Over the last twenty years many thousands of foreign investors have channelled their property investments in Spain directly or indirectly through offshore companies. This has enabled many individuals to avoid the payment of many Spanish taxes such as capital gains tax and inheritance and gift tax.
As from the 1st.January 2007 these tax avoidance measures will come to an end and owning assets in Spain through an offshore structure will have no commercial or fiscal benefit. Continuing to hold assets in an offshore structure will now increase exposure to taxation.
In line with the rest of Europe, the Spanish authorities have been trying to introduce legislation that will lessen the amount of tax evasion and money laundering that is perceived to be enjoyed by entities located in offshore tax centres. The tax office does not want to leave any stone unturned in its quest to eradicate all investments channelled through tax haven countries.
The main thrust of the 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 also affect offshore holding companies set up to hold shares in Spanish companies. Offshore companies will be taxed as onshore as from 1 January 2007. Capital Gains taxes and Spanish Inheritance tax will become payable. Costs of unwinding the structures will be expensive (10% approx) and will be subjected to capital gains tax.
Please contact your own tax advisor for confirmation of the above changes.
IF YOU WISH TO PROTECT THE EXISTING TAX BENEFITS OF YOUR OFFSHORE STRUCTURE, THEN CONTACT ALLAN GRAYDON OF GRAYDON & ASSOCIATES FOR A PRIVATE AND CONFIDENTIAL MEETING