The Treasury taxes the properties abroad of non-residents who have a home in Spain through companies

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The Treasury takes advantage of the ambiguity with which it modified the Wealth Tax last December to tax non-residents who have real estate in Spain through foreign companies and now clarifies that these investors will have to pay the tax not only for the assets they have in our country, but also for the rest of the real estate assets that make up the company. Of course, only those companies that have 50% of their assets or more in Spain will pay the tax.

For example, if a non-resident has a company in Germany with which they acquired a 3 million apartment in France and another 2 million in Spain, they will not have to pay Wealth Tax, since 50% of the assets are not in our country. Likewise, the new Tax on Great Fortunes will also be applied to these investors because it is a copy of the Wealth Tax that comes to complement it, especially in the Autonomous Communities where it is subsidized, such as Madrid and Andalusia.

Non-residents, whether Spanish or foreign, who acquired a property in Spain through a company not located in our country, before January 1, 2022 did not have to pay Wealth Tax. The Executive, when it approved in December the banking and energy tax and the Solidarity Tax for Great Fortunes, modified in that text section 1 of article 5 of the Wealth Tax to tax non-residents who had real estate assets in Spain through foreign companies.
When the rule was approved, there were doubts, because the text was “confusing” about the assets on which these people had to pay taxes. But after a German citizen consulted the General Directorate of Taxes (DGT), it has clarified that he must pay taxes for the total value of the company, provided that more than 50% of the assets are in our country. “If the main asset of this German company is a property located in Spain, then it is understood that the entire German company is located in Spain and now, with effect from 2022, this person must pay taxes.” To the extent that the applicant is a tax resident in Germany, “the Agreement between the Kingdom of Spain and the Federal Republic of Germany will apply to avoid double taxation and prevent tax evasion”.

Non-residents who have real estate in Spain through companies will have to pay the Tax on Great Fortunes for 2022 in July of this year, since the tax was approved last December, leaving these investors with no time to reorder their strategy. to escape the tax. However, this year they still have time to plan their investment to avoid paying that of 2023. This tax is levied on assets over 3 million euros with a rate that ranges, depending on wealth, between 1.7% and 3.5%

International Legacies

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Every year, thousands of rightful heirs lose money or property that was theirs due to unclaimed international inheritances. In Spain, around 17,600 foreigners died in 2021, according to the National Statistics Institute (INE); while, in that same year, just over 5,200 deaths of Spaniards outside our borders were registered.
In the specific case of Spain, around 100 million euros are lost annually due to inheritances without known heirs, according to calculations by Coutot Roehrig Iberia. In most cases, these successions are not processed because the heir is unaware of his condition, which prevents them from enjoying a heritage that also generates high tax losses.

Why is there such a high number of unclaimed inheritances?
It is increasingly common for citizens to live and have assets in other countries. The problem is that when a person who has assets in several countries dies, the process to claim his inheritance is complicated by ignorance about the legislation or cultural and linguistic differences. Many times the deceased has not left a will, which further complicates the process.

What are the main problems legitimate heirs face when it comes to unclaimed international inheritances?
In the case of international inheritances, the main problem lies in the legislative complexity of each country. The European Regulation 650/2012 of International Inheritances establishes as applicable law that of the country where the deceased had his habitual residence. However, it also allows the deceased to choose the law of his country of origin to govern his succession, as long as this will is expressed in a mortis causa provision, such as a will.

What factors can complicate the probate process?
When it comes to an international succession, the process can be even more complex if the assets are located in different countries and the heirs live in different places. There are many variables that influence the process and that govern inheritance law when there is an element of foreigners.
Each country has its own rules as to who has the right to inherit and who does not. For this reason, we recommend granting the will in the country where the heirs actually reside, instead of looking for alternatives to pay less taxes.

How can legitimate heirs ensure that they receive what is due to them?
In the inheritance of foreigners residing in Spain, in addition to having legal advice, the creation of a family company can be considered, which can be useful to maintain the assets in the family and avoid possible conflicts or disputes.

The tax regime applied in successions must also be taken into account in order to maximize tax efficiency and minimize the impact of taxes. If the heirs reside in Spain, they will be subject to Spanish Inheritance and Gift Tax and will be eligible for the discounts of the autonomous community in which they live. In the case of not residing in Spain, the taxation is also governed by the Spanish tax, but only when they are goods within our borders.

Withholding of 3% of Non-Resident Income Tax

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How exactly does the 3% withholding applied to Non-Residents work?
Article 25-2 of the Consolidated Text of the Law on Non-Resident Income Tax (hereinafter IRNR) Royal Legislative Decree 5/2004 of March 5 provides the following: «In the case of transfers of real estate located in the territory Spanish by taxpayers who act without a permanent establishment, the acquirer will be obliged to withhold and deposit 3%, or to make the corresponding deposit on account, of the agreed consideration, as payment on account of the tax corresponding to those.

In this regard, the following considerations should be made:

Its rationale is to avoid “take the money and run” and, we have seen, that it applies to both natural and legal persons, although those taxpayers who, being subject to IRNR, act through a permanent establishment are excluded.
Its purpose is the transfer of real estate located in Spanish territory. The Resolution of the General Directorate of Taxes (hereinafter DGT) of March 6, 2017 (V0568-17) extends the obligation to withhold to a case of transfer of the right of use and preferential enjoyment for a certain number of years of a position berthing, which originates from an administrative concession over the Andalusian port public domain and for which authorization must be requested from the concessionaire.
Its scope is that of those transfers likely to generate a capital gain, regardless of whether or not the following occurs in the specific case:

  • This includes, according to the DGT Resolution of January 5, 2015, transmissions derived from a judicial transaction.
  • And the same can be said of the transmissions derived from judicial or extrajudicial procedures of execution, with which the successful bidder or auctioneer will have to withhold 3% for the stated purpose.

In the public deeds of foreign public documents related to real estate located in Spanish territory, in which the omission of any reference to the obligation of retention is frequent, the Notary Public must warn of this and, where appropriate, take advantage of the parties to complement the foreign public document in this regard.
On the contrary, in deeds authorized by a Spanish Notary relating to real estate located abroad, regardless of the warnings that must be made about the effectiveness of the document, there will be no such retention obligation. Yes, of course, if it is an exchange of properties located in different countries when the transfer of the property located in Spanish territory falls within the scope of application of the precept.
We understand that due to the prohibition of analogy of 14 of the General Tax Law, the “lifting of the veil” of article 314-2 of the Securities Market Law does not operate for the transfer of aliquot parts of entities with such evasive intention. Consequently, without prejudice to the taxation of the gain, there will be no obligation to withhold.
For the calculation of the withholding, the price or consideration will be taken into account, not the eventual profit.
In purchases with a deferred price, there is an obligation to withhold the total price, since the transmission has already occurred (article 14-1-c of Law 35/2006 on Personal Income Tax (hereinafter, IRPF); and this, even if the transferor opts for the proportional allocation of the gain to the period in which each collection is due (article 14-2-of the IRPF).

Likewise, we understand that, in the event that the transitory exemption of 50% of the profit of the 3rd additional provision is applicable, there is an obligation to withhold on the total price.

What is the deadline for your admission?
The term for its entry, in the AEAT Delegation corresponding to the place of residence of the property, is 1 month from the transmission (article 14-3 of the Regulation), through Model 211 (Order EHA 3316/2010, modified by the HAP Order 2487/2014). To download model 211 see HERE

What happens if the withholding is not made?
This will determine the registration condition of the property upon payment of the lesser amount between withholding or payment on account and the corresponding tax, which will be cancelable due to expiration or by presenting the corresponding payment letter (article 25-2 of the IRNR and article 14- 5 of the Regulations), although failure to comply with such obligation to withhold does not prevent registration (Resolution of the General Directorate of Registries and Notaries of May 24, 1995).

For the same reason, if the acquirer refuses to make the withholding, the Notary Public complies with warning the grantors of the existing legal obligation, and this, without prejudice to the sanctions that may apply for the infringement incurred, if the withholding or payment to account is not received.