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Difference between statutory residency and fiscal residency

Difference between statutory residency and fiscal residency

Old Nov 3rd 2021, 9:52 am
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Default Difference between statutory residency and fiscal residency

Hi everyone,
my partner and I are British residents in Spain and we both have TIE cards. We know this means we can stay in Spain until our card runs out in 2025, but we plan to spend 6 months each year in U.K. and 6 months in Spain.
Our question is this; having arrived in Spain from the U.K. on 11 Aug 2021, can we stay in Spain in our villa until end of March 2022 without tax implications other than the annual tax we pay for owning a home here? We can’t return to Spain again until October 2022.
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Old Nov 3rd 2021, 9:57 am
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Default Re: Difference between statutory residency and fiscal residency

Originally Posted by Tockers1 View Post
Hi everyone,
my partner and I are British residents in Spain and we both have TIE cards. We know this means we can stay in Spain until our card runs out in 2025, but we plan to spend 6 months each year in U.K. and 6 months in Spain.
Our question is this; having arrived in Spain from the U.K. on 11 Aug 2021, can we stay in Spain in our villa until end of March 2022 without tax implications other than the annual tax we pay for owning a home here? We can’t return to Spain again until October 2022.

As you both have TIE cards, you are both Spanish residents. As such, you can stay as long as you like with a maximum absence of 6 months.

In terms of tax, it all depends. The fall-back position is that once you are in Spain for more than 182 days in a tax year (Jan to December), you are considered tax (fiscal) residents. However, there are other issues to consider like where you work, where you reside (Spain) etc. which may make you tax resident straight away.

As tax residents of Spain (almost by default as you have TIE's), you must pay tax in Spain on ALL world-wide income - there may even be wealth tax if you have assets over 700k. Also, don't forget your annual 720 declaration

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Old Nov 3rd 2021, 11:10 am
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Default Re: Difference between statutory residency and fiscal residency

There is a a bit of confusion with Brits concerning this. Alot of people seem to think they can have dual residency with a choice of where tax is paid. Alot is made of the 183 rule etc but the reality is that the Spanish tax man uses a number of factors to determine your tax status. First: if you have a TIE you have designated Spain as your primary residence. You cannot be absent 6 months every year. That is a myth that was never challenged really challenged before Brexit as no checks were carried out. Now UK is subject to 3rd country laws you can only be absent for 10 months in total in the first 5 years of residency. This is exactly to stop people effectively using Spain as their primary residence whilst using the UK ( far more generous tax laws) for tax. The fact that people have been doing this for years does not mean it was legal but now it will be easier for Spain to apply the law. I know all this as my ex worked as a tax advisor for a large firm in torrevieja and was amazed at how not just Brits but Scandanavians too seemed to think they could pay tax in their own countries ( where they were non-resident) and not in the country of residence
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Old Nov 3rd 2021, 12:18 pm
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Default Re: Difference between statutory residency and fiscal residency

Another Brexit bonus 😁
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Old Nov 3rd 2021, 12:43 pm
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Default Re: Difference between statutory residency and fiscal residency

Originally Posted by VEDShappy View Post
Another Brexit bonus 😁
Yes, but think of the £350M a week on the NHS. Oh, forgot, they had to put up NI to pay for that.
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Old Nov 3rd 2021, 2:50 pm
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Default Re: Difference between statutory residency and fiscal residency

To put it another way: you can not be resident in 2 countries at the same time. One must be your primary residence. By applying for a TIE you are declaring Spain as your primary residence therefore you must spend the majority of time in Spain not UK. It therefore follows your tax liability lies in Spain not UK.
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Old Nov 3rd 2021, 4:34 pm
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Default Re: Difference between statutory residency and fiscal residency

Originally Posted by Chipmonk View Post
To put it another way: you can not be resident in 2 countries at the same time. One must be your primary residence. By applying for a TIE you are declaring Spain as your primary residence therefore you must spend the majority of time in Spain not UK. It therefore follows your tax liability lies in Spain not UK.
I see that nobody has mentioned 'domicile' in this discussion. In many tax discussions domicile and residency are often used interchangeably, though they are different concepts. But maybe Spanish law works in a way that completely bypasses domicile and everything is simply based on residency figures?

Normally you could be resident in a country like Malta but not domiciled there. So in effect you would declare local earnings and income remitted to Malta. A lot of people mistook this as thinking that their overseas income is therefore tax-free, which was not the case. You were expected to continue declaring those earnings in your country of domicile.

But was surprised me most here is not being able to leave for more than 6 months in a fiscal year. What happens if you do? I'm just curious as I intend to move here on a more permanent basis sometime next year and am wondering how this would work,
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Old Nov 3rd 2021, 5:33 pm
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Default Re: Difference between statutory residency and fiscal residency

Originally Posted by astera View Post
I see that nobody has mentioned 'domicile' in this discussion. In many tax discussions domicile and residency are often used interchangeably, though they are different concepts. But maybe Spanish law works in a way that completely bypasses domicile and everything is simply based on residency figures?

Normally you could be resident in a country like Malta but not domiciled there. So in effect you would declare local earnings and income remitted to Malta. A lot of people mistook this as thinking that their overseas income is therefore tax-free, which was not the case. You were expected to continue declaring those earnings in your country of domicile.

But was surprised me most here is not being able to leave for more than 6 months in a fiscal year. What happens if you do? I'm just curious as I intend to move here on a more permanent basis sometime next year and am wondering how this would work,

This gives an idea as to how it works.

https://rightcasa.com/can-you-be-an-...the-same-time/

But the main upshot is this.

You Can Only Be a Resident of a Single Nation
You have to inform HMRC etc that you are no longer a UK resident and the you will be unable to access the NHS except for emergencies (unless retired and an OAP as they allow this) but not for me who paid NI etc for 42 years as Im only 59.

By having the TIE I would expect that Spain will be waiting for you to file your first tax return the year after residency was granted.. Maybe people will be contacted (is there a 3rd country immigrant here who could confirm what they did?) or didn't..
We arrived August 2020 got residency Nov 2020 picked up TIE March 2021. I will file my 720 early next year and any other tax form needed.

You also have this.

Spanish tax residency rules

These are contained in articles 8 and 9 of income tax law (Ley 35/2006, de 28 de noviembre, del Impuesto sobre la Renta de las Personas Físicas).

Article 8 is very simple, essentially it states that a person shall be subject to Spanish income tax if their habitual residence is in Spain.

So, lets forget all the complicated rules that follow in Article 9. If your only home is in Spain, there is no doubt that you are a Spanish tax resident and you should pay Spanish income tax (and if applicable wealth tax and inheritance/gift tax).

Article 9 deals with all the other possibilities, for example in the case that a person has more than one ‘habitual residence’.

This is where the best known tax residency concept of ‘183 days’ comes in.
  1. Article 9 states that if a person is physically present more than 183 days in a calendar year, they are considered as a tax resident of Spain.
  2. But article 9 also has the effect that a person is tax resident if physically present less than 183 days in a calendar year, in the case that the centre of family or economic interests is in Spain.
  3. And, also in the case that a person’s spouse and minor children live in Spain and are financially dependant on that person.
However, if a person can prove that they pay income tax in another country then 2 and 3 may be rebutted. To prove this, it is usually necessary to supply a certificate of tax residence from that country.

Double tax treaties

These bilateral tax agreements (Spain has about 100) are designed to decide in which country a person should pay income tax and the rules vary according to the different kinds of income, employment, directors fees, dividends, property rentals, interest etc.

Additionally, the treaties always contain a section to fix where a person is tax resident. These rules rank ahead of a country’s own tax residence rules.

Consequently, the rules defined in articles 8 and 9 of Spain’s income tax law have to be read in conjunction with the tax treaty residency rules. For example: Where a person is considered tax resident in the UK as well as Spain, the tax treaty deals with the problem with ‘tie breakers’ that decide which country shall have the right to treat the person as a tax resident. A rarity, I admit, but this section of the tax treaties (they are all very similar in this case) is really quite easy to understand, so I have quoted below the actual text:
  1. he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);
  2. if the State in which he has his centre of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;
  3. if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
  4. if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
An habitual abode is any place that a person has the right to reside, whether rented, owned or provided by family or friends. (One might ask what one does if one is a she…….this is very old tax law).

In practice, number 4 is very rare.

This comes from here/

https://www.spenceclarke.com/article...idencia-rules/
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Old Nov 3rd 2021, 6:17 pm
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Default Re: Difference between statutory residency and fiscal residency

Declaring your assets

As a Spanish resident, you must declare your global income to the Spanish authorities, no matter which country it came from. If you are not a resident, you will only pay tax on income that came from Spain.

You may need to file an annual declaration of overseas assets called a Modelo 720. There are severe penalties if you do not file, or give incorrect or incomplete information.

https://www.gov.uk/guidance/living-i...ax-and-banking
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Old Nov 3rd 2021, 6:32 pm
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Default Re: Difference between statutory residency and fiscal residency

The "centre of vital interests" is a good one. It seems to me that someone who resides in spain 183 days a year but has:
1. A large house in UK and small apartment in Spain
2. Has all income paid from UK
3. All family in UK
4. Bulk of expenditure in UK

Would have their "centre of vital interests" in the UK.

But I would love to see it argued before the Hacienda Rottweillers
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Old Nov 3rd 2021, 6:50 pm
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Default Re: Difference between statutory residency and fiscal residency

The 720 is not a requirement to be submitted every year? You should submit it by the 31 March in the year you submit your first tax return. Once you submit it declaring your overseas assets you only need to re declare should any asset band increase by 20000 Euros or be disposed of. It keeps being referred to as an annual requirement it may be for some but certainly not for most people.
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Old Nov 3rd 2021, 7:06 pm
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Default Re: Difference between statutory residency and fiscal residency

Originally Posted by Tockers1 View Post
Hi everyone,
my partner and I are British residents in Spain and we both have TIE cards. We know this means we can stay in Spain until our card runs out in 2025, but we plan to spend 6 months each year in U.K. and 6 months in Spain.
Our question is this; having arrived in Spain from the U.K. on 11 Aug 2021, can we stay in Spain in our villa until end of March 2022 without tax implications other than the annual tax we pay for owning a home here? We can’t return to Spain again until October 2022.
I read this as basically , you have a holiday home in Spain? Because of Brexit and the now 3rd country rules of Schengen you are now unable to use your holiday home as you could? While I really do sympathize with this situation personally I don't think taking residency as you have is the way around the problem. I think you are going to actually create yourself a big problem. By obtaining residency you have clearly stated your main residence is Spain so Spain will be waiting for a tax submission. You can pay tax in both countries, I do but I have informed HMRC that I am Spanish resident. Initially I paid tax on government pensions to UK via PAYE no problem and submitted a tax form to Spain for my UK state pension savings interest etc. As I now rent out a uk property from last year I had to come off PAYE and submit a tax return to HMRC for UK income. It's not difficult but what you are trying to do I fear will cause big issues on the Spanish side. Yes you can leave Spain and return retaining residency but residency can't be used to get around the Schengen rules, I'm afraid you will come unstuck.
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Old Nov 3rd 2021, 8:13 pm
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Default Re: Difference between statutory residency and fiscal residency

Annual 720?

Not according to the info in the link given.
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Old Nov 3rd 2021, 9:32 pm
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Default Re: Difference between statutory residency and fiscal residency

Originally Posted by bobd22 View Post
The 720 is not a requirement to be submitted every year? You should submit it by the 31 March in the year you submit your first tax return. Once you submit it declaring your overseas assets you only need to re declare should any asset band increase by 20000 Euros or be disposed of. It keeps being referred to as an annual requirement it may be for some but certainly not for most people.
If you have a property no but if you have UK based investments like shares like I do, the 720 is a utter pain in the a55!


Last edited by Rosemary; Nov 4th 2021 at 11:10 am.
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Old Nov 3rd 2021, 9:50 pm
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Default Re: Difference between statutory residency and fiscal residency

As the TIE´s were gained this year and not under the terms of the Withdrawal Agreement, you may only be absent from Spain for six months in any one year, but only a maximum of 10 months, in total, in the firsr 5 years until the residency becomes permanent.
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