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New Spanish Exit tax

New Spanish Exit tax

Last 20th of June, the Spanish Finance Minister announced a project amending different points of the Tax System to be approved in the Parliament.
One of the new measures that the government will implement is the so-called “exit tax”.

Concept
This measure is for taxpayers who have lost their condition of tax resident in Spain when they have moved to another jurisdiction.

Application terms
It consists in considering as capital gain the difference between the acquisition value of the shares or stocks owned by the tax payer and the market value of the shares at the moment of the movement.

The following circumstances must meet:
a)      The market value of the shares or stocks exceeds EUR 4,000,000
b)      The percentage of shares exceeds 25% and the market value exceeds EUR 1,000,000

This capital gain will be part of the taxable savings.

If the change of tax residence is made for labour reasons, to a territory not considered as a tax heaven, the taxpayer can request a deferment of the tax debt.
On the other hand, if the taxpayer recovers the condition of taxpayer of the Internal Income Tax in Spain within 5 years following the movement without transferring the shares or stocks during that period, the tax debt will be extinguished. Moreover, if the taxpayer did not request a deferment of the payment, he is entitled to claim the repayment.

When the change of residence is made to another Member State of the European Union or the Economic European Area, the taxpayer can apply for the following regimes:

a)      The capital gain can be object of self assessment only if one of the following  circumstances occurs within 10 years after the last year when the tax return should have been made in Spain,:

  1. An inter vivos transfer of the shares
  2. the taxpayer loses his condition of taxpayer in a state of the European Union or the Economic European Area
  3. lack of communication between the taxpayer and the Spanish Tax Agency of the capital gain, the State where it moves his residence, and the variations of the ownership.

b)      The capital gain will be reduced by the difference between the transfer value and the market value, considering that the transfer value will be increased with the amount of profits distributed or any other cause that could have reduced the value of the equity in the entity, after the taxpayer’s change of residence.

Special cases
-For tax payers that choose the special regime of displaced workers, the term will start when the special regime finishes to apply.
-For taxpayers who apply the quarantine regime when moving to a jurisdiction considered tax heaven, the capital gain will be imputed in the last year they have residence in Spain.

European Union doctrine
The Court of Justice of the European Union has already considered this kind of regime compatible with the European system in other jurisdictions where this levy has been implemented, provided that some specific requirements meet. At the moment, this new tax in Spain apparently complies with all the requirements established by the doctrine arising from the CJUE. However, it wouldn’t be strange to see some claims against this measure on a trial when it enters into force.

By Mauricio Ticó

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