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 tax status of foreigners living in Spain has been subject to extensive debate and still today, is a question open to interpretation, particularly considering the ability of people to travel freely within the EU and more notably, the Schengen-space countries. This column is far too short to be able to explain in details all the intricacies of this interesting matter but the 10 points below will help understand, we think, the basis of the tax residency status.

• The distinction between tax domicile and tax residency is a concept more associated with Common Law systems, and almost ignored by Spanish laws.
• Tax residency is prima facie demonstrated by means of a Fiscal Residency Certificate, issued by the tax authority, which should confirm the taxpayer is fiscal resident in that country and that he is subject to tax on worldwide income.
• According to Spanish Courts however, this is not the sole means of proof; a fiscal residency certificate is not the only way to demonstrate residency for tax purposes; utility bills, bank statements, insurance policies, local taxes, civil registry or consular registrations etc. are all means to prove a certain tax status but, more importantly, is the fact of declaring, or not, income obtained worldwide in a particular country.
• The Spanish Income Tax Act states that tax residency in Spain will be determined by one or more of the following: spending more than 183 of a calendar year in the country, having the center of the economic interest or businesses in Spain and having the non-separated spouse, and dependent children, residing in Spain.
• The 183-day count ignores temporary absences except where the taxpayer demonstrates tax residency in another country, with a certificate as per point 2.
• Tax residency in more than one country is possible; double tax treaties signed by Spain generally stipulate where such taxpayers should be taxed.
• Where the taxpayer invokes tax residency in a tax haven, the Spanish Tax Office may request proof of physically being there more than 183 days, in addition to the documentary evidence as per point 2. Where a taxpayer of Spanish nationality changes his tax residency to a tax haven, the Spanish tax authorities will still consider him/her a tax resident in Spain for the next 4 years.
• Where a taxpayer has economic interests in more than 1 country, the tax authorities will take into consideration the weight of each as well as the intensity of social, political and family relationships in each of such countries, or having a permanent dwelling in -or nationality of- that country.
• Spanish authorities may apply for information from countries with whom a tax information exchange agreement has been signed; the UK is one of such countries.
• Double Tax Treaties are in place to prevent tax evasion, not to encourage it: this applies to the anomaly of using UK companies to avoid Spanish inheritance taxes.

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