The legal concept of trusts does not exist in Spanish law and therefore it is not recognised by the Spanish tax authorities or the Spanish courts. For this reason, the tax treatment of trusts may vary on a case-by-case basis and usually, the Spanish tax authorities consider that, regarding tax treatment, the economic reality of the trust should be analysed rather than its legal nature, which should always take a form of legal entity which is recognised by Spanish law.
As Spanish tax law does not specifically regulate the taxation of trusts and given the lack of the normal sources of tax law, the tax treatment of the legal relationships involved in trusts should be determined abstractly based on the general guiding principles of the Spanish tax system. This task is further complicated by the fact that scientific and administrative doctrine on the subject is scarce and not based on any clearly-defined criterion. In practice, this means that the economic relationships between the members of a trust should be regarded as held directly between them and the tax implications of this should be analysed accordingly.
Treatment of flow-through business entities
Under Spanish law, there are several types of partnerships, and it is important to distinguish between business entities, which are CIT payers, and partnerships, which are flow-through business entities. As a general rule, business entities with separate legal personality are treated as CIT payers and business entities without separate legal personality are treated as flow-through business entities. Spanish law establishes a specific tax regime called the ‘income allocation regime’ for income generated by business entities without separate legal personality. As from 2003, under Spanish law, business entities set up outside Spain that have the same or a similar legal nature to that of a Spanish business entity taxed under the income allocation regime also fall within the scope of this regime.
Mainly, there are two types of situations where non-residents may be liable to tax in Spain in connection with partnerships: (i) non-residents who are members of a Spanish partnership; or (ii) foreign business entities which, on complying with certain conditions, may be considered to be a partnership for Spanish tax purposes and either the foreign partnership or their members may be subject to tax in Spain if they have any kind of interests in Spain.
Under Spanish NRIT law, the legal features of a foreign partnership are the main factor to determine whether it is a flow-through business entity for Spanish tax purposes. Nevertheless, rulings of the Spanish tax authorities are taking the more simple view that a foreign partnership is a flow-through business entity when it is not liable to tax in its country of residence.
In addition, as previously stated, Spanish NRIT law distinguishes between non-resident flow-through business entities with a presence in Spain and non-resident flow-through business entities without that presence.
If the Spanish/non-resident entity carries on a business activity in Spain, its non-resident members operate in Spain through a PE. That means that the income generated by the entity is directly taxable at the level of the entity. The mechanisms used to tax these entities are similar to those used to tax non-resident taxpayers with a PE in Spain, although other regulations also apply.
If the Spanish/non-resident entity does not carry on a business activity, its non-resident members are taxed under Spanish NRIT law and therefore there is no taxation at the level of the entity. Instead, in accordance with Spanish tax law the income is allocated to the entity’s members as if the entity had not existed. Whilst Spanish resident members would include their share of the income in their return for direct taxes (PIT or CIT), non-resident members would be taxed by NRIT.
Work and residence permits for Spain
All international assignees from outside the EU wishing to engage in technical or professional profit-making activities in Spain, either as employees or as self-employed persons, should obtain a work and residence permit before they commence their employment activity.
As a general rule, if the assignee is an employee, applications for work and residence permits in Spain are made in three stages:
- The employer applies for the work and residence permit in Spain. If all the required documents are filed with the application, the immigration office will issue a letter approving the work and residence permit which can take between one and three months.
- The international assignee will have to apply for an entry visa at the Spanish consulate in one's home country within a period of 30 days after one obtains the letter from the Spanish immigration office, which can take up to one month.
- The assignee arrives in Spain and requests a foreign ID number in Spain within 30 days of arrival.
Work and residence permits are issued for a maximum period of one year and an application can be made for their renewal within two months prior to their date of expiry and in some cases within three months of their expiry. It is more advisable to file the application before the expiry of the permit.
In the case of international assignees from EU countries, no work and residence permit is required. If the assignee stays in Spain for over three months, one should register in person at the local authorities to obtain a foreign ID number in Spain.
Entry and stay in Spain of workers, entrepreneurs, and investors
With effect from 29 September 2013, the immigration procedures for foreign business travellers who wish to travel to or reside in Spain or who already reside in Spain may be streamlined for reasons of economic interests when these persons can prove that they are:
- Capital investors. To apply the streamlined procedures, the investment may be either: (i) EUR 500,000 in real estate, (ii) EUR 2 million in Spanish public debt, or (iii) EUR 1 million in Spanish companies’ shares or bank deposits in Spanish entities.
- Intra-company transferees/Persons on international company assignments.
- Highly-qualified professionals.
Under this law, work and residence permits may be issued for a maximum period of two years, and can be renewed.
Exchange control regulations
Under the exchange control regulations established in Spain, a Spanish non-resident can open a bank account in euros or any other currency in Spain. To open the account, and in accordance with anti-money laundering regulations, the non-resident should provide at least one's passport and, if possible, a document issued by the Spanish Home Office certifying one's Spanish non-resident status. A Foreigners’ Identity Number (NIE) might also be requested.
Spanish residents opening bank accounts abroad or transferring funds into or out of a non-resident’s bank account are required to make some notifications to the Statistics Department of the Bank of Spain, as indicated below.
A Spanish resident who carries out bank transactions with non-residents or has financial assets and liabilities amounting more than EUR 1 million should notify the Statistics Department of the Bank of Spain of the details of the bank account where the transaction is made and its holder, amongst other matters. This notification is not required for transactions under EUR 1 million unless the Bank of Spain asks for this information, which should be made available within two months of the date of the request.
These notifications are regulated in Bank of Spain Circular 4/2012, which establishes the notifications that should be made at different time intervals (monthly, quarterly, or annually) when the total amount of the bank transactions carried out or financial assets and liabilities existing abroad in a year is over EUR 1 million and depending on their total amount in the year. In addition, the Spanish General Tax Act 58/2003, of 17 December 2003, establishes an obligation to disclose accounts located overseas for resident individuals and companies, PEs in Spain of non-resident companies, and the entities indicated in Section 35.4 of the Spanish General Tax Act (estate of deceased persons, community estate, and other entities without legal personality that constitute a taxable economic unit or assets).
If this obligation is not met within the established period (before 31 March of the year after the year in which the information to declare was produced), these amounts will be treated as unreported income for CIT payers (unjustified capital gains for PIT payers) and will be allocated to the earliest tax period of those which are still open to inspection. Failure to comply with this obligation is a very serious infringement, and fines of up to 150% of the gross tax liability can be imposed.
Similarly, under Spanish law, any persons entering or leaving Spain with cash, banker's drafts, or cheques payable to bearers for sums totalling more than EUR 10,000 per person per trip should declare them at the border (Customs services).
Finally, regarding transactions carried out in the European Union, as of 1 February 2014, the current regulations on euro credit transfers and direct debits are the SEPA (Single Euro Payments Area) rules. There is a new case of retail payments as a result of the new SEPA instruments, which are currently the same for all the countries in SEPA.
Special expatriate tax regime
Taxpayers acquiring tax residence in Spain as a result of an employment contract (with the exception of the special employment relationship of professional sportspeople) or as a result of acquiring the condition of director in a company (if they hold shares in the company, their interest may not be 25% or more) may opt to be taxed under Spanish NRIT law instead of Spanish PIT law in the year when the option is exercised and in the following five years.
In such cases, the taxpayer is taxed on one's Spanish-source income and capital gains. As an exception, the taxpayer will be taxed on one's employment income obtained worldwide. The applicable tax rate is 24% for the first EUR 600,000 of taxable income and 45% on any excess, except for income from non-resident accounts, which will be taxed at 19% on the first EUR 6,000 of taxable income, 21% on the part of the taxable income between EUR 6,000 and EUR 50,000, and 23% on the excess.
To be able to opt for this special tax regime, the person must have been a non-resident in Spain for a period of ten years prior to the tax year in which they move to Spain.
An application to be taxed under the special expatriate tax regime should be filed within six months following the date when the persons commences one's work in Spain, i.e. the date on which the person is registered with the Spanish social security or the date that appears in the documents that allows the person to continue applying one's home country’s social security regime.
The taxpayer does not obtain income through a PE in Spain.
If any of the requirements stated above are not met, the person loses one's entitlement to avail of this special tax regime.
Tax equalisation policies
Certain companies apply tax equalisation policies to guarantee that assigned employees do not have any kind of advantage or disadvantage in either their net income or social security contributions in the host country with respect to their home country.
These policies also ensure that the assigned employee’s tax burden is similar to the tax that one would have paid in one's home country. For this purpose, the company assumes the payment of the employee’s personal income taxes in the host country, and the employee pays the tax that one would have paid in one's home country in accordance with one's personal circumstances.