Guillermo Gutiérrez-Larraya
Roland W. Gsell
There has been a recent amendment to Article 5 of the Spanish Wealth Tax Law, which came into force in 2022. This amendment affects non-resident individuals as well as resident individuals who apply the Spanish Special Expat Regime (the Beckham Regime), who are subject to the Spanish Wealth Tax, and to the Spanish Solidarity Tax on Major Fortunes, on all assets and rights which are located, can be exercised, or must be executed in Spain.
In particular, according to the amendment, shares in any Type O entity which are not traded in an organised market (e.g. shares in an ordinary non-resident company), whose assets consist of at least 50 percent, directly or indirectly, of real estate located in Spain, will be considered as located in Spain for wealth tax and major fortunes tax purposes.
Consequently, as of 2022, non-resident individuals as well as resident individuals who apply the Beckham Regime will be subject to the Spanish Wealth Tax and Major Fortunes Tax in cases where they own shares in a non-resident entity whose assets consist of at least 50 percent of real estate located in Spain.
Until this amendment was enacted, the administrative criteria set forth by the Directorate General of Taxation (DGT), among others in its binding rulings V2646-21, V2070-21 and V1947-22, were clear: shares in a non-resident entity whose assets consisted mainly of real estate located in Spain, held by a non-resident or a resident individual who applied the Beckham Regime, were not subject to wealth tax or major fortunes tax.
However, with this amendment, the administrative criteria have changed. Hence, as the DGT established in its recent binding ruling V0107-23, non-resident individuals will be subject to the Spanish wealth tax and major fortunes tax in cases where they own shares in an entity resident abroad whose assets consist of at least 50 percent of real estate located in Spain. It is important to indicate, in cases where at least 50 percent of the assets consist of real estate, that taxes will not be calculated on the basis of the assets located in Spain but on the whole value of the shares (i.e. including the value of the assets located abroad).
Notwithstanding, should the value of the real estate located in Spain be less than 50 percent of the assets of the company, such shares are not be subject to the Spanish wealth tax and major fortunes tax.
The impact of the above can be mitigated to the extent that either (i) the real estate assets do not constitute more than 50 percent of the value of the assets of the company; (ii) or a double taxation agreement is applicable in which it is specifically provided that Spain does not have the power to tax companies with real estate substrate; or (iii) by resorting to figures such as the unit linked, since if the real estate asset is held through a unit linked, it should not be affected by the provision at hand, provided a unit linked is considered as insurance for wealth tax purposes.
In conclusion, the amendment, together with the new criteria embraced by the DGT, will have a big impact on those structures set forth by non-resident individuals as well as resident individuals applying the Beckham Regime, who hold assets in Spain through non-resident entities. In particular, it will be necessary to conduct a close review of these kinds of structures in order to determine whether they are affected by these recent modifications.
XLNC MAGAZINE | No. 11 | Spring 2023