Antonio Flores’ Blog

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.

Antonio Flores Taxes Spanish Tax Domicile, Spanish Tax Office, Spanish Tax Residency

Is Spanish off-plan property development dead? I would think so, considering the diverse value judges give to misleading advertising by property developers and, consequently, an increasing lack of trust in an already damaged sector.

The story goes like this:

Recently, a property developer in the north of Spain was sentenced to 21 months imprisonment for falsely advertising, on a billboard, that the urbanization he was developing would offer gardens, swimming pool and a children’s playground. Additionally, he had also indicated that the development would include adequate sewage infrastructure, water treatment plant, lighting and sidewalks…when, according to the sentencing court, he had no intention of providing such facilities.

Yes, a tough ruling by 3 tough magistrates who imposed a 21^st century version of the Talion Law, exacting retribution to the defaulter in the most strict way possible, under Spanish law.

In an almost identical case by Court of First Instance in Murcia number 13, the Judge dealing with a dispute over unfinished facilities in Corvera Golf and Country Club accepted the following:

• That the construction of the promised 5-start hotel, to be run by Devere, was never started.
• That there are no, as recognized by the defendant, commercial centers, restaurants luxury hotel, health center nor a spa.
• That the promotional literature is fully binding, citing several Supreme Court rulings.

But, in stark contrast with the ruling that saw the Galician developer almost having to do time for fraud (received a suspended sentence), the Corvera Golf & Country Club developers, who had not built (and had no intention of doing so, as it happens), among others, a 5-star hotel, even though it had been offered, enjoyed a favourable ruling as the claimants’ civil claim for contractual default was dismissed.

And so, the question that remains to be answered: what is it that made this judge rule in such a manner?

Succinctly speaking, that the buyers did not prove that they had relied on the promised facilities to sign the contract! The judge adds that

“…the answer to the claim has to necessarily be negative for, on the one side, the contracts did not stipulate a deadline for building the promised amenities and, on the other, the buyer does not prove, in any way, that the concrete construction of the 5-start hotel and commercial center had, when exchanging contracts, such an intense relevance that it would justify pulling out the transaction should the amenities not be built…in fact, the golf course was indeed completed and the construction of such element was, as evidenced, the only element that was contractually agreed to.” 

And to further justify his anomalous decision, he supported the developer’s argument that the 4^th phase had not been completed, by which time presumably the hotel and other amenities would have been finished. What he did not feel relevant was the fact that Corvera developers had previously undertaken to the following, in respect to Phase IV:  

“By reference to the main plot number 3832 Corvera Golf & Country Club reserves its rights for a period no less than 100 YEARS, to build the FOURTH PHASE of the community, which entails, in the event of this happening within the stipulated time, the proportional redistribution of the service charges being paid by other phases within the community.

Your honour, 100 years seems an awful lot of time to wait for the 5-star hotel, would you not agree?

An appeal has already been lodged.

Antonio Flores Litigation, Property Corvera Golf and Country Club, litigation against spanish developers