Last September the Spanish government passed a new decree related to a temporary patrimonial tax for the fiscal year 2011/2012. Law 13/2011 of the 16th September was justified by the economical crisis and the need for the government to compensate the increasing deficit. According to the law this tax will be temporary and will apply to the fiscal year 2011/2012 and will have to be paid in the tax declaration of 2012/2013.
The patrimonial tax was suppressed in Spain back in 2008 with law 4/2008 of the 23rd December as economists indicated that the costs introduced by the existing wealth tax were, in the long term, provoking a net loss in tax revenue. This was mainly due to capital owners liquidating their assets in Spain and moving their wealth to more tax-friendly countries. Additionally it was quite difficult to evaluate wealth as the value of assets fluctuates with market conditions. It is hoped the new law will not provoke a haemorrhage of capitals, as the application will only be over a limited period.
Law 13/2011 is based on law 19/1991 of 6th July with several important changes:
- The threshold for the tax is at 700,000 Euros, meaning that only people with a total base rate of taxable assets of over 700,000 Euros will be taxed.
- There is an exemption of 300,000 Euro for the habitual residence (“vivienda habitual”). By habitual residence the tax authorities mean that it is the main residence and that the owner has been living in it for at least 3 years.
- Taxpayers are required to file a tax declaration, when either:
- their tax liability results in having to pay the tax office, according to tax regulations and after deductions or bonuses have been applied,
- or when these circumstances do not apply and the value of their assets or rights, according to tax regulations, results in an amount greater than 2.000.000 euros.
How does this tax work?
Law 19/1991 is very specific on how to calculate the value of different taxable assets. There is a list of assets that can be used for the wealth calculation. As a general rule these include:
- Real Estate properties. The value that will be used will be the highest of either the market value or the cadastral value, most of the time it will be the market value.
- Assets related to business and professional activities (machinery, company cars, etc.)
- Bank accounts
- Shares, bonds and other financial instruments
- Life insurance (the redemption value)
- Luxury goods, vehicles, boats or planes.
- Art objects or antiquities
- Rights of ownership
- Intellectual property
Exempted from wealth tax are:
- Property of national or regional historical importance.
- Pension plans or medical insurance.
- Exemption of 300,000 Euro for the habitual residence
Once the total taxable wealth is calculated anything in excess of 700,000 Euros will be taxed according to a progressive rate table starting at 0.20% and ending at 2.5% for wealth in excess of 11 million Euros.
Differences in Wealth tax for residents and non-residents
Non-residents owning assets or properties in Spain will have to name a fiscal representative who will file tax declarations with the Spanish authorities. The tax authorities will have to be informed of the designation of the representative before the payment deadlines.
It is important to note that fiscal Residents in Spain will have to pay wealth tax on their worldwide assets, while foreign residents will only pay on their assets on Spanish territory.
Individuals whose wealth exceeds 2,000,000 Euros will have to file a tax declaration even if in the end there is no wealth tax to pay.
Ask a tax specialist for advice
Non-fulfilment of wealth tax obligations will be considered a serious infraction by the Spanish tax authorities and will incur fines, surcharges and interest with eventually a debt on the properties. It always best to ask the opinion of a tax specialist if you think you may be subject to wealth tax.
This article is purely informative and focused on tax planning. The information provided should not be used as a substitute for specific legal and fiscal advice.