The Spanish Tax Authorities, as part of their annual tax investigation plan, are reviewing the status of non-residents of Spain, whom they consider are actually living in Spain and therefore should pay taxes as residents there on their worldwide income and wealth. Anyone with property or other interests in Spain is potentially a target.
This may not be what is best for Spain in terms of one of its most important industries and job generators, residential tourism, as the undesired collateral effect can be that of scaring investors away from owning property or even businesses in Spain, but if you are caught in one such inspection that will be the least of your worries.
Determining tax residence is slippery ground in those frontier areas, where people tend to spend a lot of time on either side of the border and it is often difficult to establish where one really lives. This is the case of Spain’s borders with Portugal, France and Gibraltar. France and Portugal, however, have the advantage of Avoidance of Double Tax Treaties containing Trans-Border agreements with Spain to address matters such as that of people who work and take children to school in one country but have their home in the other.
Even then, the Trans-Border agreements that Spain has with Portugal and France differ between them. With Portugal, you are a resident of the country in which you have your habitual home, to which you normally return every day, even if you work in the other state. With France, the authorities issue a Frontier document to each individual that establishes where you are a resident on a case-by-case basis.
Gibraltar doesn’t have the protection of a Double Tax Treaty or a Trans-Border agreement with Spain. Furthermore, it is attributed a status of Tax Haven by Spain, which means that residents of Gibraltar are put under the obligation to prove their case, thus reversing the burden of proof in favour of the Spanish Tax Authorities, in a tax inspection. This makes it much more difficult to prove that one is a resident of Gibraltar if challenged by the Spanish Tax Authorities.
Evidently, the matter becomes more complicated when, as is the case of many residents of Gibraltar, they have a home in both Spain and Gibraltar, work in Gibraltar and take the children to school here, but spend weekends and some nights in their Spanish home, perhaps even commuting in and out of Spain daily during the summer months, for example. This pattern could easily be construed to be that of a resident of Spain by Spanish tax inspectors.
All this is not made any easier by the fact that Spain does not have a clear rule on when a day actually qualifies as having been spent in Spain. For example, in the UK, the rule is that you count the days that you are in the country at the end of the day, that is at midnight, as having been spent in the UK, but exclude nights spent in transit. The absence of such rules makes it particularly difficult to determine the place of residence in a frontier area such as that of Gibraltar.
Given the high rates of Income Tax and the existence of Wealth Tax as well as the new obligation to declare most foreign assets above 50.000 euros, it is evident that residents of Gibraltar are in no hurry to want to become tax payers in Spain, but let’s see what can be done to mitigate the risk of being treated as one by the Spanish Tax Authorities.
Tax residence in Spain depends basically on two parameters; the first is spending more than 183 days in Spain, in any natural year, including temporary visits abroad, and the second is determining that your centre of vital interests is in Spain. The availability of a home in the territory in which one claims to be a resident is not a consideration as in the case of the tiebreaker rules of Double Tax Treaties, but is obviously a determining proof of lack of residence if one is not available, say in Gibraltar.
Therefore, if you have a home in Spain and cannot show that you also have one available in Gibraltar, you could be in serious risk of being considered a tax resident of Spain. Other than this, a common error to be avoided is to give any Spanish, Gibraltarian, UK or any other authority, registry, bank or credit card company your address in Spain as your residence. This can be reported back to the Spanish Authorities by virtue of the Exchange of Information Agreements in place. Even more importantly, one should not fall into the trap of registering as “empadronado” of the municipality, in Spain, in which one has a house. All these and many other aspects, to which one often does not pay enough attention to, must be carefully considered as they can all be used as evidence of residence.
In case of doubt, it is advisable to seek professional advice from a firm of accountants in Spain, with a specialist international tax capability, to make sure that you are operating adequately in that country. It is not a good idea to take the risk of not checking, the cost of getting it wrong is just too high.