SPAIN Law and Practice Contributed by: Álvaro Paniagua Rico and Borja López Pol, Anaford Abogados
es or encumbrances over these rights and assets or those that must be satisfied in Spain, as well as debts for capital invested in the aforementioned assets. Non-resident individuals can opt to apply the standard estate regulations or those approved by the Autono - mous Region where the higher value assets in Spain 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 may be sub - ject 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, complementary taxa - tion in addition to the wealth tax. This state-level tax was designed to prevent the autonomous commu - nities from eliminating the wealth tax by introducing allowances in the quota. The taxable event is identical to that of the wealth tax, except that only net assets exceeding EUR3 million are taxed. To avoid double taxation with the wealth tax, the Tem - porary Solidarity Tax on Large Fortunes regulations allow taxpayers to deduct the wealth tax amount paid from their tax quota. In this sense, if both taxes coincide in their tax rates (which will depend on the tax rates that each autonomous community has regu - lated), 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. In contrast, non-resident individuals are subject to tax only on the value of the assets and
rights received when they are located in or could be exercised in Spain. “Exit Tax” If a taxpayer loses their Spanish tax residency due to a change of residence, certain unrealised gains may become subject to taxation in Spain under the so- called exit tax regime. Specifically, the positive differ - ence between the market value and the acquisition cost of shares or equity interests in any entity held by the taxpayer will be treated as a capital gain upon 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 activity asset management, which is the case if at least one of the following conditions is met during more than 90 days of the FY: (d) more than 50 % of its assets consist of securi -
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