Proving Spanish Residency: The case of a British Tax Resident of Spain Who does Not Exist for the Spanish Tax Office
The title of the post is confusing, contradictory and appears to make little sense; I will admit to that. But at times, the idiosyncrasy of Spanish bureaucracy lends itself to these situations.
The case relates to a client who was selling his property, had been a resident of Spain for 20 years but, because he was not legally obliged to file annual tax returns (he was retired) he did not exist for the Spanish Tax Office and so, he would not be given a Tax Residency Certificate, necessary to avoid the 3% CGT retention on the proceeds when a property is sold.
And because he was so adamant that Spain was his place of retirement, and of his tax residency, he was not going to let the Tax Office get away with it.
So in the knowledge that in the Costa del Sol, if you submit a query to 3 different tax/legal professionals you end up with 4 different opinions, we told him about Hacienda’s Binding Consultation Service, the ultimate official opinion on a tax matter: the case was submitted to the Directorate General of Tax (DGT) for a definitive confirmation of what he had previously read on the subject.
And this was their response:
- The main document that proves tax residency in Spain is the Tax Residency Certificate.
- The issuance of an individual Tax Residency Certificate is subject to the applicant proving his/her residency in Spain.
- Where the above certificate cannot be obtained, the onus of proving Spanish residency lies with the taxpayer who will be able to submit, in support of his claim, alternative evidence: Certificate of “empadronamiento”, children’s school enrollment applications, rental payments, water and electricity receipts etc…).
- The Spanish Tax Office, based on the widely accepted judicial `principle of free evaluation of the evidence´, will determine whether the applicant is, or isn’t, a tax resident of Spain.
By experience, I will add a fifth item: a certificate of non-residency from the Tax Office of the country of origin. This is not mentioned but we have had it submitted on a prior case and adds considerable weight to the application.
Finally, it is worth noting that the Spanish Tax Office has not commented on the EU residency forms issued by National Police Stations; this is probably because its relevance is relatively low.
Q1.Does the tax residency have to be proved for more than one year?
Q2. Scenario
o You sell a permanent residence in Spain
o You are over 65
o You do not have tax certificate
o The tax office refuse to validate your residency and 3% is withheld on sale.
Can the 3% tax be claimed back if the total capital gain is invested in a permanent residence in another EU country?
I think this information is extremely useful because as already stated advice is never the same from accountants or gestors.
Kind regards
Tricia
Hi Tricia,
Regarding Q1, most people would generally apply for a certificate for the purpose of avoiding the 3% retention. That does not mean that you cannot get one every year.
Regarding Q2, very good question to submit to the Spanish Tax Office as so far, no one has taken this matter up seriously in spite of rumours that it could be possible.
I found this information
Income Tax Law 35/2066 (applicable to tax residents in Spain) in its article number 38 covers the potential of being exempt from paying Capital Gain Tax derived from the sale of a habitual residence, so long as the total amount received from this sale is reinvested in the purchase of another habitual residence.
Additionally, to strengthen this opinion, it is relevant to note the Order granted by the European Court of Justice (ECJ) on the 26 October 2006 ruling on Procedure number C.345.05 initiated by the European
Commission against Portugal.
White & Baos Lawyers
Portuguese Law stated (in a very similar way to Spanish Law) about the existence of a tax exemption for reinvestment in habitual residence but stated ‘that it would only be applicable if the new residence was located within Portugal’.
• The ECJ ruled in the Order that Portugal breached the obligations under the EU Treaty (especially articles 18CE, 39CE, and 43CE as well as articles 28 and 31 of the European Economic Agreement (EEA)) on the basis that the benefit of the exemption was conditioned to reinvestment in Portugal, which is contrary to the EU principles of freedom of establishment, free movement of workers etc.
As a result of the above, and in
dependently of what the Tax Laws of Spain or any other EU country may state, it should be possible for you to benefit from the exemption when reinvesting in a habitual residence, entirely regardless of where you purchase your new residence – so long as it is located in a member country of the EU.