BASIC PRINCIPLES OF WEALTH TAX IN SPAIN:
wealth tax (impuesto sobre el patrimonio).
The wealth tax applies to both non-residents and residents in Spain.
Spanish gift/inheritance tax and wealth tax are also partly regulated regionally.
Important practical differences apply to non-residents and residents.
There is a non-taxable minimum, so below a certain threshold, you do not have to pay wealth tax.
The non-taxable minimum varies from region to region:
The amounts of the non-taxable minimum:
Comunidad Aragón: 400,000 euros
Comunidad Cataluña: 500,000 euros
Comunidad Valenciana: 600,000 euros
Comunidad Andalucía: 700,000 euros.
So not all wealth is targeted.
The base that is taxed is the amount that exceeds the non-taxable minimum.
Example: for a Spanish resident living in Valencia with total assets of 700,000 euros, the taxable base is 100,000 euros.
If that Spanish resident lived in Zaragoza, the taxable base would be 300,000 euros.
A progressive rate is applied to the taxable base.
Normally, the maximum rate is 2.5% but regions can deviate from this.
In the Comunidad Valenciana, the rate is between 0.25% on the lowest bracket to 3.12% on the highest.
The first bracket is 0.25% on the €167,129 above the non-taxable minimum.
The highest bracket is 3.12% on the amount above 10,695,996 euros.
Wealth tax for residents in Spain:
If you permanently reside in Spain, wealth tax applies to all your assets worldwide.
If you move permanently to Spain and still have assets in Belgium, or France, bear in mind that these assets count towards Spanish wealth tax.
This means that if you have one or more properties in Belgium or anywhere else you may have to pay wealth tax.
Example: you live in Altea (Valencia region, Costa Blanca North) and you have assets of 350,000 euros in Spain and assets of 400,000 euros in Belgium, then Spanish wealth tax will apply to you with a taxable base of 150,000 euros.
You will still be able to enjoy additional exemptions as a tax resident depending on the region you are in.
There is a family home exemption of 300,000 euros.
As a tax resident, the applicable regional tax regime depends on your place of residence in Spain. If you live in Altea then the "Comunidad Valenciana" tax regime will apply to you regardless of where your assets are located.
Wealth tax for non-residents in Spain:
You are also subject to Spanish wealth tax as a non-resident.
In this case, there are some important differences:
only your assets in Spain qualify for this.
In addition, national rules apply where the main consequence is that the taxable minimum is 700,000 euros for non-residents.
Example: you live in Belgium and you own a second residence in Altea.
Your assets in Spain amount to 350,000 euros. In addition, you have assets of 400,000 euros in Belgium.
Here you are not subject to Spanish wealth tax because your Spanish assets do not exceed the non-taxable minimum.
Should you own a property in Spain worth 900,000 euros, you will be subject to wealth tax.
Non-residents from the European Union can also opt for the regime of the autonomous region in which most of their Spanish assets are located.
What should be understood by "assets"?
On 31 December, you should annually determine your net wealth where you deduct all your assets from your debts.
This takes into account the value of the following assets to calculate your taxable wealth:
- real estate
- life insurance policies
- bank balances
- investment portfolios
- sports cars
- boats, helicopters and aeroplanes
- intellectual property rights and concessions
You should look at the highest value of the cadastral value (1), the fiscally acceptable value (2) or the value in the deed of sale (3) when valuing property.
Which assets do not count?
- household furniture
- shares in an SME and shares in a family business (under well-defined conditions)
- pension rights
- company goods
How to avoid wealth tax in Spain?
There are some legitimate ways to avoid wealth tax in Spain.
With a bona fide debt you reduce the value of your net assets such as a mortgage on a Spanish home.
Also, if you place assets in a (family) holding company or a company, these assets are exempt from wealth tax provided a number of conditions are met.
These conditions include a minimum participation in the company:
- 5% for an individual
- 20% in the case of family companies by family members.
Also, the assets must be in line with the company's social purpose.
Another option is to move to Madrid as a resident. If you stay in Madrid for more than 183 days, you are entitled to a 100% capital gains tax rebate.
So there is de facto no wealth tax in Madrid.
How do you declare capital gains tax in Spain?
A non-resident with assets greater than 700,000 euros in Spain is required to file the Modelo 714.
If you are a resident in Spain then it is important to declare your foreign assets via Modelo 720.
If you are not eligible for wealth tax then it is still important not to forget this declaration as there are high fines of at least 10,000 euros for failing to declare Modelo 720.
Update 2020: the high penalties imposed may violate the free movement of persons within the European Union. In fact, a lawsuit has been pending before the European Court of Justice against the Spanish government since 2019, with the European Commission challenging the existence of these sanctions.
Other taxes in Spain?
If you move permanently to Spain, you may also become a tax resident in Spain. The main consequence of this is that your worldwide income will be taxed according to Spanish rules.
For non-residents, the main taxes are the non-resident tax and the municipal tax. This non-resident tax depends on whether or not you are renting. If you rent out then you pay taxes on the real rental income.
If you do not rent out then you only pay taxes on cadastral income.