Antonio Flores’ Blog

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 28^th 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.

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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:

1. The main document that proves tax residency in Spain is the Tax Residency Certificate.
2. The issuance of an individual Tax Residency Certificate is subject to the applicant proving his/her residency in Spain.
3. 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…).
4. 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.

Antonio Flores Taxes Agencia Estatal de Administración Tributaria, capital gains tax spain, certificate of non resident, Retirement in Spain, Spain Tax, Spanish Hacienda, Spanish Inheritance Law, spanish property tax, Spanish Residency, taxation in Spain, Taxes in Spain