Exit tax due to change of tax residence in Spanish PIT

1) The taxpayer must have been considered a tax resident in Spain for at least 10 of the 15 tax years prior to the last tax year for which the PIT return must be filed. For these purposes, tax periods in which the special tax regime for impatriates (Beckham Law) was applied will not be taken into consideration. 

2) Hold shares and/or holdings in entities^[1]:

       a) Whose combined market value exceeds €4,000,000.

       b) If the above condition (letter a) is not met, the following rule shall apply: when, on the accrual date^[2] of the last tax period to be declared, the taxpayer's shareholding in an entity exceeds 25% and the market value of the shares or holdings in that entity exceeds €1,000,000, the exit tax will only apply to capital gains derived from those shares that meet the requirements set out herein.

The market value of the shares must be determined on the accrual date of the last year to be declared for personal income tax purposes in Spain, in accordance with the following rules:

1. Listed securities: these are valued at their market price on the accrual date.
2. Unlisted securities: unless there is evidence of another market value, they are valued at the higher of the net assets on the last balance sheet and the capitalisation value at 20% of the average results for the last three financial years closed^[3].
3. Collective investment institutions: these are valued at the net asset value applicable on the accrual date of the last tax period or, failing that, at the last published net asset value.

It should be noted that proof of a market value other than that mentioned in sections a) and b) above may be provided by the taxpayer or by the Spanish tax authorities.

In cases where exit tax is applicable, the positive difference between the market value of the shares or holdings and their acquisition value is classified as a capital gain and included in the savings base in the last personal income tax return. In the event of unrealised capital gains and losses coexisting for different securities or acquisition dates, the literal interpretation of the rule does not allow unrealised losses to be offset against unrealised gains. Therefore, only the gains would be taxed without any reduction for such losses.

However, it is possible to defer or postpone the payment of this exit tax, depending on the type of relocation and the country of destination. Consequently, the following situations could arise:

A.   DEFERRAL FOR TEMPORARY TRANSFER

In the event of a temporary change of residence, the taxpayer has the option of requesting a deferral of the exit tax liability when the relocation is:

1. for work reasons and to a country or territory that is not legally classified as a tax haven,
2. for other reasons and the country of destination must have a double taxation agreement that includes an information exchange clause.

The deferral requires an application to be submitted within the income tax return deadline for the first financial year in which the taxpayer ceases to be a taxpayer, and is governed by the general rules of the General Tax Law on interest and guarantees (which may be constituted on the securities themselves).

In general terms, the deferral may be extended for up to five fiscal years, with the possibility of extending it for up to five additional fiscal years if the transfer is for work reasons.

If individual taxpayer status is regained within the applicable period without transferring the shares or holdings, the debt will be extinguished.

On the other hand, if at the time of leaving Spain the tax on these capital gains was paid and subsequently the taxpayer returns to residence without having transferred the shares and holdings, it is possible to request the rectification of the self-assessment for the purpose of obtaining a refund of the exit tax, together with interest for late payment.

B.   DEFERRAL DUE TO TRANSFER TO THE EU/EEA 

In the event that the change of residence is to another State belonging to the European Union (EU) or the European Economic Area (EEA), with which there is an effective exchange of tax information, it is possible to opt for a regime in which the self-assessment is only applicable if a triggering event occurs within the following ten tax years.

The "triggering events" are:

1. Transferring shares or holdings (sale or gift).
2. Ceasing to be a resident of an EU or EEA country.
3. Failure to comply with reporting obligations to the tax authorities.

The gain will be attributed to the last declared fiscal year, by means of a supplementary self-assessment, without penalties, surcharges or interest, within the period between the event giving rise to it and the end of the following declaration period.

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^{[1] The regime is limited to those securities that are representative of the participation in the equity of companies or entities (V1499-18).}

^{[2] 31 December.}

^{[3] For this capitalisation, dividends and allocations to reserves are counted as profits, excluding those for balance sheet adjustments or revaluations.}