We contact you again to inform you about a novelty introduced by the Spanish government in its new anti-fraud law, Ley 7/2012, on 29th October. This is NOT a newtax but only a DECLARATION. Its aims are to:
·Increase penalties on those who commit tax fraud
·Increase tax collection
·Set out new measures to collect tax debts
·Eliminate the effective application of the statute of limitations regarding undeclared assets.
The most important measure for most expatriates is the new obligation for Spanish taxpayers to report assets located outside Spain. More details were included in the Royal Decree on 15th November 2012.
This is a new, additional requirement for Spanish taxpayers. You remain obliged, as always, to also fully declare your annual worldwide income for income tax purposes, and your taxable worldwide assets for wealth tax purposes.
The reporting deadline will be 31st March each year. Exceptionally, for this first time, the deadline is extended to 30th April 2013, and reports can be submitted in March or April.
There are three reporting categories, and you have to report all assets in a particular category if the value of your total assets in that category amounts to over €50,000.
· - Accounts held with financial institutions (all cash and deposit accounts)
· - Shares, securities, life assurance policies, annuity income, income generated from loans, rights or other assets
· - Real estate and rights over such property.
You are obliged to report assets if you are the owner, a beneficiary, an authorized signatory, or if you have the authority to dispose of the asset. This includes assets held in a trust.
You are obliged to report assets where the value is over 50,000 € regardless of the percentage you hold on it. You will report the asset with its value and will detail the percentage of your ownership.
You will only need to report the assets again in following years if the total value of the category has increased by more than €20,000.
How are the assets valuated?
The exchange rate to use is that as of 31st December of the year being declared.
When you fill in your form, in most cases the values to be declared are the same as those used on wealth tax returns. In other words, assets are valued using the wealth tax rules as at 31st December each year (explained below)
In the case of assets held within financial institutions, besides the end of year value (31st December) you also need to declare the average balance over the last three months of the year. You have to include the date the account was opened, and if you have closed it, that date too.
When it comes to property, you need to declare the cost and date of acquisition, and the current value as per the wealth tax rules plus the sale proceeds if you sold it during the year. This way, the tax office will be able to calculate the gain on sale. If you obtained the property through a donation or inheritance, the value of the property would be the one of the moment you obtained it, as per the inheritance deed.
In the case of shares, securities, etc. representing participation in the capital or equity of a privately traded entity traded on organized markets, they will be valued according to the average trading value of the fourth quarter of each year.
In the case of securities representing participation in the capital or equity of an entity (not traded on organized markets), its valuation will be determined by the theoretical value resulting from the last approved balance sheet, as long as it has been subject to verification and the audit report is favorable. In the event that the balance has not been audited or the audit report was not favorable, the valuation would be the highest of the following three: the nominal value, the theoretical value of the last approved balance sheet, or the resulting value of the capitalization at the rate of 20% the average of the benefits of the three closed financial years prior to the date of the chargeable event.
If you sold an asset, be it a property, shares etc, during 2012, or closed a bank account, you need to report the value at the date of disposal.
You still need to submit your income tax and wealth tax returns (if applicable) each year. This new reporting obligation is entirely separate.
The consequences of failing to report
There is a great deal of exchange of information between countries these days, and this is increasing, so anyone who fails to report an asset is likely to be found out at some point. The fines are so heavy that you could easily have to pay more than the value of the asset itself.
Any unreported asset may be treated as an “unjustified increase in wealth”. In this case, the undeclared asset will be taxed as general income at the scale rates, so up to 52% (54% in Andalucía and 56% in Cataluña), plus late payment interest, plus penalties of up to 150% of the tax payable. The authorities will be able to look back indefinitely over past years to assess the unpaid tax on the unreported asset.
On top of this, you would have to pay a fine for non-compliance, which is €5,000 for each reportable asset, with a minimum fine of €10,000.
What will the authorities do with the information?
The authorities are looking at ways of raising revenue and cracking down ontax evasion. Once they have your information from this report, they will be able to monitor your assets, for all tax purposes, to make sure you are paying the correct amount of tax. They are highly likely to compare your reporting declaration against your wealth tax, and possibly income tax, returns.
Provided you declare everything you should, and only use approved arrangements to lower your tax liabilities in Spain, you should have nothing to worry about.
What do we require from you in order to do your declarations?
Please, start collecting the relevant information required and once you have it ask us for an appointment, so that we can do the declaration in our offices together with you. The TaxAuthorities do not need you to attach evidence on what you are declaring in the first place, but if they ask for it in a further inspection, you may need to prove the valuations done. For properties, you may have title deeds with the purchase price; for assets held on financial institutions, they may surely help you with the value as of 31/12/12; and for shares, securities, etc. you may also have received the relevant documentation required. If not, please contact their Financial Departments and ask for it.
We would kindly appreciate you not to leave this for the last minute so that we do not have too many declarations by the end of April.