ACM NTK Fiscal obligations 2018 madrid

Fiscal obligations of US citizens in Madrid, Spain

1. Fiscal obligations of U.S. Citizens Residents in Spain

2. Fiscal Obligations of U.S. Citizens Residents in Spain Fiscal obligations

3. Fiscal Obligations of U.S. Citizens Residents in Spain Other fiscal obligations

4. Modelo 100 IRPF

5. Tax residency in Spain Tax year: from January 1st to December 31st. Who is tax resident in Spain? Individuals that are present in the Spanish territory for more that 183 days during the calendar year, or Those who have the main center of their economic interest in Spain. Thus, there is a presumption of tax residency when the spouse and children are tax resident in Spain. The status of resident or non resident will be held during all the natural year. 5

6. Tax residents in Spain Taxed for their worldwide income regardless where the income has been generated or the tax residency of the tax payer. Tax obligations: Personal Income Tax return (IRPF) Informative return for assets and rights held abroad (720) Non tax residents in Spain Taxed for Spanish source income. Tax form 210 6 Tax residency in Spain

7. Income Limit Requirements Employment income 22.000 € One payer (2 <1.500 €) 12.000 € More one payer Compensatory payments from spouse No withholding Income subject to flat tax rates Investment income Capital gains 1.600 € Subject to withholding income. Imputed rental income Income Treasury notes 1.000 € Capital income Professional income Capital gains 1.000 € Capital loss < 500 € 4/26/2018 7 You do not have to file PIT if…

8. Tax form D-100 from April 4 to July 2 2018 Request your tax info and draft of the return to the AEAT ( REVIEW INFO ) Result of the return: To be refund: include an account to receive the payment (>6 months interest) To pay: Pay 100 % debt (possibility of domicile, before June 26, and charged last day) Request to pay in 2 installments with no interest 60% when filing 40% November 6 th Payment suspended on behalf of the spouse (marriage not separated) Filing requirements

9. Possibility of filing joint or individual return Option to be taxed jointly (it applies to all members of the family unit) Does not condition future tax years Family unit Marriage Spouses Children under age children judicially disable Non marriage Father and mother Children living with one or another Family status

10. Personal Income Tax General taxable base Employment income Income from economic activities Rental income Imputed income Capital gains not derived from transmission of assets Special taxable base Savings and other investment income: interest, dividends. Capital gains.

11. Tax rates TAX RATE APPLICABLE TO THE GENERAL TAXABLE BASE FROM TO TAX RATE 12.450 € 19 % 12.450 € 20.200 € 24 % 20.000 € 35.200 € 30 % 35.200 € 60.000 € 37 % 60.000 € - 45% 11 TAX RATE APPLICABLE TO THE SPECIAL TAXABLE BASE FROM TO TAX RATE 6.000 € 19 % 6.000 € 50.000 € 21 % 50.000 € - 23 %

12. Wages and salaries received as compensation under a labor contract paid in cash or in kind. Employment related income: maternity and paternity pays; Social Security pensions, state pensions, etc. Directors fees, pension received from and ex-spouse. Employment social security contributions are deductible. Foreign tax relief : tax exemption for work made abroad for non resident companies in countries with a double tax agreement with Spain to the limit of 60.000 € Earned income

13. Rental income Taxed for the difference between income and expenses. Deductions: ibi , community expenses, renewal expenses, interest for mortgage, 3% annual depreciation on the cost of the property. 60% deduction applicable to habitual residence. Income for urban real estate not rented 1,1% on the cadastral value (2% not revised) 50% of the cost when no cadastral value Income on Real State

14. + Acquisition price + Investment and improvements in the assets + Expenses and taxes derived from the acquisition (except interests) - Depreciation (rental property) = ACQUISITION VALUE +Sale price - Expenses and taxes derived from the sale (except interests) = SALE VALUE For acquisitions before 1994 some reductions apply. Reimbursement of the capital gain derived from the sale of the habitual home in another habitual home. Capital Gains

15. 4/26/2018 15 Personal allowances Under 65 years 5,550 € 65+ 6,700 € 75+ 8,100 € Child allowances First child 2,400 € Second child 2,700 € Third child 4,000 € Further child 4,500 € Personal and family allowances

16. Pension contributions: limit 8.000 € or 30% of the work income. Spouse pension contributions: 2.500 € (income < 8.000 €) Acquisition of habitual home (acquisitions before 2013) Rent of habitual home (before 2015) taxable base <24.107 € International tax deduction Maternity deduction (working and children under 3) Large family deduction 4/26/2018 16 Other deductions

17. Madrid deductions Child born or adopted 600 1 st 750 2 nd 900 following Rent od habitual home for under 35 years old. Limit of 840 € Educative expenses 15% on schooling 10% languages 5% school uniforms 4/26/2018 17

18. Non tax residents in Spain are taxed for the Spanish source income Employment income : subject to tax for work performed in Spain; income as administrator of a Spanish company (24% tax rate for US residents) Professional activities : to be taxed in the country of residence unless there is a fixed base of business (exempt in Spain). Pensions: taxed in Spain if derived from an employment in Spain or paid by an entity resident in Spain. 4/26/2018 18 FROM TO TAX RATE 12.000 € 8% 12.000 € 18.700 € 30% 18.700 € - 40 % Non resident Tax

19. Capital Income Dividends derived from the participation in a Spanish company. (15% DTA) Interest paid by residents in Spain (10% DTA) Royalties paid by residents in Spain 5% the use or right to use any copyright of literary, dramatic, musical or artistic work. 8% the use or right to use cinematographic, industrial, commercial or scientific equipment. 10% other royalties Non resident Tax

20. Rental income of property in Spain Taxed for the income (no deduction of expenses). 24% tax rate. Tax form 210 to be filed quarterly Income for urban real estate not rented in Spain 1,1% on the cadastral value (2% not revised) 50% of the cost when no cadastral value 24% tax rate Tax form 210 to be filed annually Non Resident Tax

21. Capital gain derived from immovable property : Acquisition price plus expenses taxes Sale price minus expenses and taxes Tax rate 19% The acquired of the property is obliged to withhold a 3% on the sale price through tax form 211 (in one month) and give a copy to the non resident. The withholding will be deducted from the final tax. Tax form 210. 4 months after the sale Non resident Capital Gains

22. Special regimen: “Beckham law” Tax regimen for incomimg qualifying professionals residents in Spain. Thay can be taxed only for spanish source income at a 24% tax rate. Requirements: The individual must nos have been tax resident in the preceding ten years. The movement to Spain must be for: An employment contract with a Spanish Company. As administrator of a Spanish Company. The individual must not obtain income through a permanent establishment 22

23. Special regimen: “Beckham law” The tax regimen: Taxation of Spanish source income except for employment income. 23 General From a 600.000 € 24% From 600.000 €: 45% DIVIDENDS INTEREST CAPITAL GAINS From 0 to 6.000 €: 19% F rom 6.000 € to 50.000 €: 21% From 50.000 € : 23%

24. Special regimen: “Beckham law” The tax regimen applies during the tax year of change of residence and the following 5 years. The application of the tax regimen as to be requested through tax form 149 during the 6 months after the registration in the Social Security. The AEAT will issue a certificate stating the application of the special tax regimen. The annual tax return is tax form 151 during april-june 2017 No obligation of declaring tax form 720. 24

25. Modelo 720

26. Modelo 720 Fraud Prevention Law 7/2012 Form 720 of the – Agencia Tributaria AEAT: Report of all assets abroad. Every year before March 31 st . Applications must be completed only OnLine by authorized tax consultants or those with digital signature or 24hPIN Penalty for not filling, filling incomplete, filing with non-accurate data, will be punished with 100 euros per data with a minimum of 10.000 euros. And non filers could be penalized with 150% of the total assets not reported.

27. Modelo 720 Since 2013, the Spanish Tax agency, AEAT, began to provide tax information for citizens of the EU to their respective countries through the Form 299 which is filled by Spanish Financial Institutions, collected and processed by AEAT. Another 130 countries were included since 2017. Modelo 720 must be filed by all Spanish tax residents owning assets abroad, only if they are over 50,000€ in any of these three blocks: 1. Bank accounts. 2. Investments. 3. Real Estate.

28. BLOCK 1 Bank accounts Accounts in financial institutions abroad, which includes current accounts, savings accounts, term deposits, credit accounts… Information on each account should include the balance of these accounts on December 31st, the average balance for the last quarter of the year and the date of opening. Also if you are account holder, authorized… Holders and authorized holders, who have ceased to be during the year, must indicate only the balance of the day ceased to be holders or authorized holders. Modelo 720

29. BLOCK 2 Stock and investments Stocks, bonds, values, financial rights, and savings in insurance companies, deposited, managed or obtained abroad. Information on the investments should include the acquired date, purchase price and value at December 31, sale price and date of disposition, capitalization and rescue value at December 31. Section 1 Securities or rights located overseas representative of participation in any type of legal entity; values located overseas representative of the transfer of capital to third parties or provided for its management or administration to any legal instrument, including trusts though lacking legal personality, capable of acting in the course of trade. Section 2 Shares and participations in share capital or equity fund of collective investment institutions located abroad. Section 3 Life insurance (savings not risk) or pensions or annuities, whose insurance companies are located overseas. Modelo 720

30. BLOCK 3 Real Estate All types of Real Estate and rights over Real Estate abroad, which include ownership of the property, actual use or enjoyment and bare ownership rights over real estate, timeshares, timeshares shifts, part-time property or similar formulas on real estate, other rights in rem over real estate. Modelo 720

31. Modelo 720 This Consultation is published to be well with the European Commission, which censured very hard that the Law will treat practically the same those that does not file the Modelo 720 and the ones that does it voluntarily but out of time. It clarifies that people who regularize their situation after the deadline voluntarily, without prior notice, filing the pending Modelo 720 and paying the IRPF will be required a surcharge (15-20%) and will not be applied the sanction of 150%. 150% penalti  IRPF + 15-20% penalti Binding consultation V1434-17

32. Form 1040 Individual Tax Return

33. Form 1040 Individual Tax Return U.S. citizens and resident aliens U.S. Citizens Resident Aliens Permanent Resident “Green Card” Substantial Presence Test Tax residency based on presence in the U.S. All days in current year, if more than 31 days; 183 days during the 3-year period: 1/3 days in prior year; and 1/6 days in year before that U.S. Persons Non Resident Aliens

34. Form 1040 Individual Tax Return U.S. citizens and resident aliens Must report worldwide income Earnings from self-employment <$400 Gross income: Single <65 $10,400 & MFS $4,050 Due date: April 18 th , automatic extension June 15 th Special considerations for taxpayers abroad: Treaty between Spain and the U.S.A. on no-double taxation Foreign Earned Income Exclusion Foreign Tax Credit Foreign Information Reporting FATCA (entities, accounts, investments, etc …)

35. Form 1040 Individual Tax Return U.S. citizens and residents - Treaty Treaty between Spain and the U.S.A. How and where to pay taxes Establishing the residency Anyone who resides in Spain over 183 days is presumed to be Spanish tax resident. EXCEPTION: Those certified by the IRS as US Tax Residents. Earned income, interest, dividends, capital gains, pensions & annuities New update 2013, pending of approval.

36. Form 1040 Individual Tax Return U.S. citizens and residents - FEIE Foreign Earned Income Exclusion Can exclude foreign earned income up to $112,100 for 2017 . Amounts adjusted for inflation annually Must be earned income to qualify Wages, Self-employment income, tips, etc... Does not include passive income, such as: dividends, interest, capital gains, etc... Must be foreign income to qualify Key factor is where service performed, not source of payment i.e. salary from a U.S. employer can be excluded if your residence is in a foreign country

37. Form 1040 Individual Tax Return U.S. citizens and residents – FEIE Eligibility for FEIE Must meet one of two tests to qualify: Physical Presence Test Present in a foreign country or countries for 330 days in a 12 month period. Days of travel to/from U.S. counted as US day. 12 month period does not have to be a calendar year Bona Fide Residence Test Resident of a foreign country for an uninterrupted period that includes an entire tax year Di ffi cult to qualify for first year abroad

38. Form 1040 Individual Tax Return U.S. citizens and residents – Foreign Tax Credit Foreign Tax Credit Credit in the U.S. for income taxes paid abroad. Must be paid during the applicable tax year. Cannot take FTC for amounts excluded under Foreign Earned Income Exclusion Unused credit can be carried back 1 year and carried forward 10 years Foreign Tax Credit applies to self-employment tax through the Totalization Agreement between Spain and the U.S. ( Need Certificate of Coverage - Autónomos )

39. Form 1040 Individual Tax Return U.S. citizens and residents – Foreign reporting FATCA FATCA - Foreign Account Tax Compliance Act Became Law March 18, 2010 Used to report Foreign Financial Assets Foreign financial accounts Foreign stock or securities Ownership interest in a foreign entity Financial instrument or contract with a foreign issuer or counterpart Must file Form 8938 with your tax return if threshold exceeded Single of MFS - $200K year-end/$300K anytime MFJ - $400K year-end/$600K anytime Special rules for allocating asset ownership between spouses.

40. Form 1040 Individual Tax Return U.S. citizens and residents – Foreign reporting FATCA FATCA - Foreign Account Tax Compliance Act Penalties for Failure to File $10,000 for failure to file Up to $50,000 if failure continues after IRS notification Unlimited statute of limitations 40% penalty based on underpayment of tax attributable to unreported foreign assets Criminal charges Foreign Banks will start reporting their American customers in 2017 to the IRS. Modelo 290 How will the banks know which accounts are U.S.? Answer: New account opening procedures & U.S. Indicia!

41. Form 1040 Individual Tax Return FATCA implications & others Modelo 290 - Foreign banks and Investment institutions Bank accounts. Deposits Investments: Mutual Funds ( Fondos de Inversión ) Report of each PFIC on a Form 8621: which might result on 39,6% tax rate over the annual value increase. Report on Form 8865 and 5471 for owners of more that 10% of an Entity.

42. Foreign Bank Account Report - FBAR

43. Form 1040 Individual Tax Return U.S. citizens and residents – Foreign reporting FBAR Since 1970 any US person who has financial interest in or signature authority over any financial account(s) located outside the U.S. is required to electronically file a FinCEN Form 114, former TDF 90-22.1, if the aggregate value of theses accounts exceeds $10,000 at any time during the calendar year. Must report signature authority over or financial interest in foreign financial accounts. Reporting threshold is $10,000 for aggregate amount of highest values of all foreign financial acc. Must report joint owners of an joint account, even if joint owner is a foreign person.

44. Foreign Bank Account Report - FBAR Foreign reporting FBAR Answer FBAR related question on Form 1040 Schedule B (interests and dividends) Part III, complete electronic version of FinCEN wityh same due date as the 1040, available at www.fincen.gov Penalties can include: – $10,000 per year not filed. 50% of the balance of unreported accounts. Criminal charges. Penalties are per account, per year.

45. Foreign Bank Account Report – FBAR & Form 8938 Comparison of Form 8938 and FBAR Requirements    Form 8938 FBAR Who Must File? Specified individuals, which include U.S citizens, resident aliens, and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold Does the United States include U.S. territories? No Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting Reporting Threshold (Total Value of Assets) $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad) $10,000 at any time during the calendar year When do you have an interest in an account or asset? If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return Financial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title. Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account. See instructions for further details. What is Reported? Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets Maximum value of financial accounts maintained by a financial institution physically located in a foreign country How are maximum account or asset values determined and reported? Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reported Convert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars. Use periodic account statements to determine the maximum value in the currency of the account. Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars. When Due? By due date, including extension, if any, for income tax return Received by June 30 (no extensions of time granted) Where to File? File with income tax return pursuant to instructions for filing the return File electronically through FinCENs BSA E-Filing System . The FBAR is not filed with a federal tax return. Penalties Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply   Form 8938 FBAR Reporting Threshold (Total Value of Assets) Thresholds for individuals living abroad: UNMARRIED & MFS : T he total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year. MFJ: $400,000 on the last day or $600,000 at any time. $10,000 at any time during the calendar year. When Due? By due date, including extension, for income tax return Form 1040 Received by June 30 (no extensions of time granted) Where to File? File with Form 1040 Income tax return. File electronically through FinCENs BSA E-Filing System . The FBAR is not filed with a federal tax return.

46. Filing Past-Due Tax Returns and FBAR Streamlined foreign offshore procedure Eligibility Failure to comply was non-willful Meet non-residency requirement Failed to report and pay tax on income from foreign financial asset Not under civil examination or a criminal investigation by the IRS Requirements File up to 3 years tax returns File up to 6 years FBARs Pay back taxes and interest, if any. Sign certification No penalty

47. Fiscal Obligations of U.S. Citizens Residents in Spain Fiscal obligations

48. Questions? Fiscal obligations of U.S. Citizens Residents in Spain