SPAIN Law and Practice Contributed by: Álvaro Paniagua Rico and Borja López Pol, Anaford Abogados
the charges or encumbrances over these rights and assets or the ones that need to be fulfilled in Spain, as well as debts for capital invested in the mentioned assets. Non-resident individuals can opt for the application of the standard estate regulations or for the one approved by the Autonomous Region where the assets in Spain with a higher value are located. The option must be made for the whole regulation, either the estate or the regional one. In any case, where a double tax treaty containing Wealth Tax provisions has been signed within Spain and the corresponding jurisdiction, its rules prevail. WT provisions state that individuals who own shares in non-listed non-resident entities that, directly or indirectly, hold real estate assets in Spain might be subject to WT, when at least 50% of the company’s assets consist of real estate located in Spain. Temporary Solidarity Tax on Large Fortunes Effective from 2022, the Temporary Solidarity Tax on Large Fortunes targets individuals with substantial net worth, applying additional and complementary taxa - tion to that of the Wealth Tax. This state-level tax was designed to prevent the autonomous communities from eliminating the taxation in the Wealth Tax through the introduction of allowances in the quota. The tax - able event is identical to that of the Wealth Tax, except that only net assets exceeding EUR3 million are taxed. In order to avoid double taxation with Wealth Tax, the Temporary Solidarity Tax on Large Fortunes regula - tions establish that taxpayers can deduct the amount paid for Wealth Tax from the tax quota. In this sense, if both taxes coincide in their tax rates (which will depend on the tax rates that each autonomous com - munity has regulated), the effective tax payable quota would be the same as if only one of the taxes existed. Inheritance Tax The Inheritance and Gifts Tax taxes the acquisitions made by individuals by inheritance or by gift. Resident individuals are subject to the tax on the value of all assets and rights received, irrespective of where
they are located, whereas non-resident individuals are only subject to the tax on the value of the assets and rights received when they are located or could be exercised in Spain. “Exit Tax” In the event that a taxpayer loses their Spanish tax residency due to a change of residence, certain unre - alised gains may become subject to taxation in Spain under the so-called exit tax regime. Specifically, the positive difference between the market value and the acquisition value of shares or equity interests in any type of entity held by the taxpayer will be treated as a capital gain at the time of the change of residence. This rule applies if the taxpayer has been considered a Spanish tax resident for at least 10 of the 15 tax years preceding the last year for which they must file a Spanish personal income tax return. Additionally, one or more of the legally established conditions must be met, such as exceeding specific ownership or valua - tion thresholds in Spanish or foreign entities. 1.2 Exemptions There are some tax reliefs applicable in the WT and Solidarity Tax. For example: • an exemption for the first EUR700,000 net wealth (depending on the Autonomous Region); • habitual dwellings are tax exempt up to EUR300,000; • stakes in family companies or business assets may also benefit from a 100% tax exemption if certain requirements are met: (a) the individual must hold a participation of at least 5% in the company, or of 20% together with his spouse, ascendants, descendants or collateral relatives up to the second degree (the “family group”); (b) the individual – or a member of the family group – must effectively perform management functions in the company, being remunerated with an amount representing more than 50% of his global salary/self-employment income (ie, it must be his main source of active income); (c) the company must not have as its main activ - ity the asset management, which is the case if
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