Am I A Fiscal Resident in Spain or the UK?
Even before Brexit, it was always a question as to where a person was obliged to pay tax if they had a job or business in the UK and lived in Spain, its even more confusing now!
It is widely thought that having a permiso de residencia is synonymous with being tax resident.
This is incorrect as the rules for tax residence and residencia are quite different.
To explain, we have the articles 8 and 9 of the fiscal tax law.
Article 8, states that a person shall be subject to Spanish income tax if their habitual residence is in Spain.
Article 9, can be a little more confusing, If your only home is in Spain, there is no doubt that you are a Spanish tax resident and you should pay Spanish income tax (and if applicable wealth tax and inheritance/gift tax).
Article 9 deals with all the other possibilities, for example in the case that a person has more than one ‘habitual residence’.
This is where the best known tax residency concept of ‘183 days’ comes in.
Article 9 states that if a person is physically present more than 183 days in a calendar year, they are considered as a tax resident of Spain.
But article 9 also has the effect that a person is tax resident if physically present less than 183 days in a calendar year, in the case that the centre of family or economic interests is in Spain.
And, also in the case that a person’s spouse and minor children live in Spain and are financially dependant on that person.
However, if a person can prove that they pay income tax in another country then 2 and 3 may be rebutted. To prove this, it is usually necessary to supply a certificate of tax residence from that country.
Double tax treaties
These bilateral tax agreements (Spain has about 100) are designed to decide in which country a person should pay income tax and the rules vary according to the different kinds of income, employment, directors fees, dividends, property rentals, interest etc.
Additionally, the treaties always contain a section to fix where a person is tax resident. These rules rank ahead of a country’s own tax residence rules.
Consequently, the rules defined in articles 8 and 9 of Spain’s income tax law have to be read in conjunction with the tax treaty residency rules. For example: Where a person is considered tax resident in the UK as well as Spain, the tax treaty deals with the problem with ‘tie breakers’ that decide which country shall have the right to treat the person as a tax resident. A rarity, I admit, but this section of the tax treaties (they are all very similar in this case) is really quite easy to understand, so below is the actual text:
he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);
if the State in which he has his centre of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;
if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
An habitual abode is any place that a person has the right to reside, whether rented, owned or provided by family or friends.
In practice, number 4 is very rare
From reading these notes it will be very apparent that the ‘permiso de residencia’ rules have little to do with tax residency rules. Indeed, permiso de residencia and empadronamiento are completely ignored by articles 8 and 9 of income tax law.
It is possible to have a permiso de residencia but remain non tax resident in Spain. Imagine a person who arrives in Spain on 1 August 2020 and leaves on 31 May 2021. The person would reside in Spain for 10 months and certainly be required to have a permiso de residencia, but having spent only 5 months in Spain in either tax year, they would not be considered tax resident, assuming of course, they are paying tax elsewhere.
Obviously, having a ‘permiso de residencia’ is indicative of tax residence but as long as a person can prove:
being in Spain for less than 183 days in a calendar year, and
being tax resident in another non-tax haven country,
a tax inspector will normally accept that the person is tax resident in the other country, regardless of the the permiso de residencia and empadronamiento formalities.
Those having a permiso de residencia who wish to remain non-resident in Spain, should keep evidence of their trips to Spain and ensure that they can prove tax residence in the UK, normally achieved by obtaining a certificate of tax residence form HMRC. Such evidence would only be needed in the case that the Spanish tax office sends an enquiry. It is not feasible to notify the Spanish tax office in advance of your status as a non-resident.
On this point, the matter of tax notifications in Spain is very problematical as the rules allow a person to be served with formal notices and tax demands at their Spanish home address.
A person who visits their holiday home sporadically is vulnerable to the serious problems that occur if a response is not sent by the deadline. For this reason alone, it is important that non-resident home owners appoint a fiscal representative in Spain as this forces the tax office to send notices to the address of the representative.
This can be changed to the online status and sending of emails through a digital certificate, that i would be happy to receive and deal with for my clients.