SPAIN Law and Practice Contributed by: Álvaro Checa, Miguel Checa, José María Vargas-Machuca Reyes and Andrea Fernández Grymierski, KINSHIP
worldwide basis (ie, irrespective of the location of the assets or the tax residence of the deceased or donor). In contrast, non-tax resident heirs are subject to IHT on a territorial basis (ie, in respect of assets and rights deemed located in Spain). IHT is a tax partly regulated at the level of the Spanish regions, which may, inter alia, establish their own tax rates, reductions, reliefs and exemptions. Non-Span- ish tax resident heirs may opt (within the statutory filing deadline) to apply the regional tax rules instead of the central state rules. In practice, regional rules are generally more beneficial than the central state rules, particularly with regard to the tax reliefs applicable to next-of-kin transfers. The applicable regional tax rules for IHT purposes are determined by intra-regional connecting factors. If the deceased was tax resident in Spain, the appli- cable rules are those of the Spanish region in which the deceased spent the greatest number of days dur- ing the five years preceding the date of death. If the deceased is a non-Spanish tax resident, the heir may elect to apply the rules of the Spanish region where the majority of the assets and rights located in Spain are situated. If no assets are located in Spain, the rules of the Spanish region corresponding to the heir’s own habitual residence in Spain may apply. Spain has entered into very few inheritance tax trea- ties, and therefore its taxing rights are rarely limited. Treaties currently in force are with Greece, Sweden and France. 2.2 Income Tax Residency The international connecting factor for taxation under Spanish income tax is the residency of the individual, as defined below. Spanish tax law does not provide a concept of domicile. Spanish tax resident individuals are subject to tax on a worldwide basis while non- Spanish tax residents are only subject to Spanish income tax on a territorial basis. As a preliminary comment, it is worth noting that, in Spain, the tax year coincides with the calendar year (January to December) and there is no split-tax-year treatment. Thus, an individual is either resident or non- resident for the whole calendar year. In this regard,
Spain has included an observation to Article 4 of the OECD Commentaries on the Model Tax Convention on Income and on Capital. Under Spanish domestic tax laws, an individual is Spanish tax resident if: (a) he or she remains in Span- ish territory for more than 183 days within the calendar year (“183-day test”); or (b) he or she has, directly or indirectly, his or her centre of economic interests in Spain (“centre of economic interests test”). What constitutes a day of permanence in Spanish territory under the 183-day test is undefined. Accord- ing to the position of the Spanish tax authorities, any presence (ie, no minimum amount of time is required) during a day constitutes a day of permanence in Spanish territory for the purpose of the 183-day test. In addition, days of sporadic absences outside Spain are generally counted as days of presence in Spain when the individual has a significant presence (again, an undefined concept) in the country, unless the tax- payer can demonstrate tax residence in another juris- diction. The Spanish Supreme Court has confirmed that, where a taxpayer has a legal and continuous residence of more than 183 days in another coun- try, such absence from Spain cannot be regarded as sporadic. The centre of economic interest test is an undefined and flexible concept, generally understood as the location where the majority of the individual’s wealth is held, where his or her business activities are situated, or from where he or she manages his or her assets. Additionally, Spanish tax legislation establishes a rebuttable presumption of tax residence in Spain where, pursuant to the above criteria, the taxpayer’s spouse (not legally separated) and dependent minor children are Spanish tax residents (“family rebuttable presumption”). 3. Intestacy and Forced Heirship Laws 3.1 Intestate Succession According to the EU Succession Regulation, the law applicable to succession is that of the last place of habitual residence, unless the testator expressly made
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