Gibraltar Spanish Tax Treaty – the impact on individuals

Aims

The Gibraltar Spanish Tax treaty aims to eliminate uncertainty around the tax position of people who are treated as tax resident in both countries. It will impact anybody who has connections to Spain and the implications should be carefully considered. Below Grahame Jackson considers the impact on individuals.

When does this apply from?

The residency rules contained in the Treaty for all except Spanish nationals will come into effect for the taxable periods beginning after the ratification of the Treaty by the two parties. The earliest Spanish tax period this can apply to begins on 1st January 2020.

The rules for Spanish nationals will have changed as below with effect from March 4th 2019 if the Treaty is formally ratified and the first exchange of information will occur within four months of the formal ratification of the agreement.

Those effected should use this window to consider their position.

What does it say about individuals?

For non-Spanish individuals the treaty does not override the rules about tax residence (apart from in the case of the Special Rules explained below). If you are tax resident in Gibraltar today you will be tax resident tomorrow. However, it needs to be understood that a person can be tax resident in more than one place, tax residence in Gibraltar is not a shield from tax residence in Spain if you meet their criteria.

This kind of dual residence leads to disputes between authorities and it is this that the treaty aims to resolve.

For individuals, whenever there is a dispute about tax residence, the following applies:

You will be considered tax resident in Spain and not tax resident in Gibraltar IF:

(i) you spend 183 overnights in Spain; and if you spend time away from both Gibraltar and Spain then you should add those nights to the count in the place you spend most time;

or

(ii) your spouse/partner dependent ascendants (parents, grandparents etc) or dependent descendants (children) habitually reside in Spain;

or

(iii) your ONLY permanent home is in Spain

or

(iv) 2/3rds of your assets are in Spain

If you own a property, if your husband or wife spends regular amounts of time in Spain, if you have substantial investments, or you regularly visit Spain (say spend Friday night to Monday morning there) you should consider your position and seek independent legal advice from our Spanish and Gibraltar qualified lawyers.

You must remember:

(i) The fact you haven’t registered in Spain has no effect, tax residence is not impacted by registration;

(ii) HEPSS or CAT2 statuses are specifically acknowledged as having no impact on whether you are Spanish tax resident or not.

 Special Rules

The following special rules will be applied:

(i) those Spanish nationals moving to Gibraltar after the signing of the treaty (4th March 2019) will always be considered tax resident in Spain no matter how long they are resident in Gibraltar

(ii) Non-Spanish Nationals who have been resident in Spain for more than one year will continue to be considered tax resident in Spain and subject to Spanish tax for 4 years after they move from Spain to Gibraltar.

(iii) Gibraltarians who have been resident in Spain for more than four years will continue to be resident in Spain and subject to Spanish tax for four years after they move from Spain to Gibraltar.


Effect of tax residence in Spain

A person tax resident in Spain under the treaty will be subject to:

(i) Spanish income tax;

(ii) Spanish capital gains tax;

(iii) Spanish wealth tax (where applicable);

(iv) Spanish inheritance tax on the receipt of gifts or inheritances and

(v) Obligation to declare certain assets owned or held outside Spain, where the value exceeds a certain threshold (real estate, bank accounts, shares and investments).

(vi) a Spanish tax resident working in Gibraltar will continue to pay Gibraltar income tax and will receive a relief for that tax against their Spanish income tax liability 

Exchange of Information and assistance

The exchange of information provisions are highly technical and far reaching. Individuals must remember that the authorities have promised to assist each other with any information which is “foreseeably relevant”. The information which will be automatically exchanged will include information identifying “every aspect of the underlying employment” or trade or business, profession or vocation, and will be for all periods beginning 1st January 2014.

The Gibraltar authorities have also confirmed they will implement provisions equivalent to the Mutual Assistance Directive which means they will cooperate and assist in the collection of tax debts with the Spanish authorities.

Companies

The position with companies and other legal persons is somewhat different and we will be publishing a further article in the days to come.

What next?

Individuals should consider their position very carefully and take full advice. Hassans offers both Spanish and Gibraltarian advice under one roof, and are uniquely placed to assist. Active consideration should be given to the options available; relocate, restructure, or regularise. Should you require advice in relation to your status, please contact Grahame Jackson or Kenneth Bonavia.