Speaking about tax residence, it is necessary to keep in mind that it is in no way connected with the administrative residence: any individual can have an administrative residence in country A, but at the same time be a tax (fiscal) resident of country B. However, an individual cannot simultaneously be tax resident of two or more countries.
Tax certificate
The main document confirming the status of a tax resident of a particular country is a certificate issued by the official tax authorities.
The certificate is issued for a period of 1 year and confirms that the individual is a tax resident of a particular country and reports to its tax authorities on all income received.
But what to do if an individual (for example, a Russian citizen) due to some personal reasons cannot obtain a certificate (does not want to notify the Russian authorities about the presence of a Spanish residence permit , foreign bank accounts, etc.)? In such cases, Spain may unilaterally recognize a foreign citizen as its tax resident with all the ensuing consequences.
Tax resident status in Spain from the point of view of the tax authorities
The status of “tax resident of Spain” is assigned by the tax administration to a foreign citizen based on an assessment of his 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).
Today, three criteria are applied: place of permanent residence, center of economic interests and center of personal (family) interests:
Permanent residence in Spain (more than 183 days within one calendar year). The calculation is made according to the entry and exit stamps affixed to the foreign citizen’s passport. The situation with offshore territories is a little more complicated: simple stamps from the Spanish tax administration will not be enough, and it will require the submission of an official document confirming that the foreign citizen is in the offshore territory for at least 183 days during the calendar year.
Location of the center of economic interests. The Spanish Tax Administration recognizes a foreign national as a tax resident in Spain if his main economic activities or main economic interests are concentrated in the country.
Family location, i.e. place of residence of the spouse and minor children. The family factor plays an important role in determining the status of tax resident in Spain. If the family of a foreign citizen permanently resides in Spain , administrative and tax residence is considered to exist.
In controversial cases, bilateral agreements on the avoidance of double taxation are included in the issue of determining the status of a tax resident in Spain .
This agreement has been in force between Spain and Russia since December 16, 1998.
The full text of the agreement can be found at the link: Convention between the Government of the Russian Federation and the Government of the Kingdom of Spain of December 16, 1998 “On the avoidance of double taxation and the prevention of tax evasion with respect to taxes on income and capital.”
According to paragraph 2 of Article 4 of the Agreement,
“If, in accordance with the provisions of paragraph 1, an individual is a resident of both Contracting States, then his status is determined as follows:
- he is considered to be a resident of the State in which he has his permanent home; if he has a permanent home in both States, he is considered to be a resident of the State in which he has closer personal and economic ties (centre of vital interests);
- if the State in which he has his center of vital interests cannot be determined, or if he has no permanent home in any of the States, he shall be deemed to be a resident of the State in which he has his habitual residence;
- if he has his habitual residence 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 neither of them, then the competent authorities of the States will resolve this issue by mutual agreement.
Tax resident status in Spain from the point of view of the judiciary
What happens if a foreign national does not provide the Spanish tax administration with a certificate that he is a tax resident of another country, and does not agree with the decision of this administration to consider him a tax resident in Spain? All controversial issues are resolved in court. And here you need to be very, very careful, because… The position of the Spanish courts does not coincide with the position of the tax administration. Moreover, courts of different instances and regions can make directly opposite decisions.
Two years ago, in the spring of 2018, the Spanish Supreme Court categorically stated that the determination of fiscal residence should be based on simple mathematics, namely the total number of days spent on Spanish territory during the calendar year. Neither economic nor family interests should be taken into account. However, judicial agreement was never reached, and in recent years regional courts have issued decisions both in support of the position of the tax administration and in support of the position of the Supreme Court.
Thus, in order 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 most complete and detailed advice on fiscal issues from a tax advisor. If possible, renew your tax residency certificate annually and submit it to the Spanish tax authorities upon request.