In 2012, a Law was passed in Spain, according to which all residents living in the country are henceforth obliged to annually submit a declaration of income and property located abroad if its estimated value exceeds 50,000 euros. Even then, the international community negatively perceived this innovation, however, the Spanish side pointed to the rather “informative” nature of the declaration or “model 720”implemented to ensure security, counteract the concealment of income and tax evasion, and the prevention of sponsorship of terrorist activities. In fact, this declaration is far from being merely a statistical account of the financial condition of fiscal residents, but absolutely full and strict reporting, errors, inaccuracies, conscious or accidental in which, entail tangible economic consequences.
As an example of the “seriousness” of the consequences, we can consider a case that received high publicity last year. An foreigner of retirement age, who has a residence in Spain, untimely and insufficiently accurately indicated data on foreign property located in Switzerland, for which he was fined almost four hundred forty thousand euros. More details about this incident will be described below.
According to statistics, since the law existed, since 2012, the model 720 was filled with almost two hundred thousand resident foreigners who declared more than one hundred and twenty million euros, respectively, replenished the Spanish treasury by a significant amount.
So, let’s take a closer look at taxes in Spain for foreigners, namely the Model 720. As mentioned at the beginning of the article, if you are a resident of Spain, and outside it you own values worth more than fifty thousand euros, you need to file a declaration annually and inform the tax office about your financial condition.
- What to declare in model 720
What exactly needs to be reported in this form? Firstly, it is necessary to provide information on bank accounts outside of Spain, even if the person is only a beneficiary, has the right to dispose or manage the funds. Secondly, data on securities or rights, shares in the authorized capital, personal funds of legal entities, as well as on loans and borrowings that were given to third parties from their sources. Thirdly, indicate the availability of values at the disposal, as well as trust funds and property that can generate income. Declarations are also subject to shares, investments, as well as real estate, even if the declarant is not its sole owner.
- All property outside of Spain need to be declared?
There is only one case when you do not need to declare property – if you can provide documents confirming that it was purchased with funds that had already been declared earlier in Spain and, accordingly, taxes were paid on income. In other cases, all property, even if it appeared to you twenty-thirty years ago, was inherited or donated – it must be declared. These taxes must be paid by residents of Spain .
- Double taxation in Russia and Spain
Russians with a Spanish residence, earning income in Russia and Spain, are required to pay taxes in two countries. At the same time, deductions are provided in order to avoid double taxation. To produce them, you first need to pay taxes in Russia, and then add the missing difference in Spain, if any.
- Offshore property declaration
It is no secret that many of our fellow citizens in offshore have not only property and accounts, but also registered companies. Unfortunately, for such people, in connection with current trends, it is not worth hoping that the secret status of offshore companies will remain forever. Already, Spain has agreements with Singapore, Switzerland and Gibraltar on the exchange of information. Therefore, it is likely that the Spanish tax authorities will soon expand access to information and other offshore zones. Thus, after some time, the Spanish tax authorities may become aware of the foreign property of a resident that has not been declared, and this will entail, at best, large fines. And therefore, unpaid taxes by residents of Spain can lead to very serious consequences.
- What will happen if you do not fill in the 720 model or fill in incorrectly
As soon as a foreigner becomes a fiscal resident, he is automatically subordinated to all legislative regulations of the state, and, as you know, ignorance of legal issues does not relieve him of responsibility.
Now let’s get back to the illustrative case that the aforementioned resident pensioner faced with property in Switzerland. It so happened that he filed the 720 model untimely, while declaring at the same time 340 000 euros, located in Switzerland. However, the tax office demanded to pay a fine of 439,267 euros, incriminating the concealment of income and non-payment of income tax. The pensioner was accused of the fact that the funds belonging to him in the form of shares and located in investment funds, brought him income, and not just were in a “stationary” state. This fact led to the conclusion that no income tax was paid, amounting to 169,300 euros and 16,016 euros penalties. To this amount, the tax inspectorate added a fine of 150% for concealing income, that is, 253,950 euros.
- More on fines
Spanish law provides for the application of economic sanctions to those who did not timely or incorrectly declared property and funds located outside the country. In each case, an individual “punishment” is chosen. For example, taxpayers who have not submitted a declaration of property or who have made errors in it will be fined 5,000 euros, for unspecified data – a minimum of 10,000 euros. If the 720 model is late, then for each item 100 Euros are paid, but at least 1,500 Euros. If the concealment of income or capital growth is established, the fine will be 150% of the amount. According to the Spanish Tax Inspectorate, about 7,000 cases of taxpayers who have incorrectly or untimely completed model 720 are currently pending.
But if a resident hides from the tax office an amount of more than one hundred twenty thousand euros, then he will be charged with an economic crime, criminally punishable.