Spanish tax obligations for us taxpayers

Spanish Fiscal obligations of US Tax Citizens living in Spain. 2017
Need to Know Seminar of the American Club of Madrid

1. Tax obligations in Spain Alejandra Pastor April, 2017

2. 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. 2

3. Tax residency in Spain 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 3

4. You don´t have to file PIT if 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 € 4/28/2017 4

5. Filing requirements Tax form D-100 from April 5 to June 30 2017 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) 4/28/2017 5

6. Family status 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 4/28/2017 6 Family unit Marriage Spouses Children under age children judicially disable Non marriage Father and mother Children living with one or another

7. 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. 4/28/2017 7

8. 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% 8 TAX RATE APPLICABLE TO THE SPECIAL TAXABLE BASE FROM TO TAX RATE 6.000 € 19 % 6.000 € 50.000 € 21 % 50.000 € - 23 %

9. Employment income 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 is 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 € 4/28/2017 9

10. Income on property 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 4/28/2017 10

11. Capital gains + 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. 4/28/2017 11

12. Personal and family allowances 4/28/2017 12 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 €

13. Other deductions 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 4/28/2017 13

14. 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 4/28/2017 14

15. 720 Assets outside Spain Informative annual return Form 720 from January 1 st to March 31 st . Spanish tax residents with assets abroad when any of the following blocks exceed 50.000 € Accounts (deposits, credit, etc ) Complete identification of the bank and domicile Complete identification of the account Date of opening/cancelation Balance at December 31 st and last quarter. Stocks, bonds, values, financial rights, insurance, shares. Complete identification of the entity Value at December 31 st number and type of shares Real Estate and rights over real estate. Complete identification of property Date of acquisition Value of acquisition 4/28/2017 15

16. 720 Penalties Assets not declared can be considered as a capital gain not justified in IRPF with a penalty of 150% on the value. Penalties for voluntary late filling: 100 € for each data with a minimum of 1.500 € per block. Penalties for late filling required by the AEAT: 5.000 € for each data with a minimum of 10.000 € per block. Obligation to declare the following year when the value of any block has increase 20.000 € regarding last form filed or cancelations. 4/28/2017 16

17. Non residents tax 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. 4/28/2017 17 FROM TO TAX RATE 12.000 € 8% 12.000 € 18.700 € 30% 18.700 € - 40 %

18. Non residents tax 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 4/28/2017 18

19. Non residents tax 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 4/28/2017 19

20. Non residents capital gains 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 4/28/2017 20

21. 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 21

22. Special regimen: “Beckham law” The tax regimen: Taxation of Spanish source income except for employment income. 22 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%

23. 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. 23

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