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The Spanish Lawyer Online

Antonio Flores’ Blog

Thoughts about laws and regulations which affect foreigners in Spain

THE LANGUAGE OF LAW IN SPAIN

February 16th, 2018

shutterstock_222873250We often hear statements relating to the implication of contracts and other legal documents that are in a language different from Spanish. One of those statements has, by its own right, risen to the category of legal myth/urban legend: I am referring to the belief that a contract signed in Spain in a language different from official Castilian (or for that matter regional languages) is null and void and thus, does not create rights or obligations.

There is an evolution of the above far more twisted: that if a person that does not understand Spanish signs a legal document in this language, they can challenge it in Court where, incidentally (according to a minority of expats) the Judge should -at the very least- know English but if not, a translator should always be provided at to ensure his/her rights are protected.

The following notes should help dispel any potential confusion as to what is correct from what not, “language-wise”:

  • A document of a contractual nature can be drafted in any language for which an official translation service is available. This implies that contracts in any language that is official somewhere in the world is legal, since a valid translation can be provided.
  • Not understanding the content of a contract is not an excuse, as much as ignoring the law excuses no one, as the principle goes (save for some exceptions, notably in financial or investment contracts).
  • Pursuant to art. 142.1 of the Civil Procedure Law, “In all judicial procedures, the Judges, Senior Judges, Public Prosecutors, Court Clerks and other civil servants in courts and tribunals shall use Castilian Spanish, the official language of the State.”, but it also adds in 143.1 that “when a person who does not know Castilian Spanish nor, in the event, the own official language of the Autonomous Authority has to be questioned or make a declaration, or when it is necessary to personally let him know a decision, the Court Clerk may issue an order authorizing any person who knows the language concerned to act as interpreter, in which case the said interpreter shall be required to swear or promise that the translation is true to the original.”
  • And finally, in accordance to art. 144.1, “any document worded in a language other than Spanish or, as appropriate, the official language of the Regional Authority in question shall have a translation of such document attached thereto.”

Legal Practise ,

Inheritance Tax in Andalusia and ‘Brexit’

January 30th, 2018

brexit concept background with uk and eu flags

Back in February 2016, the Tax Office in Andalusia divulged interesting IHT data: only 7% of all inheritors in this region had had to pay tax following the demise of their loved ones, at a time when maximum allowance per beneficiary was of €175,000.

Of the 7% who had to pay IHT, only 2.1% were beneficiaries classed as next-of-kin of Group I (children -natural and adopted- and other descendants under 21) and Group II (children and other descendants aged 21 and over; parents and other ascendants, and spouses, with the remaining 5% being more distant relatives or beneficiaries with no family ties with the testators.

In 2017, the exemption was increased to €250,000, thus reducing even more the overall impact of this annoying tax.

In 2018, a further tax cut has increased the exemption by €1,000,000 -provided the beneficiary does not have savings or assets of up to the same amount-. This exemption, which applies to residents of Spain but also, any inheritors -foreign or not- who at the time of death of the testator were residents of the European Union or European Economic Area (EEA), means that pretty much nobody will pay IHT in this region, except of course if the inheritor happens to be a resident of the UK and Theresa May sets Britain on course for a hard Brexit (if she has not already done).

For if the UK do not negotiate a separate agreement with the EU to maintain the status quo currently enjoyed all EU/EEA residents, the negative impact in inheritance tax will become particularly visible for thousands of potential inheritors from the UK, for whom the maximum deductible amount will be -on average- €16,000 per inheritor, just as any non-EU citizen.

The negative effects will equally translate to income obtained in Spain, which will be taxed with 24% -as opposed to 19% now- and without the possibility to deduct costs and expenses, and CGT relief when reinvesting in a habitual domicile, which disappears.

 

Immigration, Inheritance , , ,

Supreme Court amends Spanish tax residency rules

January 4th, 2018

Испанская налоговая служба берет на вооружение новые информационные технологии

The criteria for residence for tax purposes varies considerably from jurisdiction to jurisdiction, and “residence” can be different for other, non-tax purposes. For individuals, physical presence in a jurisdiction is the main test. Some jurisdictions also determine residency of an individual by reference to a variety of other factors, such as the ownership of a home or availability of accommodation, family, and financial interests.

New criteria in Spain to establish tax residency for 2018

The Spanish Supreme Court, in a recent ruling of the 28th of November 2017 (only released now) has departed from the traditional understanding of the concept of physical presence the Spanish Hacienda was using to determine the place of effective residency for tax purposes.

According to the Spanish Tax Office, the main criteria of physical residence -more than 183 days spent in Spain- would not take into account what they called “sporadic” stints in another country, as it was necessary then to prove effective residency in another country. In addition, the Tax Office was introducing the subjective criteria element -what was the real intention of the taxpayer (?)- to determine effective tax residency.

The Supreme Court has now altered this notion and stipulated that residency for tax purposes, if determined solely in accordance to the effective time spent in Spain, will no longer be influenced or linked to an element of will or intention to reside abroad but to a simple day-count exercise (number of days in Spain vs. abroad), thereby eliminating the subjective component of the reasons for residing abroad in favour of the mathematical criteria.

 

Taxes , ,

Dealing with unregulated Spain-based Independent Financial Advisors.

November 7th, 2017

The collapse of Continental Wealth Management (CWN), an Alicante-based advisory firm, has left tens -possibly hundreds- of investors worried sick.  CWM was not regulated to provide investment advice in Spain and was loosely regulated to provide insurance advice, through German-based Trafalgar international (who also does not appear to be registered in Spain).

In the world of the investment ‘smoke and mirrors’ expat business, where few things are what they appear to be and what`s real is often portrayed to be something else, clarifying concepts becomes a necessity.

So, let’s get under the bonnet of these clandestine firms (this article does not allude to properly regulated advisory companies) to know what are the real chances of victims caught by the lack of scruples of runaway bogus consultants:

  • Most of the IFAs currently operating with the expat market in Spain are not regulated.
  • Equally, some of insurance or pension providers have never been regulated to operate in Spain (Old Mutual Isle of Man, Premier Group Isle of Man, Generali Worldwide Insurance Guernsey, RL 360º etc.), thus falling foul of Spanish laws that declare all such policies in violation of national laws and consequently, null and void.
  • Very often, investments are carried out via ‘life-insurance/assurance companies’ that provided wrappers, whole-of-life or unit-linked policies. These policies are linked to an investment portfolio.
  • Whether offered validly in Spain or not, life insurance policies linked to an investment are being declared void by the Spanish Supreme Court because they do not consider them life insurance policies. The reasons? Well, the calculation of the premium and payout lack ‘actuarial’ methodology, there is no transfer of risk from insured to insurer and it is irrelevant for the insurer if the insured party lives over a certain date, or dies.
  • Courts ruling on the nullity and voidness of a life insurance policy will order the company to reimburse the premium in full (minus any surrenders made), plus annual legal interest and without detraction of fees or commissions charged.
  • Financial or insurance mis-selling can be said to be automatic where the agents are not regulated (nobody can provide valid advice if not regulated). This violation of mandatory laws implies the responsibility of the principal (i.e. insurance or pension providers).
  • Claimants should aim for Insurers, Investment Funds and Pension Providers.
  • Lawyers should be able to identify the best way forward, always aiming for compensation (and not retribution).

Litigation , , , , , ,

Buying Property in Catalonia?

October 9th, 2017

bcn1

The Catalonian separatists’ independence adventure has ended up in economic failure: no longer a Catalan bank has its HQ in the region, following Banc Sabadell and Caixa’s hasty departure to pastures new -Valencia-. And they’re not alone: fearing massive loss of clients and being left out of the protective umbrella of the EU, hundreds of companies are following suit in what could be, potentially, an unprecedented financial debacle for any European country or region.

But rather than macroeconomics, what interests me is the -possibly- hundreds of foreign investors with private contracts exchanged for property in Catalonia that have been caught in the middle of this nightmare. What are their options? Should the proceed, or wait? Can they rescind and recover their down payment, or must they complete or lose their deposits?

We can confirm, almost without margin for error, that no contract signed for any property in the Catalonian region would include a “political unrest” get out clause. You can probably say the same for any EU country. Unfortunately, political unrest is exactly what is happening in the region, as confirmed by the Foreign and Commonwealth Office in a recent warning to travelers.

So, without contractual stipulation to the contrary, it appears that those who deem the situation uncertain, to say the least, don’t have a remedy under Spanish law…or perhaps they do.

The principle clausula rebus sic stantibus  (Latin for “things thus standing”) is the legal doctrine allowing contractual undertakings to become inapplicable because of a fundamental and extraordinary change of circumstances not envisaged by the parties. It is essentially an “escape clause” that makes an exception to the general rule of pacta sunt servanda  (“promises must be kept”) and favor contractus (“conservation of contracts”).

For instance, the hotel chain Accor persuaded the Supreme Court that the 2008 crisis impacted tourism so dramatically that a 29% reduction in the rent for a hotel was acceptable. Similarly, a couple who had specifically intended to finance the final payment on an off-plan property and were left “high and dry” by banks following the onset of the worldwide financial crisis, were granted remedy. Still, the Spanish Supreme Court remains cautious when applying the clause and recommends a case by case analysis of each contractual scenario.

As for the buyers of Catalonian-based property, we suggest a wait-and-see approach as the next days, if not weeks, will hopefully relax the political turmoil and allow for safe decision-making.

 

Property ,

Spanish Notaries and Supreme Court at war over validity of powers of attorney.

August 14th, 2017

According to the General Council of Notaries, these highly qualified professionals fulfil an essential part of the judicial life of this country by bringing legal sshutterstock_601180544ecurity and certainty. Their website states the following: “Notaries are State civil servants required to provide citizens with the legal certainty guaranteed by the Article 9 of the Spanish Constitution within the context of extra-judicial legal dealings.”

A recent ruling by the Supreme Court -and more so a previous one of 2013- seem to cast doubt over such convincing and forceful statement in respect to one the main functions of Notaries: granting powers of attorney (POAs) and their presupposed validity if the grantor challenges them in Court.

The 2013 sentence -supported by a prior one of 2010- shook the notarial establishment when it declared that POAs to settle, dispose of, mortgage or perform any other act inherent to ownership (art. 1713) would have to […] clearly specify the object and subject, in a clearly defined and predetermined manner. The high tribunal’s interpretation of general POAs to sell or mortgage is thus far-reaching: if the POA does not specify the property or the lender, the transaction can be rendered null and void.

Again, in 2016, the Supreme Court stated that those transactions where such POAs were used could also be declared null and void where the recipient abused or exceeded the instruction. This is how the Court explained it: […] In this context, the will of the parties stands as the guiding interpretation criteria, ruling out an automatic or mechanical reliance on the literality of the POA granted, but principally on the intention and will of the grantor to establish the purpose and sense of the instruction. And secondly, the obligations of fidelity and loyalty are indispensable guidelines connected to carrying out the instruction.

The importance of these rulings (dated 6/11/2013 and 20/5/2016) is that they rendered a Deed of Gift and a Deed of Sale of Shares null and void, even if the POAs were -allegedly- properly granted in front of Notary Public, with all the required solemnities and formalities.

For its part, Notaries believe that their job is separate from that of Courts and that the above rulings represent solutions to specific disputes brought before them.

Legal Practise , ,

Why you need a Lasting Power of Attorney in Spain

May 9th, 2017

shutterstock_89635177Lasting Powers of Attorney (LPA), well known and extensively used in common law jurisdictions, are legal documents which allow a person who is at least 21 years of age (‘donor’), to voluntarily appoint one or more persons (‘donee’) to make decisions and act on his behalf as his proxy decision maker if he should lose mental capacity one day.

In Spain, very few know that there are two almost identical legal documents that grant the same powers to a trusted person should the time of incapacitation arrive.

These documents are known as the “Poder Preventivo”, or Preventive Power of Attorney (PPA), and the “Autotutela”, or “Appointment of Tutor”, both of which are granted before a Notary Public.

The Preventive Power of Attorney is one where a person can deal with the financial affairs of the grantor, with immediate effect after a certain date or once a medical doctor declares a person incapacitated. For its part, the Appointment of Tutor deals with health and care decisions, daily routine or where the affected person should live (but will require judicial approval where the sale of assets is concerned).

It is recommendable to grant at the same time both the Preventive Power of Attorney and the Appointment of Tutor to avoid the lengthy (and costlier) process of applying for a judicial decision -appointment of tutor- following a clinically diagnosed incapacitation or intellectual disability because of disease or accident, a process that furthermore will require a separate procedure to sell real estate or other assets.

It is worth noting that both appointments can be revoked by the grantor whilst capable, and that Notary Publics in Spain have an obligation to communicate any such documents to the Spanish Civil Registry.

Family Law, Inheritance , ,

Taxes on Selling Off-Plan Properties in Spain

April 10th, 2017

shutterstock_99663977

Off-plan property resales have been hard to come by since the days of the real estate boom; in fact, they have been all but absent. But with the property market finally rising from the ashes of the devastating real estate crash and new build properties being gradually offered to the public -and fast snapped up by speculators and consumers alike-, many off-plan buyers are finding that there is now a market to sell on their contracts before they get the keys to the properties.

What are their options from a legal and tax viewpoint? There are two methods to transfer the property rights (if should be noted that both methods will require the consent of the developer):

  • Method 1: The current buyer terminates the contract with the property developer who will refund the deposit paid and, simultaneously, will sign a new a fresh new off-plan contract with the new buyer. Any profit or premium will be settled between the parties although, almost always, the developer will demand just compensation -often times called commission- for consenting to the deal. This method would avoid -and evade- taxes as it is not obvious that a resale has taken place. However, property developers have been in the past investigated for these practices and can be made joint and severally liable for non-payment of taxes, for which reason this solution is not very popular.
  • Method 2: The current and the new buyer exchange contracts for the sale of the off-plan property, pay the relevant purchase transfer tax and inform the property developer. The latter party will then either draw up new contracts with the new buyer or just wait until completion, when they will transfer title to the new buyer. From a tax viewpoint, an off-plan sale will attract a heft enough 10% VAT plus 1.5% Stamp Duty for the buyer when he/she completes on the sale. But if a new buyer comes in, he/she will have to pay, in addition, Transfer Tax (8% minimum in Andalusia) on the assessed value of the under-construction off-plan unit, or the value of the premium, whichever the highest. For its part, the vendor will have capital gains tax (19%) on the net profit (the premium minus any commissions paid) although few choose to pay it.

Clearly, buying an off-plan unit can place excessive costs on the new buyer, making it a prohibitive proposal. It is suggested that prior to offering this to a prospective purchaser, real estate agents lay out the total costs (VAT & Stamp Duty, Transfer Tax, CGT, theirs and the developer’s commission) and where necessary, make a more evenly distribution.

Property , ,

“Plusvalia” tax, Facebook and others; round up of recent Spanish legal issues

February 28th, 2017

Spanish Courts have passed a few rulings in the past couple of weeks that are certainly noteworthy, the most important of which has made it fast to the headlines: the definitive challenge to the incomprehensible “plusvalia” tax, a levy that inexplicably is demanded by local authorities irrespective of whether property owners make, or not, a profit when selling.

Plusvalia Tax

According to a recent ruling by the Spanish Constitutional Tribunal, it is in unconstitutional to “tax not just a potential economic capacity but specifically, one that is fictitious, virtual or inexistent.”

The Constitutional Tribunal has ordered the legal definition of the plusvalia tax to be altered to embody the constitution principle of “economic capacity” to reflect that “only where a sale is conducted with profit can this tax be imposed on sellers”, allowing tax payers to “expose with all available evidence a situation where there is no increase in the value”.

Already several Courts have ordered Town Halls to reimburse this tax to property sellers who sold well below the price when they bought, a scenario that thousands could benefit from.

Facebook matters

Two rulings should make many think twice before posting: the Provincial Audience in Pontevedra (Galicia) has ordered a father to seek consent from his ex before uploading children’s photos on the site.

For its part, the Supreme Court has fined an online newspaper with fifteen thousand Euros for publishing Facebook personal photos taken from an account that was public. According to the high Court, the publication of photos in an open public account is for the purpose of sharing with third parties, but not for mass media consumption. But whereas the Court deemed the right to one’s personal image was effectively interfered with, this was not applicable to the right to privacy or dignity of the claimant.

Supreme Court tells lawyers to write less

The Civil Section of the Supreme Court has ordered lawyers to not exceed 25 pages in their appeal writs, and to use Times New Roman font size 12. According to the magistrates, excessively long writs are unnecessary and hinder the institutional function of this Tribunal. Failing to observe these norms can cause the claimant to lose his right to appeal!

Uncategorized ,

Are Powers of Attorney granted by UK Notaries Public Valid in Spain?

December 5th, 2016

The effects of Brexit appear to have reached some Spanish government offices, shutterstock_450860425
inclusive of Courts of law. The Directorate General of Registrars and Notaries (DGRN), a regulatory body equivalent to the UK Notaries Society, has recently issued a startling ruling (14 Sept. 2016) rejecting the validity of all Powers of Attorney (PoA) granted by a qualified United Kingdom “Notary Public”, on grounds that the authority and competence of these British professionals is not equivalent to that of their Spanish peers.

The ruling went as far as unbelievably stating that only UK-qualified “notaries-at-law” or “lawyer notaries” could validly issue powers of attorney, negating this prerogative to plain “notaries public”.

As was expected and with immediate effect, the erratic decision sent shock waves throughout the network of thousands of professionals, directly or indirectly, involved with expat legal work. And for a reason: hundreds of Court cases could be dismissed (one of Lawbird Legal Services’ case among many), thousands of property transactions could be voided (on the upside, along with their mortgage loans) whenever such PoAs were used and overall, legal chaos.

Alerted by this misguided ruling, the Notaries Society, based in Ipswich, issued the following statement:

  1. A Notary is a qualified lawyer whose work is recognized internationally, unlike the work of Solicitors. The primary function of a Notary therefore, is the preparation of documents and the authentication of clients’ identities and signatures principally for use abroad.
  2. Some Notaries are also “Scriveners”, who mostly operate in London.
  3. “Notaries-at-law” or “lawyer notaries” do not exist as a separate profession.

Hundreds of Spanish Notaries and Registrars, fully aware that their regulator´s historical cock up would certain bring embarrassment to their reputation but more importantly, cause incalculable financial damage, have taken an unusual step: completely ignore this binding ruling and fully accept the Powers of Attorney correctly granted by UK Notaries Public.

And as if to soften the blow, the International Law Registrars Council has issued a non-binding report where it is confirmed that documents signed by UK Notaries Public, who are appointed by the Archbishop of Canterbury and are regulated by laws as ancient as the Ecclesiastical Licenses Act 1533, an Act of the Parliament of England.

Legal Practise, Property , , , , ,