Spain wealth tax. Possible refund of net worth tax paid in Spain by Non-EU residents

Spain wealth tax. Possible refund of net worth tax paid in Spain by Non-EU residents

Spain is within the shortlist of Countries that has kept a Net worth tax for individuals. The tax was established as “extraordinary” back in 1978 and became “ordinary” from 1991 on. It was cancelled for the years 2008-2010 but has been afterwards reinstated on a yearly basis.

The burden of this tax has grown exponentially by simply not changing much the law:

Tax rates have remained unchanged and recently increased to 3,5 per cent. However:

  • In 1991, the maximum rate was 2,5 per cent, and interest rate of Spanish public bonds was 12 per cent.
  • In 2021 the maximum rate is 3,5 per cent, and interest rate of public bonds is 0,4 per cent.

The basis included in the tax scale have only been updated a 11 per cent from those of 1991, whilst adjusted by the inflation (1991-2021) they should have increased at least a 110 per cent. So, if the scale had been corrected by the inflation, in 2021 the maximum rate of the scale should be applied on top of 20,5 million Euro. Noticeably, the law establishes that it must be applied on top of 10,7 million Euro.

It is therefore no surprise that net worth tax has increasingly become a concern for those willing to invest in Spain or settling in Spanish Territory and has become a relevant political discussion topic.

The right to collect the Net worth Tax was assigned to the different regions within Spain, who were also entitled to modify some features as the minimum threshold, the tax scale or to establish tax credits or surpluses.

Some of the regions (notably Madrid) used their legal tools to eliminate the tax, being accused by others and by the Government of tax dumping

The application of the regional legislation was limited to those taxpayers that where residents in that Region.

Later on, in 2014, the right to apply the regional legislation was extended to those taxpayers who are residents in the European Union (EU) or the European Economic Area (EEA).

Finally, by means of the Act 11/2021, of July 9th, on measures to prevent and fight against tax fraud, this right has been extended to all the non-resident taxpayers. The regional law that may be applied is the one approved by the Autonomous Community where the highest value of the Spanish taxpayer’s assets are located, or his rights may be exercised.

With this modification, the Spanish Administration implements in the Spanish Net-worth Tax the criterion of non-discrimination imposed by the EU Court of Justice (case C-127/12), with respect to Inheritance and Gift Tax, in which it recalled that the right to free movement of capital provided for in the European Union Treaties is granted worldwide.

Until the entry into force of Law 11/2021, the Spanish Administration had been rejecting the mentioned criterion in relation to the Net-worth Tax on the understanding this tax does not apply the principle of free movement of capital, as it does not tax the transfer (movements) of assets, but their ownership.

However, in our understanding, the principle of free movement of capital should be applicable to Spanish Wealth Tax, even before the Law 11/2021 enters into force.

The practical possibilities of tax refund must be examined on case-by-case basis, as it is not possible to provide general rules in view of the different situations that may arise.

So, if you are resident outside the European Union and own investments in Spain (is if most of the are in the Madrid Region), and you have paid Net-worth tax in the latest four years, there may be an opportunity to claim the refund of all the tax paid, plus interest.

Pablo Gómez-Acebo Temes
Antonio Chicote Carranco
Tax Law Department

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