When we talk about tax residence, it is important to bear in mind that it has nothing to do with administrative residence: any individual can have administrative residence in country A and at the same time be a tax (fiscal) resident of country B. At the same time, an individual cannot be a tax resident of two or more countries simultaneously.
Tax certificate
The main document confirming a person’s status as a tax resident of a particular country is a certificate issued by the official tax authorities.
The certificate is issued for 1 year and confirms that the individual is a tax resident of a specific country and reports all their income to its tax authorities.
But what if an individual (for example, a Russian citizen), for personal reasons of their own, cannot obtain the certificate (does not want to inform the Russian authorities about holding a Spanish residence permit, foreign bank accounts and so on)? In such cases Spain can unilaterally recognise the foreign national as its tax resident, with all the consequences that follow.
Tax resident status in Spain from the point of view of the tax authorities
The tax administration grants a foreign national the status of “tax resident of Spain” after assessing their situation in the country. The assessment is based on the criteria set out in the Personal Income Tax Law (Impuesto sobre la renta de las personas físicas).
Three criteria currently apply: the place of permanent residence, the centre of economic interests and the centre of personal (family) interests:
Permanent residence in Spain (more than 183 days in one calendar year). The calculation is based on the entry and exit stamps in the foreign national’s international passport. Things are a little more complicated with offshore territories: simple stamps will not be enough for the Spanish tax administration, and it will require an official document confirming that the foreign national spends at least 183 days in the calendar year in the offshore territory.
Location of the centre of economic interests. The Spanish tax administration recognises a foreign national as a tax resident of Spain if their main economic activity or main economic interests are concentrated in the country.
Location of the family, that is, where the wife (or husband) and minor children live. The family factor plays an important role in determining Spanish tax resident status. If the foreign national’s family lives permanently in Spain, both administrative and tax residence are considered to exist.
In disputed cases, bilateral agreements on the avoidance of double taxation come into play in determining Spanish tax resident status.
Such an agreement has been in force between Spain and Russia since 16 December 1998.
Under paragraph 2 of Article 4 of the Agreement,
“Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:
- he shall be deemed to be a resident 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 of the State with which his personal and economic relations are closer (centre of vital interests);
- if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;
- if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;
- if he is a national of both States or of neither of them, the competent authorities of the States shall settle the question by mutual agreement.
Tax resident status in Spain from the point of view of the courts
What happens if a foreign national does not give the Spanish tax administration a certificate showing that they are a tax resident of another country, and at the same time does not accept that administration’s decision to treat them as a tax resident of Spain? All disputes are settled in court. And here you need to be very, very careful, because the position of the Spanish courts does not coincide with that of the tax administration. What is more, courts of different instances and regions can hand down directly opposite decisions.
Just two years ago, in the spring of 2018, the Supreme Court of Spain stated categorically that determining fiscal residence must be based on simple arithmetic, namely the total number of days spent on Spanish territory during the calendar year. Neither economic nor family interests should be taken into account. Nevertheless, the courts have never reached agreement, and in recent years regional courts have handed down decisions both in support of the tax administration’s position and in support of the Supreme Court’s.
So, to protect yourself from unforeseen and unpleasant situations when opening a business in Spain and/or moving your family here, be sure to get the fullest and most detailed advice on tax matters from a tax adviser. If possible, renew your tax residence certificate every year and present it to the Spanish tax authorities as soon as they ask for it.
