Model 720 – Are expats obliged to declare their foreign income in Spain?
Since 2013, the Spanish tax authority has required every person having tax residence in Spain to declare all foreign assets using the 720 Form. The original purpose of this measure was to fight fraud and discover all hidden assets that belonged to Spanish citizens. But in practice, the obligation to submit 720 has become applicable to all Spanish tax payers – regardless of their nationality – as long as they are considered to have tax residence in Spain.
The purpose of the 720 Form
During the last years, one of the main priorities of the Agencia Tributaria (Spanish tax authority) has been to control assets which were located offshore, but still subject to the Spanish tax law. Form 720 helps the Agencia Tributaria keep an updated record of these assets and any affecting changes.
When are you considered a Spanish tax resident?
There are two possible scenarios that can make a natural or legal person become a Spanish tax resident:
- the person has been living in Spain for more than 183 days within the same tax year. This means actually spending that amount of time in Spain. Single absences are also counted as a part of this period, unless one can prove a 183-day stay in some other country.
- the person’s main economic and vital interests are based in Spain, whether directly or indirectly.
The obligation to submit the 720 Form
Not only citizens, but also also corporations that are permanently established in Spain are considered to be tax residents and must therefore submit the 720 Form online between January and April. This applies to individuals and legal persons who own, represent or have disposal powers over foreign assets worth more than €50,000.
Find more information about the current deadline in this link:
The procedure only needs to be performed once, unless the assets increase by €20,000 at some stage, for example, after selling property.
Procedure for declaring foreign assets in Spain
What assets should be declared?
As long as the total value of the foreign assets exceeds 50,000 euros, Spanish tax payers will have to declare all their:
- Bank accounts
- Shares, bonds, pensions, rental incomes, dividends
- Real Estate,
which are located, earned or managed abroad. This does not include pension plans, but it does apply to life insurance. The asset value should be calculated based on the highest balance on December 31st or the average balances at the end of each quarter.
Consequences of failing to submit the 720 Form
Late, incomplete or non-submission is penalised with extremely severe fines. Every piece of information which is wrong or has been left out will generate a fine of €5,000 per asset, with a minimum penalty of €10,000. Every mistake in the 720 Form will cause a fine of €100, with a minimum fine of €1,500. To avoid any possible mistakes, we recommend you to find help from a professional tax advisor.
Because of these disproportionate penalties, the European Commision has requested the Spanish government to revise the law. Up until now, no changes have been approved by the government. The Regional Economic Court from Valencia has annuled several of these fines based on the fact that many tax payers aren’t aware of this duty. In order to be accepted, the Tax authority must be able to prove the person guilty of not declaring foreign assets. For this reason, it is generally recommended to fight back these penalties. Fortunately, it is possible to avoid these penalties if there is proof that the assets were generated before the person became a tax resident in Spain.
Legal & Tax Help is an English-speaking law firm based in Malaga and Costa del Sol, specialised in property conveyancing, inheritance tax, residence for foreigners, self-employed tax declarations and most legal and financial aspects of relevance to foreigners and expats living in Spain. For any questions and enquiries, don’t hesitate to contact us either by phone or e-mail.
Author: Rosana Tejada
Biographical Info: Rosana Tejada Crespo is a tax advisor holding a Master’s Degree in International Taxation. She specialises in companies and freelancers, tax regulations concerning foreign employees (Beckham Law), non-resident tax, inheritance tax and Spanish income tax. She is one of the founders of Legal & Tax Help (2000), which comprises a group of English speaking solicitors, economists and architects.