Spain is one of a number of countries that charge tax on unrealised capital gains when their tax residents leave the country, and it has had a new law in place since January 1, 2015.
We have set out a series of Q & As to answer your basic queries about how this law might affect you.
Who will the exit tax apply to?
A person who has been tax resident in Spain for at least ten of the 15 tax years preceding their departure from Spain.
What will be taxed?
The increase in value of shares, collective investments like UCITS, SICAVs, unit trusts, bonds and similar investments held at the time of departure. Assets held in private retirement savings schemes are also subject to this tax.
What date will apply to the valuation of investment holdings?
The value on the 31st December of the last tax year in which the person made a tax declaration.
What limits apply?
The exit tax only applies if:
- The total market value of shares owned at the moment of departure exceeds 4,000,000€, or
- You own more than 25% of a company and the value of your shareholding exceeds 1,000,000€.
To which tax year is this applicable?
The capital gains will be declared in the final tax year in which the person was subject to income tax as a Spanish tax resident.
What is the rate?
The usual capital gains tax rates apply. Currently the maximum rate is typically 24%.
Valuing unquoted companies
Income tax law states that the market value is the amount that would be paid between independent parties in normal market conditions. There is a presumption in law that the minimum value of an unquoted company is arrived at by taking the higher of a) the balance sheet value, or b) multiplying the average last three years’ annual profits by five.
What if you move to another EU state?
You have to file the tax declaration, but you don’t have to pay tax until you actually sell an investment. If you continue to hold an investment for ten years after having moved then the obligation to pay tax in Spain is cancelled.
What if you move outside of the EU?
You will have to pay the tax on departure.
And if you return to Spain?
In this case you are entitled to claim back whatever tax you have paid in respect of each investment you still own.
Can you delay payment of the tax?
Yes. In the case that your move is due to new employment in a country that is not a tax haven, payment can be delayed for up to ten years. In other cases, payment can be spread over five years as long as the new country of residence has a tax treaty with Spain that contains an exchange of information clause. Delayed payments are subject to the requirement to provide guarantees.
The accounting experts at Spence Clarke are able to advise on each individual case, so if you are thinking of leaving Spain any time soon and would like to know what your obligations are regarding exit tax, please do not hesitate to contact us.