Taxing times for non-residents in Mallorca

+34 971 720 202
jaimelamas@despacholamas.com

At the end of December 2022, the dreaded "Great Fortunes Solidarity Tax" came into force in Spain, and the Wealth Tax Law has been amended.

The amendments nº 99 and nº102 published in the official gazette of the Spanish Parliament on November 18, 2022, in relation to the already approved bill for the establishment of temporary energy and credit institutions levies, will affect NON-RESIDENTS.

These changes will not impact all Non-Residents in the same way, but there are two groups of foreigners that will be particularly affected. Firstly, those who have properties in regions where the wealth tax is 100% subsidized and, on the other hand, those who acquired properties through foreign companies or real estate companies, known as dormant companies.

In order to develop in more depth and explain who must pay tax and what they must declare, we must classify the Non-Residents in three groups:

1. Non-residents of countries without a double taxation agreement with Spain or that have a DTA, but do not contemplate Wealth Tax.

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, Dominican Rep., Romania, Senegal, Singapore, Thailand, Turkey, Vietnam; and with suspensive or resolutory character (until the Wealth Tax is established or while it exists) Saudi Arabia, Colombia, Croatia, Egypt, Nigeria.

PROPERTY:

• They pay by real obligation on all their assets in Spain, which means that they will have to take into consideration Real Estate, movable assets, bank accounts, vehicles, Spanish companies, etc.

• Foreign companies where more than 50% of the market value of the assets are located in Spanish territory will be taxed after the reform of the law.

• There is a certain dispute, but everything points to the fact that the Treasury will demand taxation on 100% of the value of the company and not only on the real estate located in Spain.

• The first 700 thousand euros are exempt.

• Charges affecting the assets, such as loans and mortgages, can be deducted. There are several nuances to take into account when choosing financing.

• Since 2021, due to the anti-fraud law, it is optional to apply the autonomous regulation in case it is more favorable than the state one. This occurs in Autonomous Communities such as Madrid or Andalusia where there is a 100% bonus.

• From 2022 the value of the property will be the higher of the reference value of the cadastre (only for those properties purchased since 2022), the value verified by the administration for the purposes of other taxes and the acquisition value.

• There is a binding consultation (V2020-21) that establishes that as a basis for the IP, the expenses and taxes incurred for the purchase of the property are added. In our opinion a real barbarity.

SOLIDARITY TAX ON LARGE FORTUNES:

• It will be regulated by the regulations that apply to the Wealth Tax since it is a similar tax. That is why it will be calculated on the value of all types of goods and rights located in Spain.

• It affects those Non-Residents with a net worth of more than 3 million euros.

• Non-residents have no minimum exemption (residents have 700 thousand exempted), although there is the opinion that it will have to be finally applied since there is a discrimination that violates the EU Law.

• It will be possible to deduct what has been paid for the IP, which means that if you are in an autonomous community where you have already paid the IP, you will not have to pay the ISGF. In any case, it will affect those non-residents with a net worth of 3Million Euros and who have properties in communities where the IP is subsidized.

2. Non-residents of countries with CDI, which in turn contemplate the Wealth Tax, but do NOT have a section on real estate companies.

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

PROPERTY:

• ONLY real estate, vessels and aircrafts (movable property attached to a permanent establishment) will be taxed.

• Everything else, including Spanish companies or foreign companies that own real estate in Spain, are not taxed.

• The first seven hundred thousand Euros are exempt.

• Charges affecting the assets, such as loans and mortgages, can be deducted. There are several nuances to take into account when choosing financing.

• Since 2021, due to the anti-fraud law, it is optional to apply the autonomous regulation in case it is more favorable than the state one. This occurs in Autonomous Communities such as Madrid or Andalusia where there is a 100% bonus.

• From 2022 the value of the property will be the higher of the reference value of the cadastre (only for those properties purchased since 2022), the value checked by the administration for other taxes and the acquisition value.

There is a binding consultation (V2020-21) that establishes that as a basis for the IP, the expenses and taxes incurred for the purchase of the property are added. In our opinion a real barbarity.

SOLIDARITY TAX ON LARGE FORTUNES:

• It will be considered the same as the wealth tax and they have to apply the same regulations.

• It will only affect net assets over 3 million euros, ONLY considering real estate and movable assets with permanent establishment.

• Non-residents do not have a minimum exemption (residents have 700 thousand exempted), although there is the opinion that it will finally have to be applied since there is a discrimination that violates the EU Law.

• It will be possible to deduct what has been paid for the IP, which means that if you are in an autonomous community where you have already paid the IP, you will not have to pay the ISGF.

3. Non-residents of countries with a CDI, which in turn contemplate the Wealth Tax and DO have a section on real estate companies

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.

PROPERTY:

• Since the modification that will apply from the year 2023, this group of Non-residents must include as patrimony the real estate, boats and aircrafts (furniture attached to permanent establishment), as well as foreign companies where more than 50% of the market value of the assets are located in Spanish territory (ONLY of the proportional part of the company that has real estate in Spain) and Spanish companies.

• The first seven thousand euros (700,000.00€) are exempt.

• Charges affecting the assets, such as loans and mortgages, can be deducted. There are several nuances to take into account when choosing financing.

• Since 2021, due to the anti-fraud law, it is optional to apply the autonomous regulation in case it is more favorable than the state one. This occurs in Autonomous Communities such as Madrid or Andalusia where there is a 100% bonus.

• From 2022 the value of the property will be the higher of the reference value of the cadastre (only for those properties purchased since 2022), the value verified by the administration for the purposes of other taxes and the acquisition value.

There is a binding consultation (V2020-21) that establishes that as a basis for the IP, the expenses and taxes incurred for the purchase of the property are added. In our opinion a real barbarity.

SOLIDARITY TAX ON LARGE FORTUNES:

• It will follow the same rules as the patrimony, so that real estate located in Spanish territory, the movable property assigned to permanent establishment, the Spanish companies and the foreign companies whose main assets are located in Spain (only of the proportional part) will have to pay tax.

• It will only affect net assets over 3 million euros.

• Non-residents do not have a minimum exemption (residents have 700 thousand exempted), although there is the opinion that it will finally have to be applied since there is a discrimination that violates the EU Law.

• It will be possible to deduct what has been paid for the IP, which means that if you are in an autonomous community where you have already paid the IP you will not have to pay the ISGF.

We kindly ask all clients who are affected by these modifications to contact us to study their case individually.