High-Tax Country Resident Planning To Go Offshore: Spain

If you are resident and domiciled in Spain (which will be the normal situation for a native-born Spanish individual) then you are taxable on your world-wide income and capital gains. Wealth tax was abolished in 2008, but inheritance tax applies.

Many resident individuals will be participating in domestic Spanish tax-privileged savings and investment instruments, and usually these can simply be discontinued on leaving without serious tax penalties.

Residence applies to individuals who:

• spend more than 183 days in the country;
• possess a permanent home in the country;
• make Spain their main base or center of economic activities, directly or indirectly; or
• have a spouse and/or dependent children who are permanent residents in Spain.

For a resident Spanish national, in order to lose tax residence it is simply necessary to stop fulfilling any of the above criteria in a given tax year and to demonstrate tax residence in another country.

Non-Spanish tax residence has to be proven by means of a certificate issued by the competent tax authority in the country in question. An individual may have a residence permit or administrative residence in a country and yet not be deemed to have tax residence there. Spanish tax treaties normally include 'tie-breaker' wording to resolve possible cases of dual tax-residence.

Individuals of Spanish nationality who change their country of residence to a designated tax haven (there are 48 of them) continue to be liable for Personal Income Tax (IRPF) in Spain for the tax period in which the change of residence occurs and the following four tax periods.

There are gift and inheritance taxes in Spain which are not easily escaped, although within a family the rates are quite low.

Although some revenue protection measures apply to countries having "preferential" tax regimes, general anti-avoidance legislation has not progressed far in Spain, and offshore trusts are generally speaking quite effective at sheltering many types of asset. Inheritance tax does not apply to trust assets, which pass directly to family heirs without the need for probate.

For an individual who knows she is going to leave Spain, there is therefore a case for switching income-generating assets into capital appreciation assets outside Spain, or at any rate for ensuring that gains are not made during Spanish residence which could incur capital gains tax. Gains which crystallise after residence has finished will escape Spanish tax.

Once a definite decision to move offshore has been made, careful thought should also be given to existing Spanish capital assets, including pension assets. Will it be possible to move them offshore without incurring capital gains tax? Is it desirable to move them early and pay the tax anyway? These are complex questions, and the answer will depend on individual circumstances, but for many individuals there will be interesting tax planning possibilities.

Individuals who have significant Spanish business income need to take the residence rules into account. They may be able to make use of offshore corporate tax structures, but anyway need to take expert advice on how to structure this income once emigration has taken place, to ensure that they do not fall within the residence rules.

Once Spanish residence has been terminated, and if non-residence is expected to be permanent, then an ex-Spanish resident is free to invest offshore in order to obtain the best possible returns, as long as the new residence itself is not offshore.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 50 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.