TAX ON LARGE FORTUNES

TAX ON LARGE FORTUNES
THE TEMPORARY AND JOINT AND SEVERAL TAXATION FOR THOSE WHO HAVE MORE THAN 3.000.000 €.

What is it?

The taxable event of the Tax on Great Fortunes (“IGF”) is the ownership by individuals at the time of accrual of a net worth of more than 3,000,000 euros.

It is, in any case, a complement to the Wealth Tax (“IP”).

It is a temporary tax, as determined by art. 3.Twenty-eight of the IGF, so that its duration, unless expressly extended by the Spanish Government, will be two fiscal years from its entry into force (29.12.2022).

Therefore, since the IGF is accrued every December 31 (art. 3.Ten) and in view of its entry into force, the last fiscal year in which it will be accrued will be December 31, 2024, for the fiscal years 2022 and 2023.

Who pays it? Tax residents in Spain?

The delimitation of the taxpayers is made by reference to the definition of the taxpayers of the IP (art. 3.Five of the IGF).

Therefore, since the IGF refers to art. 5 of the IP, they are taxpayers:

1. By personal obligation, individuals who have their habitual residence in Spanish territory, the tax being levied on the totality of their net assets regardless of the place where the assets are located or the rights may be exercised.
2. By real obligation, any other individual for the assets and rights of which he/she is the owner when these are located, may be exercised or must be fulfilled in Spanish territory.

I have residence in Spain if…

By reference of the IGF (art. 3.Cinco) to the IP, the latter determines, in its art. 5, that for the purposes of the Law, for the determination of the habitual residence, the criteria established in the rules of the Personal Income Tax (“IRPF”) will be applied.

Article 9 of the Personal Income Tax Law establishes that the following are considered Spanish tax residents:

Who stay more than 183 days, during the calendar year, in Spanish territory. In order to determine this period of stay in Spanish territory, sporadic absences will be computed, unless the taxpayer proves his tax residence in another country.
That the main nucleus or the base of his activities or economic interests, directly or indirectly, is located in Spain.

Therefore, by double referral (from IGF to IP, and from IP to IRPF), those who meet the characteristics of letter a) or letter b) of this point (stay of more than 183 days or main center of interests or economic activities) are considered Spanish tax residents, and therefore, taxpayers by personal obligation of the IGF.

Therefore, in the case of acquiring his residence in Spain, he would become a personal liability taxpayer, and would be taxed on all his worldwide assets.

In exchange, he enjoys two exemptions:

Minimum exemption of 700.000.-€.
Exemption in the case of acquisition of a property that becomes his habitual residence: 300.000.-€.

I am a foreign investor and a non-resident… should I worry?

In the case of non-residents from countries[1] that do not have a Double Taxation Agreement (“DTA”) signed with Spain, they will be subject by real obligation to two different taxes:

Wealth Tax

They will have to calculate the IP on the value of their assets and rights of all kinds located in Spain (real estate, money, Spanish companies, vehicles, etc.) and now also on foreign companies whose main asset is constituted by real estate located in Spanish territory, since they will be considered to be located in Spain.

They will be able to deduct the charges and debts of article 9.4 of the IP Law, and they will have to declare to the State in principle with State regulations (minimum exempt of 700,000€ and rate from 0.2 to 3.5%) but since 2021 all non-residents (EU or non-EU) have the right to apply the regulations of the Autonomous Community where the highest value of their assets in Spain is located, if it is more favorable. If it is Madrid or Andalusia, they will be able to apply the 100% rebate and not pay, although they will have to declare if the value of their assets exceeds €2,000,000.

They will have to calculate the new ISGF on the value of their assets and rights of all kinds located in Spain (real estate, money, Spanish companies, vehicles, etc.) and also on foreign companies whose main assets consist of real estate located in Spain, since they will be considered as located in Spain.

They must calculate the net assets discounting charges and debts (reference to article 9.4 of the IP Law) and apply the foreseen rate:

And, as the main novelty, non-tax residents cannot benefit from the minimum exemption of 700.000.-€, as specifically indicated in art. 3.Nine of the IGF, as it is reserved only to personal taxpayers:

“In the case of personal obligation, the taxable base will be reduced, as an exempt minimum, by €700,000.”

I am a foreign company with a lot of Spanish real estate… does it affect me?

With the modification introduced in article 5 of the IP Law, individuals owning foreign companies whose main assets (more than 50%), directly or indirectly, are real estate located in Spain, will be taxed under IP.

In order to determine whether or not such taxation is applicable, the assets of these foreign entities will be computed by substituting the book value of the assets for their market value, and in the case of real estate for their value, applying the IP rules.

If more than 50% of the assets of a foreign company, computed in this way, are real estate located in Spain and valued according to the IP rules, the non-resident individual will only be taxed on the value of such real estate in Spain, and not on the total value of the foreign participations. Thus, for example, if an individual resident in the United States owns 100% of a German company that has in its assets a property in Mallorca valued at €1,000,000 and another property in Miami valued at €600,000, we consider that he/she should only pay IP tax on the value of the property in Spain and not on other assets that appear in the assets and that are located outside Spain (as is the case of the property in Miami).

What if I obtain a Golden Visa?

The Golden Visa is a residence permit for investment that entitles non-EU foreigners (i.e., those who are not citizens of the European Union, the European Economic Area or Switzerland) to reside and work with their spouse and children in Spain.

It is essential not to confuse the residence permit with tax residence. The Golden Visa allows the investor to reside and work in Spain for two years, with the possibility of extending this period, but does not oblige the applicant to have his tax residence in Spain, since it is sufficient to visit Spain once a year to maintain or renew the permit.

As mentioned above, a person is considered to be a tax resident in Spain if:

physically remains in Spanish territory for more than 183 days; or.
has in Spain the main nucleus or the base of his activities or economic interests, directly or indirectly.

For the purpose of calculating the number of days spent in Spanish territory, the rule determines that sporadic absences must be computed, except if the individual proves his tax residence in another country.

In this respect, we must refer to article 6 of the LIRNR which, in turn, refers to article 9 of the IRPF.

On the other hand, it is possible to point out that, in the case of investment in real estate, both residents and non-residents are obliged to pay the Real Estate Tax (IBI), a municipal tax payable annually.

Likewise, if you are not a tax resident in Spain, if you rent the property during the time you are not in the country, you must pay the Non-Resident Income Tax (IRNR) on the income generated by the property. This is declared quarterly and, in this case, a tax rate of 24% will be applied (article 25.1.a) LIRNR).

On the other hand, if the property is not rented, the 24 percent tax rate must be multiplied by the cadastral value of the property and, in turn, multiplied by 2 percent or by 1.1 percent, depending on whether the cadastral value has been revised in the last 10 years or not.

Therefore, the imputation of income is the same as that established for residents (article 85 LIRPF).

In addition, and as will be explained below, if the global value of the properties in Spain exceeds 700,000 euros, and this limit may vary depending on the Autonomous Community, you will also have to pay Wealth Tax (IP).

How is it integrated with the Wealth Tax?

The amount paid in the IP (and, therefore, the peculiarities of this tax in each of the Autonomous Communities) affect the determination of the amount payable for the IGF, since the amount paid in the IP reduces the amount of the IGF.

In accordance with the above, the IGF will have a greater incidence on those taxpayers who apply the regulations of the Autonomous Communities which, having exercised the regulatory capacities offered by the Tax Assignment Law, have totally or partially reduced the taxation in the IP.

In this situation are the Autonomous Communities of Madrid and Andalusia, which have approved a 100% reduction in the IP.

In addition, there is a limit on the total amount of the IGF in terms similar to those provided for in the State Law on IP. Specifically, it is foreseen that the total IGF tax, together with the personal income tax and IP tax, may not exceed 60% of the sum of the personal income tax bases.

As in the case of IP, this limitation only benefits persons subject to personal liability, so that non-residents and impatriates do not apply any limit linked to the income obtained during the year.

It is expressly stated that the rules on the limit of the full amount of the IP provided for in article 31 of the IP Law will be applicable; therefore, we understand that the non-computation of the part of the savings base derived from capital gains and losses derived from capital items more than one year old and the part of the full amount corresponding to such base will be applicable, as well as the rule relating to the capital items not susceptible to produce income taxed in the IRPF.

Conclusion

From Bufete Frau, we consider that in the event that the investor acquires Spanish tax residence, he/she will have to pay both the IP and the IGF.

If the investor does not acquire the fiscal residence in Spain, he will only pay, in its case and according to the value of the property and the Autonomous Community in which it is located, IP (without prejudice of the taxes to which the rents for renting are subject).

Obtaining a Golden Visa does not imply becoming a Spanish tax resident, therefore, the most advisable option is, without a doubt, to acquire a property in Spain, by means of Golden Visa, and not to stay more than 183 calendar days a year in Spanish territory.