New rules allowing tax authorities and financial institutions to share information about individuals’ assets with their country of residence are being rolled out in September 2017.
54 ‘early adopter’ jurisdictions, including Spain, will begin to exchange data about clients and their accounts. A further 47 have begun to collect data this year in readiness to exchange it in 2018. The measures have been introduced in an effort to ensure that tax is being paid to the correct authorities and are intended as a crackdown on tax avoidance. However, critics claim that they erode financial privacy.
Local tax authorities will automatically receive information about the financial assets of an individual owned overseas from banks, custodians, investment entities, some insurance companies, trusts and foundations. The financial information that they are required to disclose includes annual investment income, such as interest, dividends, income from certain insurance contracts, and annuities. Shared data will also feature account balances and gross proceeds from the sale of financial assets, as well as personal details such as individual names, addresses, tax residences and tax ID numbers.
Once collated, tax offices will use the information to cross reference with tax returns, ensuring that the figures tally. In Spain, the data will also be compared with the 720 Modelo declarations requiring Spanish residents to report their non-Spanish assets.
The implications for UK citizens resident in Spain for at least part of the year are significant. Tax residents in Spain are liable for Spanish tax on worldwide income, gains and wealth, and most of that which has already been taxed elsewhere, including the UK.
It is therefore important to ensure that your income is declared correctly and that tax due in each jurisdiction is paid.
However, this can be a complex process if you have assets and receive income abroad. The complexities are multiplied by the need to follow tax residency rules and double taxation treaties and it may be necessary to take specialist advice to ensure that your actions are compliant.
Advice can also be sought to reduce the amount of information being exchanged under the new arrangements and make it easier for you track. One option available is to group assets that are currently held in several offshore accounts or investment products.
In light of these recent changes, it may also be advisable to review your tax planning arrangements to ensure that they are approved in Spain. The use of non-compliant bonds, such as non-EU bonds, is legal in Spain provided that they have been declared. However, be aware that they are taxed more heavily than Spanish bonds.
In conclusion, your right to structure assets in the most tax efficient way is not ended by the increased exchange of information. Crucially, however, you must ensure that your arrangements are compliant in Spain. There are structures available that can be effective and it is important to take specialist advice to find the approach that is right for you.