On 10 July, Law 11/2021, of 9 July, on prevention of and fight against tax fraud, which includes modifications to various tax regulations, was published in the Spanish State Bulletin. Among them, there is a very important modification related to the taxation of non-resident taxpayers with regards to the Wealth Tax (IP).
Wealth Tax: Can regional regulations be applied to non-residents?
Among other novelties, Law 11/2021 modifies the fourth additional provision of the Wealth Tax Law and includes the possibility of applying the regional regulations on Wealth Tax to non-residents in third-party states (outside the European Union or the European Economic Area).
The new wording of the fourth additional provision of the IP Law enables a non-resident to choose between applying the state or regional regulations of the Autonomous Community where the highest value of their assets is located in Spain. In this way, taxpayers located in a third-party state (non-EU residents) will be able to enjoy the tax benefits provided by certain Autonomous Communities in Spain.
Background to the Wealth Tax for non-residents
It should be remembered that, after a notable judgment by the CJEU of 3 September 2014*, on 27 November of that same year the Wealth Tax Law was modified to allow residents in other states of the European Union (community residents) to have rights to the same benefits in tax matters as residents in Spanish territory. Specifically, in 2014 a series of rules were introduced thanks to which a similar treatment was allowed between residents and non-residents, who are residents of other member states of the European Union or the European Economic Area.
* The ruling dealt with the Tax on Inheritance and Donations, but by extension it ended up modifying the Tax on Wealth for community members.
Under this scenario, for example, we find the binding consultation of DGT V0676-19, of 27 March 2019, in which a resident in Mexico with assets located in Madrid is told that they have to pay taxes without the right to be able to apply any of the tax credits that the Community of Madrid has provided for in its regulations: “Being resident in a third-party country, not belonging to the European Union or the European Economic Area, the fourth additional provision of the LIP will not apply. Therefore, the applicable regulations will be exclusively that of the State, with the autonomous regulations of the Community of Madrid not being applicable.”
The 2014 amendment did not include resident citizens located outside the European Community area, a novelty that is now included in Law 11/2021, of 9 July which in turn modifies the Wealth Tax Law to allow the application of the regional regulations to non-community residents.
Wealth Tax: taxation of non-residents
|Wealth Tax Regulations (2014)||Wealth Tax Regulations (2021)|
|Non-resident taxpayers who are residents in a Member State of the European Union or the European Economic Area will have the right to apply the regulations approved by the Autonomous Community where the highest value of the assets and rights they hold is located and for which the tax is required, because they are located, can be exercised, or must be fulfilled in Spanish territory (fourth additional provision)||Non-resident taxpayers will have the right to apply the regulations approved by the Autonomous Community where the highest value of the assets and rights they hold is located and for which the tax is required, because they are located, can be exercised, or must be fulfilled in Spanish territory (fourth additional provision)|
This modification of the Wealth Tax that allows the application of regional regulations to non-EU non-residents is in line with the principle of free movement of capital established within the framework of the European Union. In this way, regardless of the country of origin, investments in the EU in general and in Spain in particular are promoted and encouraged.
It must be taken into account that, in part, this change in the Wealth Tax has its roots in previous judgments, such as that of the STS, of 19 February 2018, in which the Supreme Court affirmed that the Inheritance and Donations Tax for non-EU non-residents cannot discriminate against anyone who had been forced to pay this tax in accordance with state regulations. Due to sentences like this, the Wealth Tax had to be adapted for non-residents in 2021.
Wealth Tax and Golden Visa
Do you know about the Golden Visa? This is a special visa for foreign investors that grants both the holder and their family members the right to reside and work in Spain. This change in the IP could influence the Golden Visa, since the assets acquired to obtain it could give rise to taxation through the Wealth Tax (by real obligation).
If you want to know more about the residence visa for investors, detailed information can be found here: Processing of the Golden Visa in Spain