To be a resident, or not to be, that is the question.

What makes a resident of Spain a tax resident of Spain? It is an important question and misinformation arises everywhere, not least in the press, over a beer in the golf club, just about anywhere, in fact.

I came across this gem of an article in one of the local newspapers. This reminded me of how often I find myself with the onerous duty of having to explain Spanish tax residence rules to clients.

Residencia WarningIt is one of the more entertaining aspects of expatriate life in Spain listening to people repeating what they have read in a newspaper or heard on the grapevine, and getting it so wrong.

The old adage of the danger of believing everything written in the press comes to mind...

In Spain, this extends to the danger in believing what the tax office says!

Articles 8 and 9 of the 2006 Income Tax act define when a person is tax resident in Spain. The potential for being tax resident applies to any person that has the use of a property in Spain and uses it habitually.

For the majority of people with homes in Spain, I can offer the following simplified guidelines. I emphasise 'simplified'.

  1. If you are present in Spain for 183 days or more in any calendar year then you are almost certainly tax resident.
  2. If your spouse and children in Spain are present in Spain more that 183 days a year, even if you are not, then you are also presumed to be tax resident in Spain. You can successfully claim to be not tax resident only if you can prove beyond doubt that you spend 183 days or more out of Spain and are tax resident in a country that is not a tax haven.
  3. If you claim tax residence in a country listed as a tax haven by Spain then you have to be able to prove beyond any doubt that you have been physically present in that country for 183 days or more.
  4. If you are not tax resident anywhere but have a home in Spain you are almost certainly tax resident in Spain, even if you are present less than 183 days a year.

Note that I make no reference to any register or being present in Spain for three months. The newspaper article is referring to the obligation of having to formally notify the national police of the intention to reside in Spain for a continuous period of three months or more. You could be resident as far as the police is concerned but not tax resident in Spain.

Note also that the fact that you file income tax declarations in another country does not enter any of the above definitions.

Anyone interested in a more detailed analysis of the subject might like to read this article on Spanish Tax residence. (The will open as in a seperate window as a pdf file)

It would be a wonderful tax system indeed if a person could simply decide whether to be tax resident or not in Spain. In reality this is exactly what many people seem to believe, or perhaps I should say, choose to believe.

I frequently hear "but I pay my tax in the UK, why should I have to pay income tax in Spain?"

I heard this last from a charming couple I met a few weeks ago who have lived full time in Spain for the last ten years! I smile indulgently, try hard to hide my exasperation and remind myself that it is not their fault, as they have had this belief reinforced by their lawyer, gestor, friends, newspapers and I even heard that the tax office has said this.

I hear protesting voices say "but I am a tax resident of Gibraltar (or Switzerland or Monaco, Andorra etc etc). Read the article!

On a final note, the UK is having fun at the moment redefining when a person is a tax resident in the UK.

From a Spanish perspective, whatever rule exists in the UK (or any other country for that matter), does not affect the Spanish definition of tax residence. In other words, a person can be regarded as tax resident by both Spain and another country.

This is where the rules of the double tax treaty come into play. The tax treaty that usually exists between Spain and that other country is supranational law for both countries and so the treaty rules of tax residence override whatever national rules might exist. Usually, a person will only be resident in one country or the other.

I realise, of course, that it is much more convenient to believe the optimistic views of the friend in the bar who says, "don't worry about it, no one bothers to register as a tax resident in Spain".