NEW DEVELOPMENTS! A lot of interest has been generated since I wrote “Permanent Residency in Spain with Home Purchase” back in November 2012. Because of it, I’ve received numerous emails and questions/comments on that previous blog entry, everyone wanting updates. Well now you have (some of) them.
Before, the price for Spanish residency with home purchase was 160,000 Euros, but that has been raised to 500,000 Euros. The new law is ‘expected‘ to come to fruition this month in July 2013.
But since November 2012, another law has been officially and quickly enacted, called “Modelo 720” (see below), which requires all Spanish residents, either foreign or domestic citizens, claim assets outside of Spain totaling more than 150,000 Euros. I have to wonder which law was considered first, but I think I know the answer. This is a law being enacted throughout Europe as well.
Spain is in such desperate straits that the government is looking for any and all manner to raise money to pay back those European Union loans and to boost its own economy, particularly through the tumbling housing market. I’m not so sure, however, that “selling out” and charging higher taxes to its already struggling people and would-be residents is the way to do it. I don’t have the answer, either.
I don’t know about you, but if one is wealthy enough to buy a 500,000+Euro property in Spain for residency, that same person certainly has property and assets outside of Spain as well, and probably worth more than 150,000 Euros! This could also affect current and future retirees living the high life around Spain’s beaches. Once they know they’ll have to pay taxes in Spain for those properties & assets back home, that’s exactly where many of them may decide to return, leaving Spain in the dust.
IMPORTANT: Residency with Home Purchase in Spain would not include the right to work, have public health care benefits, or attend public schools. The resident would have to pay for all these services privately and individually. That’s the sticker.
So what good is Spanish residency if you can’t enjoy the benefits other Spanish residents have? Therein lies the rub. Foreigners can currently and legally buy property in Spain. But without European Union residency already established, they cannot live in Spain more than half the year. The home-purchase-for-residency would allow the new resident to live in Spain all-year-round, but without many of those aforementioned benefits.
I was recently talking to an accountant familiar with these matters and he didn’t seem to think anything would come of the “Spanish Residency with Home Purchase” initiative, mainly because it would be made prohibitive with the new Modelo 720 law (below).
The rich, and even not-so-rich, can easily buy property around the world – and maybe even for local residency. Unfortunately, it may cost them more than they’d like to spend in the end.
Read The Telegraph (UK) Article in English: “Residency Law Gives the Spanish Market a Boost” (read the article’s comments section, too, for even more details) and ElEconomista.es article in Spanish, “El Gobierno Eleva a 500.000 Euros la Inversión para Obtener la Residencia” (again, read the comments section, too).
See the Modelo 720 document below regarding taxable assets held outside of Spain.
Residents in Spain (Spanish citizens, foreigners, individuals or companies) will soon be obliged to declare all overseas assets (including those who have chosen to pay as a nonresident). From 2013 all foreign assets (outside of Spain) must be reported (under MODELO 720).
This new declaration is not only for the owners of foreign assets but also for those who are authorized signatories co-signatories or beneficiaries.
So, for example, even if you are only an authorized signatory on your father’s bank account, you are still required to report this account.
The reporting period is March – April 2013.
All kinds of assets will have to be reported:
- Real estate
- Bank accounts
- Shares and securities
- Life insurance policies, pensions or any kind of insurance…
- All incomes (for example if you are receiving payments on loans…)
With regards to bank accounts, the value to be declared is either the balance as on 31st December or the average balance taken from the last three months of 2012 (whichever is higher). With regards to real estate the asset value will be derived from the original acquisition price (the price you bought the property for).
You are only liable for this new fiscal obligation if your total assets held outside Spain are worth more than €50,000 in each category:
Real estate : €50,000
Bank accounts : €50,000
Shares, funds: €50,000
You will only need to report the assets again if their value has risen by over €20,000.
Failure to comply with this fiscal obligation “could” have costly consequences if your assets are discovered by the tax authorities. You should also be very careful if your assets are in the European community, USA or Switzerland as the financial institutions are currently in the process of agreements that will allow the sharing of financial information between countries.
In the case of Switzerland a new law is already under discussion which will require to Swiss banks to close any “anonymous” accounts. The law will probably be in place in 2014 and for the first time in Switzerland’s history, acts of financial fraud will be prosecuted.
The minimum penalty for failure to comply with this new declaration will be 10.000€ plus 5.000€ for each omitted account/income…
The most severe consequences of this new declaration are that the Administration are abolishing backdated revision of tax declarations having a maximum period of four years. Until now if you committed a fraud you could have been prosecuted within a period of four years. However from this declaration forward there will be no maximum period if you are found not to have declared your assets in the future. From the moment the Administration locate your undeclared foreign assets they will automatically add any undeclared assets (from any period) to your tax declaration for the previous four years. The resulting total asset value will determine what penalties and interest rates should be paid to the Administration. Be careful!! the penalty will be 150% of the amount you haven’t pay to the Authorities!
Good news though, this new declaration is just informative. That means, no payment is required so it’s really worth to declaring your foreign assets.
If you are planning to comply with this new tax obligation don’t forget to adjust your four previous tax declarations if they are incorrect! As a resident of Spain (although you may not be aware) you are automatically required to report all Spanish and overseas assets or incomes (via La Renta) as income and capital gains tax (via Patrimonio) is applicable worldwide!