Friday, 10th July 2020

This Month's Magazine
Spanish Tax Update - March 2006

Spanish Tax Update - March 2006

Offshore company investments in Spain.

As a follow up to our article in last months WEB Express and in the light of the additional proposals made by the Tax Authorities, which clearly will be of concern to investors, we set out below the details of these latest modifications.

Should these proposals find their way onto the statute book, they will take effect as from the 1st January 2007.

The tax office does not want to leave any stone unturned in its quest to eradicate all investments channeled through tax haven countries.

The main thrust of the proposed legislation is aimed at forcing such companies to demonstrate beyond reasonable doubt that their underlying activities are truly carried out in their respective offshore centre, and that these are indeed normal business activities.

The tax office will be able to initiate tax investigations of these companies based on the simple presumption that they consider the true or main activities to be carried out in Spain. It will be up to the companies concerned to demonstrate otherwise. Failure to do so will result in the companies in question, having to present accounts in Spain, reflecting all their transactions, wherever they are. These proposals will affect holding companies set up to hold shares in Spanish companies.

Many thousands of foreign investors have channeled their property investments in Spain over the last twenty years, directly or indirectly through offshore companies. The time may have come for these structures to be reviewed in the light of the new proposals.


Spanish Inheritance Tax
Various rumors abound with regards to the possible abolishment of inheritance tax in Spain. However, this is what they are - RUMORS. The tax allowances for direct relatives may be increased but this will still leave very substantial liabilities for the inheritors. Let me remind you again of some of the major reasons why serious consideration and planning should be made to avoid your loved ones being landed with substantial liabilities on your inevitable death.

  • Assets located in Spain will be taxed upon inheritance, by the Spanish State and according to Spanish tariffs, whether one is resident in Spain or NOT, and whether the deceased leaves a will or not.
  • Transfers between spouses are NOT exempt from inheritance tax in Spain. This can come as a very nasty shock to individuals coming from other countries where this situation does not arise.
  • Where a property is held in joint names, a substantial inheritance tax liability can arise on the death of ones beloved partner. Not only will the surviving partner have to cope with the loss and the trauma that result, but will also have to find the cash resources to meet a most unwelcome and penal tax bill.
  • The tax assessed is payable within six months of death.
  • The inheritance tax payable is the liability of the inheritor and cannot be taken from the deceased estate. Therefore, where a property is inherited, the property itself cannot be used as collateral security to provide a loan, nor can it be sold until the tax is paid.
  • If the tax remains unpaid after six months, additional interest and fees become payable.
  • The initial calculation of inheritance tax is based on the net value of the estate.
  • The rate bands range from 7.65% through to a top rate of 34%.
  • For non Spanish residents it is calculated on Spanish sited assets only, but for residents, subject to the question of domicile, it could be their wealth worldwide.
  • The inheritance tax liability increases according to the degree of kinship between the deceased and the people who inherit.

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