Renta 2020: Coronavirus

We hope that all is well with you, and that you and your family are keeping well through these very difficult times.

The fiscal measures introduced by the Spanish government to help its population cope with COVID-19 are certainly not as helpful as they could be. The timetable for presenting the Renta in 2020 (for the tax year 2019) and paying any tax due are unchanged from previous years. The Agencia Tributaria advise that the online filing system for the Renta will open on 1st April and the filing deadline is 30th June (or 25th June where tax is payable).

Those of you who filed your Renta last year saw the chaos created by the introduction of a new online filing registration system which meant that many foreign residents needed to go to the Tax Office to obtain a Digital Certificate. For those of you that obtained a Digital Certificate (which has a validity of 4 years), you should still be able to use this to obtain your online filing reference number for this year’s Renta. 

If you do not yet have a Digital Certificate then you may still be able to register for online filing this year with your current documentation such as Tarjeta de Residencia/ Tarjeta Ciudadano EU.  Last year the Tax Office system did not accept this is many cases, and it was necessary to obtain a Digital Certificate. For this, it would be necessary to physically visit an office of the Agencia Tributaria system, and all offices remain closed until further notice due to COVID-19.

As always, you can find further information and professional assistance on our website.

Battling against the Spanish Tax Office- it shouldn’t have to be like this ! Part 1.

Over the last few years, we have more and more often found ourselves on the front line of a battle against the Spanish tax authorities, the Agencia Tributaria or Hacienda as it is commonly known. Each battle is to defend our clients, in most cases Spanish resident sole traders and low/ medium-net-worth individuals who have decided to settled in Spain, against what is no less than persecution by the Spanish Tax Authorities.

The story typically goes something like this: client receives an enquiry letter from Hacienda asking for further documentation on a specific matter e.g. proof that foreign tax has already in paid on their pension. Although our clients come from a broad range of countries, we find that in the majority of cases it is UK pensions that are targeted, and I suspect that this is Brexit related- after all, if an international double tax credit is claimed in Spain for UK tax paid, then the Spanish tax authorities need to claim this back from the UK tax authorities, which will not be so straightforward after Brexit.

The client is given one month to reply to Hacienda, in person at their Tax Office or online. In this example they need to provide proof that UK tax been paid on their pension. Now this is itself is interesting. The Spanish tax authorities have the right to demand information freely from the UK tax authorities on any individual resident in Spain, and the UK responds. In a recent case, Hacienda’s letter to the client gave full details of the pension received by the client in the year- amount and name of the paying company.

So that begs the question- if Hacienda have access to details of the pension then surely they also can find out how much UK tax was paid without having to ask the client ? The answers is of course they can, but they choose not to. It’s step one in the trap to ensnare the unsuspecting client !

Let’s imagine that in this case the client chooses not to ask for our assistance and replies directly to Hacienda. They obtain from the UK tax authorities the tax certificates which cover the tax year in question- now as the UK tax year ends 5th April and the Spanish tax year ends 31st December, there will be two UK tax years to provide. The client then files their reply online with their Digital Certificate or delivers their response in person to their nearest Spanish Tax Office.

A month or so later, the client receives their next letter from Hacienda. Similar to the first letter, it is long, mostly consisting of seemingly incomprehensible or irrelevant references to Tax Law. However if you know what to the look for- it is stating that the Tax Office has decided to go ahead and issue a provisional tax assessment (Propuesta de Liquidación Provisional), on the basis that the client has not given an adequate response.

There follows a recalculation of the client’s tax due, which assumes that they paid zero UK tax on their pension. The extra Spanish tax “due” is calculated and the last page is a payment slip. The amount payable is the tax due plus a late payment surcharge. The client, unless they appeal, has around a month to make the payment or face further surcharges.

Before we go on, let’s break this down. Hacienda has sent the client a letter saying that their response has been inadequate, and on this basis judging the client to be guilty. They do not detail what is missing, and what they would like to have seen. A simple letter or email to the client requesting specific further information is what I would expect in a civilised country. It is a courtesy afforded to us by the French tax authorities, who are usually very helpful and flexible in dealings with our French resident clients.

But it is not the way that Spanish bureaucracy works. Hacienda does not reply by email. It does not attempt to resolve a situation at an early stage by effective communication with the client. Instead, it sends out long letters which prolong the process and create more bureaucracy, which I suppose perpetuates its own raison d’être.

The sinister side is that, in the case of our client, what Hacienda wants is for the client to give up and pay the extra tax “due”, faced with paying further surcharges if they do not. If this client does so, they will have paid tax twice on their pension and would need to go back to the UK tax authorities to request a refund. Would the UK Tax Office respond positively, given that legally it is Spain’s responsibility and not theirs to issue the tax credit ?

So that’s step two of the trap. Before we go on, let’s ask ourselves- what DID Hacienda want to see as proof that the client had paid UK tax on their pension ?

Firstly, the client’s UK tax certificates should have been translated to Spanish by a sworn translator (a traducción jurada). Even though a Tax Inspector with no knowledge of English and Google translate could quickly work out how much tax has been paid by the client, the attitude of Hacienda is such that any documents not in Spanish are summarily rejected with no reason except that they are “inadequate”.

Now let’s compare this to the French Tax Office. The French, who are supposedly stubborn and proud about the maintenance of their own language, to the detriment of other languages. Well not so from a tax point of view. When we register our foreign company clients for VAT in France, the Tax Office happily accept company documents in any other language (from Danish to Slovak) requesting only a brief casual translation of a few key points.

Secondly, Hacienda will not deem to waste any of their own time reconciling the figure in the client’s Spanish 31st December tax return with the combination of the two UK tax years. The client should have provided a document, for instance spreadsheet, showing the exact calculation. Completely in Spanish of course.

Did Hacienda detail in their original letter what they expected from the client ? Of course not !

We have learnt from our clients’ tough stories what Hacienda do expect. In cases like this when then client asks for our assistance to reply to the initial Hacienda enquiry, we always attach a sworn translation and reconciliation of the figures in Spanish to our response.

So if the client is in the right and the proof is sent to the Hacienda in the format which they demand, can the client expect a letter of acceptance from their Tax Office ? Sadly, the answer to this is often “no”. So step 3 in the trap- Hacienda play dumb.

Hacienda’s reply could take several forms. Firstly, they could deny having received any reply from the client to their initial letter. Yes, we have seen this before- even when we filed the response online and there is documented confirmation of filing.

Secondly, they might issue a vaguely worded letter claiming that the client did not send them sufficient proof that they had paid UK tax on their pension- with no specific details.

And thirdly (and again we have seen this more than once) they might try to use some kind of Kafkaesque response e.g. the client should not have paid UK tax originally on their pension, so it can therefore not be claimed back in Spain. All of which is wrong according to Tax law and conventions.

If the client does receive this dreaded letter of rejection, then they have the right to appeal and that is what I will deal with in my next blog post.

By now the reader will have a better idea of what this Hacienda monster is like !

For further details and assistance please visit our website or contact us by e-mail at .

VIES registration in Spain- finally good news !

After our previous gloomy posts on the difficulty in getting Spanish registered businesses onto the EU Intracommunity VAT register (VIES), we have some good news !

Recent clients for whom we have requested VIES registration have been approved very quickly- within a month at the most. This includes both foreign companies with no permanent establishment in Spain, and Spanish-resident self-employed workers (autonomos). With these clients, no physical office inspection or letter of enquiry was issued which was the case previously.

It looks like finally the Agencia Tributaria, the Spanish tax authorities, have started to think logically ! It´s a rare case in recent years of them moving a step forwards rather than backwards.

For further details and assistance please visit our website or contact us by e-mail at .

No approved tax rates for 2019 yet ….

Normally by the end of the year in Spain, the annual budget would be published which includes the tax rates for the following year. However due to the political impasse in Spain, there will be no approved budget until next January at the earliest.  The minority Socialist Party government of Pedro Sanchez needs at least the support of the left-wing Podemos party, led by Pablo Iglesias  to pass the budget. The leaders of the two parties have agreed the budget in principle but it needs to be approved by Congress, and this will not be until January. So residents of Spain will go into the New Year not knowing what tax they will be paying on their income ….

The key tax-related points on the proposal are:

Income tax

Tax rate increase of 2% for income over 130,000 Euros ; tax rate increase of 4% for income over 300,000 Euros

Capital gains tax

Tax rate increase of 4% for capital gains over 140,000 Euros

Company tax

Decrease in the main company tax rate from 25% to 23%.





Spanish and UK VAT implications of a no-deal Brexit

So a Brexit without any agreement is being considered a very real possibility. How would this affect VAT on transactions between Spanish and British companies ?

Current members of the European Union apply the provisions of the the EU 6th VAT Directive.  By far the most important regulation included in the Directive regards the VAT on the provision of services between businesses in different EU countries. For instance, if a consultancy business based in Spain provides B2B services to a UK company, then no Spanish VAT needs to be added to their invoice. This is the so-called Reverse Charge principle, where the place of supply of goods is considered to be where the customer is based, and therefore in this case the UK customer would account for the UK VAT on the invoice as both Output and Input VAT, the net result being zero.

After Brexit, the same Spanish consultancy company sends an invoice to its UK customer.  Spanish VAT cannot be applied because the UK is now outside the scope of application of EU VAT.   The customer would not apply the reverse charge because they are no longer governed by EU VAT legislation. So the transaction would simply be exempt from Spanish VAT.  In a similar way, invoices on professional services by a UK consultancy business to a client in Spain will be exempt from UK VAT.

Being exempt rather than zero-rated transactions, any local VAT on costs associated with the provision of services will not be deductible. So in the case of a Spanish consultancy company providing services to clients in other EU countries (80%) as well as clients in the UK (20%), then 20% of the Spanish VAT on associated expenditure (phone, internet, commissions etc.) would not be deductible. So in this respect, it is the Spanish businesses which will suffer from Brexit more than their UK counterparts !

For further information and details on our services, please visit our Spain Accountants website.

Spanish businesses registering on the VIES

A couple of years ago, in an article on this blog , we addressed the problems that Spanish businesses face when trying to register on the EU VAT database (VIES). Sadly, nothing has improved to date.

To recap, a business that registers for VAT in Spain is not automatically registered on the VIES, as is the procedure in other EU countries. The Spanish Tax Office insists on a separate application being made and the taxpayer being subject to an inspection before approval is given. Often a Tax Office inspector will turn up at the registered address of the business without notice, and if there is no-one there (quite possible for a work-from-home sole-trader) then the approval process will be put on ice, delayed for months, or be rejected.

We ask ourselves, what is the reasoning behind this extra layer of bureaucracy from the Spanish authorities ? We can only think that it is some misplaced attempt to prevent VAT fraud, and to check that the business is a bona fide one before allowing it on the EU VAT database.  Although other more enlightened and streamlined administrations such as the UK and France do not have such a procedure- in these countries, as soon as the business has a local VAT number, it is added to the VIES.

The damage done to the competitiveness of Spanish businesses is significant.  If a Spanish business purchases goods or services from a supplier in another EU country, the supplier will often do a check on the VIES database and if their client does not appear then they may insist on charging local VAT. Due to the difficulties and further bureaucracy of claiming foreign VAT back via the Spanish Tax authorities, this VAT may never be recovered and represent an extra cost for the Spanish business. Especially in markets where margins are narrow, this extra expense could make the difference between success and failure.

So once again we say to the Spanish authorities: cut the bureaucracy and add new businesses to the VIES as soon as they register for VAT !

For further information and details on our services, please visit our Spain Accountants website.

Spanish income tax changes for the year 2019 ?

For two years now there has been no change to the income tax rates and allowances in Spain. With the new government in Spain led by the Socialist Party of Pedro Sanchez, it is fair to expect that there will be some kind of tax shake-up.  However Sanchez has a minority government after being put into power without elections following the forcing out of the Popular Party´s Mariano Rajoy by a no-confidence vote, so he will need the support of other parties to pass the new  Budget and tax changes for 2019 and onwards.

For us here at Spain Accountants, the priority of the government should be not so much to change tax rates, but to deal with two easy-to-solve issues that are holding Spain back in competitiveness.

Firstly, the astonishingly backwards Spanish Tax Office system for incorporating businesses in the European Union´s Intracommunity VAT registration system (VIES).  I will deal with this in another article to be posted later today.

Secondly, the Social Security contribution for the self-employed (autonomos).  Now over the last couple of years, Spain has introduced limited reforms which allow newly-registered self-employed businesses to pay a reduced flat rate Social Security. However these flat rates only last for 18 months and after that time, the business must pay Social Security at the full rate, around 300 Euros per month, regardless of whether they are making a profit and how much.

Now businesses take time to succeed. Of course some will fail, and the current Social Security legislation is adding to the failure rate. Or encouraging new businesses to stay out of the Tax and Social Security system entirely and operating in the black market.

So real reform is required, to bring Spain up to level in competitiveness with its sister economies around the world, and introduce a Social Security contributions rate for the self-employed that is in direct proportion to the profit actually made !

For further information and details on our services, please visit our Spain Accountants website.

Spain Accountants publishes Chinese web pages

Traditionally we have used English as a working language both for our website and for communication with clients.  When we first started out in 2003 the great majority of our clients were from the UK. Now I would say that more than 50% of new clients are non-British but comfortable to communicate in English, many of these from Nordic, North European and Eastern European countries.

However there is still clearly a need for original language content to offer our services to potential Chinese clients, and for this reason we are now releasing our website pages in Chinese.  The professional translation is thanks to our very own Fangwei Chen, our operations manager.

For a link to the web pages, follow Spain Accountants in Chinese.

Hacienda squeezes even tighter- filing deadline for Modelo 347 changed.

In my previous posts on French and Spanish tax I have used the Star Wars analogy with regards to the Tax Office´s treatment of the small business taxpayer.  Well sad to say, but in Spain the Empire continues to tighten its grip.

The annual informative declaration of transactions with third parties, Modelo 347, is a rather clever tool introduced by the Agencia Tributaria a few years back to ensure tax and VAT compliance among small businesses.  Any supplier or customer with whom you the taxpayer has transactions totalling more than 3,005 Euros in the year must be included in this declaration.  As Hacienda can cross-check between declarations,  the taxpayer runs a risk of and enquiry inspection if they make any omissions.

In principle this is a clever way to ensure that businesses declare all income, and do not overstate expenditure for tax and VAT purposes. Where our objection, and that of Spanish professional accountants´ organisations, including of own- the AECE , is in the tight filing deadlines.

Originally 31st March, this was changed last year to 28th Feb and now it is proposed that from 2018 the deadline will be 31st January ! This gives the small business only one month from the close of the year to prepare the return, at a time when they also have other annual tax obligations with a similar deadline- annual informative returns for VAT and tax retentions.

And as is standard in Spain, Hacienda are ruthless with the poor person that misses the deadline. No reminder letter if the deadline is missed, no forgiveness for the first transgression. As usual, the taxpayer can expect an automatic penalty fine with no excuses accepted.

The cynic might say that these changes in deadlines are designed purely to generate income in penalty fines. And I would find it difficult to argue !

For further information and details on our services, please visit our Spain Accountants website.