) considered by the tax laws of that other Contracting State as the income of the partnership, trust or similar entity grouping ; is eligible for treaty benefits to be awarded to a resident of that other Contracting State , without regard to whether the tax laws of the State mentioned first is that income as the income of such partnership, trust, body of personsor similar entity if such partnership, trust, group of persons or similar entity is a resident of that other Contracting State and meets other conditions laid down in the Convention;

c ) an item of income , profit or gain :

( i ) obtained in a Contracting State through a partnership, a trust, group of persons or a similar entity established in that Contracting State ;and

( ii ) considered by the tax laws of the other Contracting State as the income of the beneficiaries , members or participants of the partnership, trust or similar entity grouping ;and

( iii ) considered by the taxation law of the Contracting State referred to first as income of the partnership, trust or similar entity grouping ;may be taxed under state tax law first mentioned without restriction ;

d ) an item of income , profit or gain :

( i ) obtained in a Contracting State through a partnership, a trust, group of persons or a similar entity established in that Contracting State ;and

( ii ) considered by the tax laws of the other Contracting State as the income of the partnership, trust or similar entity grouping ;
He is not eligible for treaty benefits ;

e) an item of income , profit or gain :

( i ) obtained in a Contracting State through a partnership, group of persons or a similar entity established in a State of the Contracting States ;and

( ii ) considered by the taxation law of that other Contracting State and the State in which the entity is organized as income of the beneficiaries , members or participants of that partnership, consortium or similar entity ;
is eligible for treaty benefits to be granted if the immediate beneficiary was a beneficiary , member or shareholder of the partnership, group of persons or similar entity resident of that other Contracting State , to the extent that such beneficiaries , members or participants are residents of that other Contracting State and satisfy the other conditions laid down in the Convention, regardless of whether the tax laws of the State mentioned first is that income such as income beneficiaries, members or participants , if the State in which the company was formed in persons, group of persons or similar entity has an agreement or arrangement containing a provision for exchange of information to prevent tax evasion with the first-mentioned State;

f ) an item of income , profit or gain :

( i ) obtained in a Contracting State through a partnership, group of persons or a similar entity established in a State of the Contracting States ;and

( ii ) considered by the tax laws of that other Contracting State as the income of the partnership, group of persons or similar entity ;
He is not eligible for treaty benefits .

Article 5 . Permanent establishment

1. The purposes of this Convention, the term "permanent establishment" means a fixed place of business through which an enterprise is wholly or partly carried on .

2. The term "permanent establishment" includes especially :

a) a place of management ;

b ) branches ;

c ) an office;

d ) a factory;

e) a workshop ;and

f ) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

3. A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months.

4. Notwithstanding the preceding provisions of this Article , it is considered that the term "permanent establishment" does not include:

a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

b ) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

c ) the maintenance of a stock of goods or merchandise belonging to the enterprise solely so that processing by another enterprise;

d ) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

e) the maintenance of a fixed place of business solely for the company for any other activity of a preparatory or auxiliary character ;

f ) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e) , provided that the overall activity of the fixed place of business resulting from this combinationpreparatory or auxiliary character.

5. Notwithstanding paragraphs 1 and 2, where a person other than an independent agent to which section 6 applies is acting on behalf of an enterprise and has , and habitually exercises in a Contracting State an authority toconclude contracts on behalf of the company, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise , unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised throughof a fixed place of business , they had not given the consideration of this fixed place of business a permanent establishment under the provisions of that paragraph.

6. Was not considered a company has a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or other independent agent, provided that such persons are acting in theordinary course of their business .

7. The fact that a company resident in a Contracting State controls a resident of the other Contracting State , or controlled by it, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

Article 6 . Rents estate

1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

2. The term "immovable property" shall have the meaning which it has under the law of the Contracting State in which the property is situated. The term shall in any case include property accessory to immovable property , livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply , usufruct of immovable property and rights to variable consideration for the working of, or the right to work , mineral deposits , sources and other natural resources or fixed payments ;ships, boats and aircraft shall not be regarded as immovable property .
3 . Paragraph 1 shall apply to income derived from the direct use, letting, or as well as any other form of immovable property .

4. When ownership of shares or other rights directly or indirectly attributable to the owner of such shares or interests or rights , the right to enjoyment of property , income derived from the direct use , letting, or use inany other form of such right to enjoyment may be taxed in the Contracting State in which the property is situated.

5. The provisions of paragraphs 1 , 3 and 4 shall also apply to income from immovable property of an enterprise .

Article 7. Business profits

1. Profits of an enterprise of a Contracting State may be taxed only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid , the profits of the enterprise may be taxed in the other State but only to the extent that they are attributable to that permanent establishment .

2 . Notwithstanding the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which the it would have been able to obtain a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment .

3 . In determining the profits of a permanent establishment deduction of expenditure incurred for the purposes of the permanent establishment shall allow, including the cost of management and general administration for the same purposes , whether incurred in the Contracting State in which the permanent establishment is situated or elsewhere .

4. No profits to a permanent establishment shall be allocated by reason of the mere purchase of goods or merchandise by that permanent establishment for the company.

5. For the purposes of the preceding paragraphs, the profits attributable to the permanent establishment shall be determined each year by the same method unless there are good and sufficient grounds to proceed otherwise .

6. Where profits include items of income or capital gains are dealt with separately in other Articles of this Convention , the provisions of those Articles shall not be affected by this Article.

Article 8. Maritime and air transport

1. Profits of an enterprise of a Contracting State derived from the operation of ships or aircraft in international traffic shall be taxable only in that State.

2. Paragraph 1 shall also apply to profits from the participation in a "pool" , a joint business or an international operating agency .

Article 9 . Associates

1 . When

a) an enterprise of a Contracting State participates directly or indirectly in the management , control or capital of an enterprise of the other Contracting State , or

b ) the same persons participate directly or indirectly in the management , control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State ,

and in either case the two enterprises in their commercial or financial relations conditions are made or imposed which differ from those which would be made between independent enterprises, then any profits which would have accrued to one of the enterprises, but by reason of those conditions, and in fact have not been performed because of the same , may be included in the profits of that enterprise and taxed accordingly.

2. Where a Contracting State includes in the profits of an enterprise of that State , and taxes accordingly , taxed - profits on which an enterprise of the other State has been charged to tax in that other Contracting State and the other State acknowledged that the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have made ​​between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment the other provisions of this Convention shall be considered and the competent authorities of the Contracting States shall if necessary consult .

Article 10 . Dividends

1. Dividends paid by a company resident in a Contracting State to a resident of the other Contracting State may be taxed in that other State .

2 However, such dividends . :

a) may also be taxed in the Contracting State of which the company paying the dividends and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State , the tax so charged shall not exceed:

( i) 10 percent of the gross amount of dividends , except as provided in subparagraph a) ( ii );

( ii ) 15 per cent of the gross amount of the dividends when they are paid out of income (including profits) arising directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle that distributes most of their income annually and whose income from such immovable property is exempt from tax ;

b ) notwithstanding the provisions in subparagraph a), shall be exempt from tax in the Contracting State of which the company paying the dividends if the beneficial owner is :

( i) a resident of the other Contracting State controls, directly or indirectly , at least 10 percent of the capital of the company paying the dividends ( in individual cases referred to in subparagraph a) ( ii ) in which the payer of the dividends is an investment ); or

( ii) a pension plan of a resident of the other Contracting State.

This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

3 . The term " dividends" as used in this Article means income from shares , shares or bonds, mines and parts or other rights that allow participating in profits , excluding credit and any other element subject to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident .

4 . The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends , being a resident of a Contracting State , carries on business in the other Contracting State of which he is a resident company paying the dividends , economic activity through a permanent establishment situated therein , and the holding of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

5. When a company resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident that other State or participation that the dividends are paid is effectively connected with a permanent establishment situated in that other State, nor subject the undistributed profits of the company to a tax on undistributed profits , even if the dividends paid or the undistributed profits consist , wholly or partly of profits or income arising in such other State.

Article 11. Interests

1. Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State may be taxed only in that other Contracting State.

2. The term " interest" as used in this Article means income from debt claims of every kind, whether or not secured by mortgage or right to participate in the debtor's profits , and in particular , income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, and any other income that is subject to the same treatment as income from money lent by the taxation law of the State in which the income arises . Penalty charges for late payment shall not be regarded as interest for the purposes of this Article. The term does not include any other information deemed dividend pursuant to Article 10.

3 . Paragraph 1 shall not apply if the beneficial owner of the interest , being a resident of a Contracting State , carries on business in the other Contracting State in which the interest arises, an economic activity through a permanent establishment situated in that other State , and credit which the interest is effectively connected with such permanent establishment . In such case the provisions of Article 7 shall apply.

4 . Where, owing to a special relationship between the payer and the beneficial owner or between both of them and another with third parties , the amount of interest paid exceeds, for whatever reason, which would have been agreed upon by the payer and the recipient effective in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount . In this case, the amount in excess shall remain taxable according to the laws of each Contracting State, due to the other provisions of this Convention.

Article 12 . Canons

1. Royalties arising in a Contracting State and beneficially owned by a resident of the other Contracting State may be taxed only in that other State .

2 . The term "royalties" as used in this Article means payments of any kind received by the use or right to use, copyrights, patents , trademarks , trade name, designs , drawings, formulas or secrets, or the use or right to use industrial , commercial or scientific equipment or for information concerning industrial , commercial or scientific experience , or payments of any kind related to films and recordings for radio and television procedures .

3 . Paragraph 1 shall not apply if the beneficial owner of the royalties , being a resident of a Contracting State , carries on business in the other Contracting State in which the royalties arise , an economic activity through a permanent establishment situated in that other state and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment . In such case the provisions of Article 7 shall apply.

4 . Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties paid exceeds, for whatever reason , which would have been agreed by the payer and the recipient effective in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount . In this case, the amount in excess shall remain taxable according to the laws of each Contracting State, due to the other provisions of this Convention.

Article 13. Earnings capital

1. Gains derived by a resident of a Contracting State from the alienation of immovable property as defined in Article 6 and situated in the other Contracting State may be taxed in that other State.

2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State , including such gains from the alienation of such a permanent establishment (alone or with whole enterprise ) , may be taxed in that other Contracting State.

3. Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic by an enterprise of that State or of movable property pertaining to the operation of such ships or aircraft shall be taxable only in that State.

4. Gains derived by a resident of a Contracting State from the alienation of shares other than those that are significant and regularly traded on a stock exchange , shares, or similar rights, the appropriate value by more than 50 percent, directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.

5. Gains from the alienation of shares or other rights , directly or indirectly , grant the owner of such shares or rights, the right to the enjoyment of immovable property situated in a Contracting State may be taxed in that State.

6. Gains from the alienation of any property other than that referred to in paragraphs 1 , 2 , 3, 4 and 5 can only be taxed in the Contracting State of which the transferor .

Article 14 . Compensation of employees

1. Notwithstanding the provisions of Articles 15, 17 and 18, salaries , wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the job is done that way , remuneration derived therefrom may be taxed in that other State.

2. Notwithstanding paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State may be taxed only in the first-mentioned State if:

a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and

b ) the remuneration is paid by an employer who is not a resident of the other State , or on behalf of , and

c ) the remuneration is not borne by a permanent establishment which the employer has in the other State.

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic may be taxed in the Contracting State in which he resides the enterprise operating the ship or aircraft .

Article 15 . DIRECTORS '

Shares and other similar payments derived by a resident of a Contracting State as a member of the board of directors of a resident of the other Contracting State may be taxed in that other State .

Article 16 . Artists and athletes

1. Notwithstanding the provisions of Articles 7 and 14 , income derived by a resident of a Contracting State in the exercise of their personal business in the other Contracting State as an entertainer , actor of theater, film , radio or television , or as a musician, or as an athlete , may be taxed in that other State.

2 . Notwithstanding the provisions of Articles 7 and 14, where income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to another person, that income may be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised .

Article 17 . Pension

Notwithstanding the provisions of paragraph 2 of Article 18 , pensions and other similar remuneration paid to an individual resident of a Contracting State shall be taxable only in that State.

Article 18 . Civil Service

1.

a) Salaries, wages and other similar remuneration paid by a Contracting State or a political subdivision or local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that state .

b ) However , such salaries, wages and other similar remuneration shall be exclusively subject to tax in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

( i ) is a national of that State; or

( ii ) did not become a resident of that State solely to provide the services .

2 .

a) Notwithstanding the provisions of paragraph 1 , pensions and other similar remuneration paid by a Contracting State or a political subdivision or local , either directly or by entities thereof to an individual in respect of services funds rendered to that State or subdivision or authority , can only be taxed in that State.

b ) However, such pensions and other similar remuneration shall be exclusively subject to tax in the other Contracting State if the individual is a resident and national of that State .

3 . The provisions of Articles 14 , 15, 16 and 17 shall apply to salaries, wages, pensions and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a its political subdivisions or local authorities .

Article 19 . Learners

The amounts received to cover his maintenance , education or training a student or an apprentice or trainee who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training shall not be taxed in that State, provided that arise from sources outside it.

Article 20 . OTHER INCOME

1. Rentals beneficially owned by a resident of a Contracting State, wherever arising , not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

2 . Notwithstanding paragraph 1, where a certain amount of income to a resident of a Contracting State in respect of income received by a trustee or an administrator of a vacant inheritance and such trustee or administrator to pay a resident of other Contracting State shall be considered that amount of income comes from the same sources and the same proportion as the income received by the trustee or administrator of the vacant inheritance under which it pays .

3 . The provisions of paragraph 1 shall not apply to income , other than income from immovable property as defined in paragraph 2 of Article 6, if the beneficial owner of such income, being a resident of a Contracting State, carries on the other Contracting State an economic activity through a permanent establishment situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

4 . Where, by reason of a special relationship between the resident referred to in paragraph 1 and the other person , or between both of them in person, the amount of income to which that paragraph refers exceed (where applicable) the amount that would have been agreed between them in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount . In this case, the amount in excess shall remain taxable according to the laws of each Contracting State , taking into account the other applicable provisions of this Agreement.

Article 21 . Heritage

1. Capital represented by immovable property in Article 6 , owned by a resident of a Contracting State and situated in the other Contracting State are defined , may be taxed in that other State.

2 . Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State may be taxed in that other State.

3. Capital represented by ships and aircraft operated in international traffic by an enterprise of a Contracting State or by movable property pertaining to the operation of such ships and aircraft can only be taxed in that Contracting State .

4 . Capital represented by shares or other rights in a company or other body of persons , whose appropriate value by more than 50 percent, directly or indirectly from immovable property situated in a Contracting State or shares or units or other rights entitling its owner the right to enjoyment of immovable property situated in a Contracting State may be taxed in the Contracting State in which the property is located .

5 . All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

Article 22 . Elimination of double taxation

. 1 Spain , double taxation shall be avoided either in accordance with the provisions of its domestic law or in accordance with the following provisions, in accordance with Spanish domestic legislation :

a) Where a resident of Spain derives income or owns capital which , in accordance with the provisions of this Convention, may be taxed in the UK, Spain will:

( i ) the deduction of tax on income of that resident, an amount equal to the income tax paid in the United Kingdom;

( ii ) the deduction of tax on the capital of that resident, an amount equal to the tax paid in the United Kingdom on these assets ;

( iii ) the deduction of income tax actually paid by the company distributing the dividends corresponding to the profits out of which such dividends are paid, to be awarded in accordance with the domestic laws of Spain .

However, such deduction shall not exceed that part of income tax or capital tax , as computed before the deduction corresponding to the income or the capital which may be taxed in the UK.

b ) Where in accordance with any provision of this Convention income derived by a resident of Spain , or capital owned , is exempt from tax in Spain , Spain may, however , take into account the exempted income or assets to calculate the tax on the remaining income or capital of such resident .

2 . Pursuant to the provisions of UK law relating to the deductibility of the British tax taxes due in a territory outside the United Kingdom or , where appropriate, on the British tax exemption of dividends or profits from a permanent establishment in a territory outside the United Kingdom ( without affecting the general principles of this article) :

a) the Spanish tax due under the law of Spain and in accordance with this Convention , whether directly or by deduction, in respect of benefits , income or chargeable gains from Spanish source (except the tax on dividends payable by reason of the profits out of which the dividend is paid ) shall be deductible against British tax calculated for the same benefits , income or taxable income on which the tax is calculated Spanish ;

b ) dividends paid by a company resident in Spain to a UK resident company will be exempt from UK tax provided that the exemption is applicable and the conditions for exemption under the UK regulations are met;

c ) the profits made by a permanent establishment in Spain of a company resident in the UK will be exempt from UK tax provided that the exemption is applicable and the conditions for exemption under the UK regulations are met;

d ) in the case of non-exempt dividends from taxation under subsection b ) above paid by a company resident in Spain to a resident of the United Kingdom and which controls directly or indirectly at least 10 percent of the voting power of the company paying the dividend , the deduction referred to in subparagraph a) above shall also consider the Spanish tax payable by the company in respect of the profits out of which such dividend is paid .

3 . For the purposes of paragraphs 1 and 2 , profits, income or gains owned by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other State .

Article 23 . Miscellaneous Provisions

1. Where under any provision of this Convention a Contracting State to reduce the tax rate corresponding to an item of income , profit or gain of a resident of the other Contracting State or exempted from taxation and , in accordance with the rules in force in that other Contracting State that resident is liable to tax in that other State only in respect of that item of income , profit or gain to refer to that other State or is received by it, and not because of the full amount , the reduction or exemption shall apply only to that part of the income, profit or gain is subject to tax in that other State.

2 . Any deduction or reduction shall not apply under this Convention if the primary purpose or one of the main purposes of any person concerned with the creation , assignment or transfer of an action , credit, assets or other rights in respect of that generate income or gains , whether to get the benefits under this Agreement by such creation, transfer or alienation.

Article 24 . Nondiscrimination

1. Nationals of a Contracting State are not subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or that are more onerous than those which are or may be it the nationals of that other State are in the same conditions, in particular with respect to residence .

2. Permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be taxed in that State less favorably than companies that other State carrying on the same activities manner.

3 . Unless the provisions of paragraph 1 of Article 9, paragraph 4 of Article 11 , paragraph 4 of Article 12 , paragraph 4 of Article 20 or paragraph 2 of Article 23 apply, interest, royalties and other applied disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for determining the taxable profits of such enterprise, under the same conditions as if they had been paid to a resident of the first. Similarly, any debts of an enterprise of a Contracting State to a resident of the other Contracting State shall, for the determination of taxed assets of the company under the same conditions as if they had been contracted to a resident of the first .

4 . Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State shall not be subjected in the first-mentioned State in any taxation or any requirement connected therewith not require or are more burdensome than those which are or may be subjected other similar enterprises of the first-mentioned State .

5. The provisions of this Article shall not be construed as obliging a Contracting State to grant to non-residents of that State any personal allowances , reliefs and reductions for taxation at national or resident individuals .

6. The provisions of this article apply to the taxes referred to in Article 2 of this Convention .

Article 25 . Mutual Agreement Procedure

1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, notwithstanding the remedies provided by the domestic law of those States , present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 24 , to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.

2 . 's Competent authority , if the objection appears justified and if it is not itself reach a satisfactory solution, to endeavor to resolve the case by mutual agreement with the competent authority of the other Contracting State , in order to avoid taxation not in accordance with the Convention . The agreement will be implemented notwithstanding any time limits or other procedural limitations provided for in the national law of the Contracting States , except where such limitations applicable to claims made ​​under the agreement.

3 . Competent authorities of the Contracting States shall endeavor to resolve any difficulties or doubts arising as to the interpretation or application of this Agreement by mutual agreement . They may also consult together for the elimination of double taxation in cases not provided for in the Convention.

4 . Purpose of reaching an agreement in the sense of the preceding paragraphs , the competent authorities of the Contracting States may communicate directly , including through meetings.

5 . When

a) by virtue of paragraph 1 a person has submitted his case to the competent authority of a Contracting State alleging that the actions of one or both of the Contracting States result for him in taxation not in accordance with the provisions of this Convention , and

b ) the competent authorities may not agree to settle your case as provided in paragraph 2 within two years from the presentation of the case to the competent authority of the other Contracting State ,

at the request of the taxpayer , any unresolved issue related to this case be referred to arbitration .

However, these unresolved issues may not be referred to arbitration when , under the domestic law of either Contracting State , a person directly related to the case is entitled to the courts or administrative bodies of that State to pronounce on them , where such courts or administrative bodies have been pronounced , or when the case has been raised to any of the competent authorities under the European Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises signed 23 July 1990. unless a person that directly concerns the case reject the mutual agreement that applies to the opinion , that opinion shall be binding on both Contracting and implemented notwithstanding any time limits in the domestic law of the Contracting States United . The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this paragraph .

Article 26 . Exchange information

1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States its political subdivisions or local , insofar as the taxation thereunder is not contrary to this Convention , in particular, to prevent fraud and facilitate the implementation of laws against tax avoidance entities. The exchange of information is not restricted by Articles 1 and 2.

2 . The information received by a Contracting State under paragraph 1 shall be kept secret in the same manner as information obtained under the domestic laws of that State and to persons or authorities shall (including courts and administrative bodies) responsible for the assessment or collection of taxes referred to in paragraph 1 of the enforcement or prosecution in respect of such taxes on , the resolution of appeals in relation to, or supervision of such activities. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions . Notwithstanding the foregoing , information received by a Contracting State may be used for other purposes when , under the law of the requesting State, such information may be used for such other purposes and the competent authority of the State authorizes such use.

3. in no case shall the provisions of paragraphs 1 and 2 be construed as obliging a Contracting State to:

a) to carry out administrative measures at the laws and administrative practice of that or of the other Contracting State;

b ) to supply information which is not obtainable on the basis of laws or in the normal course of the administration of that or of the other Contracting State ;

c ) to supply information which would disclose any business, industrial , commercial or professional secret or trade process , or information which would be contrary to public policy ( ordre public).

4 . Where a Contracting State requests information under this Article, the other Contracting State shall use its information gathering measures at its disposal in order to obtain the requested information, even though that other State may not need such information for its own tax purposes. The foregoing obligation is limited by the provisions of paragraph 3 but in no case the Contracting States may interpret such limitations as the basis to decline to supply information solely because it has no domestic interest in such information .

5 . In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because it is held by banks , other financial institutions , or any person acting in an agency or fiduciary capacity including designated agents , or because it is referring to the share of ownership of a person.

Article 27 . Members of diplomatic missions and consular posts

The provisions of this Convention shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.

Article 28. Entry into force

1. Governments of the Contracting States shall notify each other through diplomatic channels , the time that each has fulfilled the necessary internal procedures for entry into force of this Convention .

2. The Convention shall enter into force on the expiry of three months from the date of receipt of the last of the notifications and its provisions shall have effect :

( i ) in respect of taxes withheld at source , from the date on which the Convention enters into force;

( ii ) in respect of other taxes , for taxable years beginning after the date on which the Convention enters into force;

( iii ) in all other cases , from the date on which the Convention enters into force .

3. Convention between Spain and the United Kingdom of Great Britain and Northern Ireland to avoid double taxation and prevent fiscal evasion with respect to taxes on income and on capital , done at London on October 21, 1975 , as amended by further exchange of Notes (the " previous agreement ") shall cease to have effect in respect of each tax from the date on which this Convention has effect in respect of that tax in accordance with the provisions of paragraph 2, and void in last of those dates.

4 . Notwithstanding the provisions of this Article, the provisions of Article 25 ( Mutual Agreement Procedure ) and 26 ( Exchange of Information) to take effect in accordance with subsection ( iii ) of paragraph 2, the date of entry into force of this Agreement, regardless of the fiscal year or the tax period to which the case is concerned. However, paragraph 5 of Article 25 shall apply only in cases that were first presented to the competent authority from the date of entry into force of this Convention .

5. Notwithstanding the entry into force of this Agreement, individuals who benefit from Article 21 (Teachers ) of the preceding Convention on the date of entry into force of this Convention, may still get the same benefit as if the preceding Convention continue into force .

Article 29 . Complaint

This Agreement shall remain in force until terminated by a Contracting State . Either Contracting State may terminate the Convention , through diplomatic channels , by written notice sent at least six months before the end of any calendar year beginning after a period of five years from the date on which the Convention enters into force . In such event, the Convention shall cease to have effect :

( i ) in respect of taxes withheld at source on amounts paid or due on completion of that calendar year ;

( ii ) in respect of other taxes , for taxable years beginning on or after the conclusion of that calendar year ;

( iii ) in all other cases , from the end of that calendar year.

In witness whereof the undersigned, duly authorized thereto, have signed this Convention.

Done in duplicate at London on March 14, 2013 , in the Spanish and English languages ​​, both texts being equally authentic.

For the Kingdom of Spain ,
For the United Kingdom of Great Britain
and Northern Ireland ,
Federico Trillo -Figueroa Martínez- Conde,
David Gauke ,
ambassador
Treasury Minister
PROTOCOL TO THE AGREEMENT BETWEEN THE KINGDOM OF SPAIN AND THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL

At the moment of the signing of the Convention between the Kingdom of Spain and the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and on capital , the undersigned have agreed upon the following provisions which constitute an integral part of the Convention:

I. In relation to subparagraph l ) of paragraph 1 of Article 3 (General Definitions), paragraph 1 of Article 4 (Residence ) and sub ​​- subparagraph ( ii ) of subparagraph b ) of paragraph 2 of Article 10 (Dividends ) .

It will be understood that the term the term " pension plan " includes :

a) in the case of Spain :

( i ) any funds governed by the Revised Act funds and pension plans, approved by Royal Legislative Decree 1/2002 of 29 November ;

( ii ) any entity defined in Article 64 of the Consolidated Law on regulation and supervision of private insurance approved by Legislative Royal Decree 6/2004 of 29 October , provided that in the case of mutual provident societies all their mutualistic are employees , concurring as patron members or promoters of enterprises, institutions and individual entrepreneurs in providing services and benefits that are granted are solely the consequence of agreements forecast between these and those , and all other comparable regulated entity in the field of political subdivisions ( regions) ;

( iii ) insurance companies regulated by the Consolidated Law on regulation and supervision of private insurance approved by Legislative Royal Decree 6/2004 of 29 October whose business is to cover the contingencies provided for in the Revised Act funds and pension plans ;

b ) In the case of the UK , pension plans (other than social security system ) under Part 4 of the Finance Act ( Finance Act ) 2004 , including pension funds or pension plans contracted through insurance companies and mutual funds , where the holders of the shares are exclusively pension plans.

The competent authorities may agree to include in the above list of pension plans for economic or legal status identical or similar to be created by law passed in accordance with their respective legislative process after the signing of the Convention.

II . In relation to Article 3 (General Definitions), paragraph 4 of Article 4 ( Resident ) and Article 20 ( Other Income ) .

It will be understood that the term " trust " means a trust resident in the UK under its domestic legislation.

III . In relation to subparagraph a) ( ii ) of paragraph 2 of Article 10 (Dividends )

It will be understood that the term " investment vehicle " means:

( i ) in Spain , any entity regulated by Law 11/2009 of 26 October by the Listed Companies Investment regulated in the Real Estate Market ;

( ii ) In the UK, a listed real estate investment company , as defined in accordance with Part 12 of the Corporation Tax Act ( Corporation Tax Act ) of 2010 and real estate investment funds structured as investment companies with variable capital (Property Authorised investment fund ) as defined in Part 4A of Regulation ( Tax ) of the Authorised Investment Funds ) 2006 (SI 2006/964 ) .

IV. In relation to paragraph 4 of Article 6 ( estate Rents ) .

Income from immovable property may not be attributed to anyone owning rights of enjoyment of such property pursuant to a timeshare contract when their enjoyment not to exceed two weeks per calendar year.

V. In conjunction with Articles 20 ( Other income ) and 22 ( Elimination of double taxation) .

Residents in Spain that is a beneficiary of a trust is subject to British taxation in Spain because of the gross amount of income they receive or be entitled to receive the trust.

In this case, Spain allowed the deduction in tax income of that resident an amount equal to the income tax actually paid by the beneficiary in the UK because of the income distribution made ​​once the beneficiary has claimed the relevant returns. However, such deduction shall not exceed that part of income tax , as computed before the deduction, corresponding to the income which may be taxed in the UK.

In witness whereof the undersigned, duly authorized thereto, have signed this Protocol.

Done in duplicate at London on March 14, 2013 , in the Spanish and English languages ​​, both texts being equally authentic.

For the Kingdom of Spain ,
For the United Kingdom of Great Britain
and Northern Ireland ,
Federico Trillo -Figueroa Martínez- Conde,
David Gauke ,
ambassador
Treasury Minister
This Convention and its Protocol shall enter into force on June 12, 2014 , after a period of three months from the date of receipt of the last notification communicating the completion of the procedures necessary for its entry into force , as forth in Article 28.

Taxes

In our offices we offer a yearly tax service, including non residents tax return, which has to be fulfilled and submitted every year before the 30th of December, even though it is recommendable to submit it before the 20th December just in case there is lack of documents, so that matter could be perfectly amended plenty of time. If you are resident you also hace the obligation to fill the income tax return, specially if you work or intend to work in Spain, in such case you have to join the Social Security System (self employed-autónomos or RETA) and the Professional Tax System (036 form)

   Inheritance Tax is very important to be planned and advised before one of your family members or relatives pass away, as these taxes are quite high (could be up to 35 or 40% of the estate value) if the heir is not resident in Spain within a year before the person’s death. You should know that there is an allowance of €16.000 and on top of that the percentage could reach, as said above, 40% of the Estate. There are some ways to avoid that, one it is to become a Spanish fiscal residents, then the allowance increases to €40.000, paying only 1% of the estate on top of that. Secondly, other way it is to provide your assets or estate to a family company (limited) Spanish or British.

   Our firm has got several tax experts who would analyze each particular case to give the proper advice, whether it is property transfer tax, inheritance tax, income tax or non residence tax.

Anyway, if you have any queries about all the above mentioned, don’t hesitate to send me an email to my personal email address: info@spanishsolicitorsandlawyers.com, which I´ll gladly reply as soon as I can.





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