Non resident tax illegal ????

[beachlife]

http://www.tumbit.com/news/articles/7282-eu-refers-spain-to-court-over-discriminatory-property-tax.html

The European Commission has decided to refer Spain to the EU's Court of Justice for discriminatory real estate tax rules that prevent non-residents from enjoying the same tax benefits as residents.

According to the Spanish legislation, capital gains from the sale of a permanent residence are exempt for tax if the money is used to buy another permanent residence. However, this provision only applies to Spanish residents, therefore discriminating against non-residents who can end up paying much higher taxes.

In practice if a person living in Spain sold its permanent residence to buy a new house in another Member State where he would move, he could be taxed on the capital gains made on the sale. Conversely if he had stayed in Spain and bought a new house there, he would not have been taxed.

The Commission considers that this is an obstacle to free movement of persons, workers and self-employed persons and therefore breaches the EU Treaties.

The referral to the EU Court of Justice is the last step in the infringement procedure.

I wonder if this means that the non resident tax paid by those who have a property will also be declared illegal if this referral is proved correct?

As I believe that residents of Spain are not taxed on properties which they own which they do not use as their main residence so therefore it would be an unfair discrimination and against the free movement of people enshrined in the EU charter. Or do Spanish residents pay tax on second properties which they own but do not rent out?

[chollis]

Spanish residents pay a luxury tax on a second home that is not their main residence and not rented out, basically the same tax referred to as non-residnet tax.

[Ivemovedon]

there was a guy on here sometime ago who was well versed in spanish legal practices who said if you pay it you are throwing your money away. Asked my own lawyer about it on my last visit and he shrugged saying if you dont pay it they can only go back a few years to retrieve it anyway. I always thought this would crop up eventually.

[SheilaW]

In practice if a person living in Spain sold its permanent residence to buy a new house in another Member State where he would move, he could be taxed on the capital gains made on the sale. Conversely if he had stayed in Spain and bought a new house there, he would not have been taxed.

The Commission considers that this is an obstacle to free movement of persons, workers and self-employed persons and therefore breaches the EU Treaties.

That's the problem the EU needs to address, as far as I can see, as that is certainly against EU practice. When I sold my (only) French house to move here I wasn't obliged to pay CGT as I was only moving my principal residence, albeit to another member state. As of today, 19/12/2013, I own two properties on Fuerteventura but I fully expect to have to pay CGT when I sell the smaller of the two, which I will rent out in the interim.

How on earth can a "non-resident" have his/her "permanent residence" in another country? It's a contradiction of terms. If you're a non-resident it means you're lucky enough to have enough dosh (or maybe a second mortgage, I accept that) to own a second property in another member state. Fine, but you must be prepared to accept that you'll be taxed on it. When so many EU citizens have trouble finding anywhere to live, let alone owning a property, in their own country, why should those with two feel they don't owe anybody anything?

[Ivemovedon]

Luck doesn't always come into having 'dosh'..Some people work bloody hard to get what they have its not always been put on a plate. If your 'lucky'enough to have a second home other than the UK you expect to pay the appropriate taxes on a level with all other EU residents. Not some manufactured 'wealth' or 'non residents' tax thought up to boost the spanish economy at foriegners expense. The UK doesn't do it but maybe we should..and make it a level playing field.

[beachlife]

In practice if a person living in Spain sold its permanent residence to buy a new house in another Member State where he would move, he could be taxed on the capital gains made on the sale. Conversely if he had stayed in Spain and bought a new house there, he would not have been taxed.

The Commission considers that this is an obstacle to free movement of persons, workers and self-employed persons and therefore breaches the EU Treaties.

That's the problem the EU needs to address, as far as I can see, as that is certainly against EU practice. When I sold my (only) French house to move here I wasn't obliged to pay CGT as I was only moving my principal residence, albeit to another member state. As of today, 19/12/2013, I own two properties on Fuerteventura but I fully expect to have to pay CGT when I sell the smaller of the two, which I will rent out in the interim.

How on earth can a "non-resident" have his/her "permanent residence" in another country? It's a contradiction of terms. If you're a non-resident it means you're lucky enough to have enough dosh (or maybe a second mortgage, I accept that) to own a second property in another member state. Fine, but you must be prepared to accept that you'll be taxed on it. When so many EU citizens have trouble finding anywhere to live, let alone owning a property, in their own country, why should those with two feel they don't owe anybody anything?

I am more than happy to pay the taxes due in Spain. In fact I go out of the way to pay the taxes despite the hurdles the Spanish system put up to prevent me to do so.

I know that as Stedge says, I could ignore the non resident tax and the Spanish tax system would only require me to pay back 4 years, either when I sold the property died or if they decided to investigate me. However the tax is discriminating against residents and people who own properties but are not resident, both are EU citizens so taxes should be the same. I believe you are a resident Sheila, if you had a second property you would not pay a tax for renting it out ,if you did not rent it out. Non residents, who own properties who do not rent out their properties, are taxed for rent they do not get. To me thats is wrong and against EU rules. If residents were paying a tax for owning second homes which they did not rent out then the problem would go away. The tax taken by the Spanish would go up. However they will not do this as the resident population would be up in arms. However the non resident population are an easy target.

The Spanish tax system needs to go after the more difficult targets like the companies who own properties for tax reasons by putting profits into buying them up so they do not have to pay tax on earned income. Then leaving them empty and not letting them out for cheap rents.  Plenty of examples around you Sheila- shop units, I know people who wanted to rent shops on Tam for small rent for short period then review them after six months, Norty Sur did not want to know.

As stedge says lets have a level playing field.

[beachlife]

Spanish residents pay a luxury tax on a second home that is not their main residence and not rented out, basically the same tax referred to as non-residnet tax.

Can you give me a link to this tax?

I don`t believe the tax you are referring is based on taxing you on a property you do not rent out and then taxing you on an imaginary income which you never received.

If it is, then I will then be more than happy to pay the tax in the knowledge that other EU citizens are being taxed the same as me and others.

[Ivemovedon]

Just remembered the guys name it was Merlin. I believe he was well respected on here and did quite a lot of work for forum members. He was quite adamant that it was not a legal requirement to pay this tax. One way of looking at it is if this tax is eventually deemed illegal what chance of recouping all the money paid to the tax authorities ?. Probably less than zero. Better to owe them than them to owe you, as is the same even in the UK.

[potash]

Yes stedge you are right   Just remembered the guys name it was Merlin.  John Merlin was  a very helpful man to all us people who purchased hear 10 years ago  and always gave value for money what ever he did for us forum members

[cockney]

The problem with being non-resident is that if you do not pay a tax and the authority catch up with you you are not around to answer a demand
for payment. The authority is then able to impose interest fines and even raid your bank account for payment. Only a court can declare a tax illegal not somebody on a soap box.

[Ivemovedon]

And how would they make that demand for payment. By post i assume. Most people visit their property at least two or three times a year and most probably check their post box on arrival. problem solved.  And these days there appears to be no higher court than the EU court of justice, so if they declare it illegal hopefully it will be good enough for the spanish tax authorities ...(despite the fact the spanish and french appear to do as they please.)

[beachlife]

The problem with being non-resident is that if you do not pay a tax and the authority catch up with you you are not around to answer a demand
for payment. The authority is then able to impose interest fines and even raid your bank account for payment. Only a court can declare a tax illegal not somebody on a soap box.

Not sure who you are saying is on a soap box.

Its the European Commission who has decided to refer Spain to the EU's Court of Justice. I believe there is discrimination between the tax between what people who are EU citizens and EU non residents which is against EU rules (if the ruling is decided for the EU commission by the Court of Justice).

I did put a question mark in the subject heading to imply that it is not a fact but still to be decided. Although chollis suggests that Residents who have second homes pay a similar tax but has yet to post details of this tax as I have never seen proof of such a tax. If the EU commission win their case, I was asking if they do win  whether the non resident tax would also be illegal. Hardly a soap box!

[cockney]

Stedge, surprisingly the local council do not use post but hand deliver a note into your post box stating, in my case, that they had tried contact me and that I had to attend the council offices within 14 days. Upon my arrival I was handed a letter which said that I owed 4000+ Euros in unpaid capital gains tax. I had recently sold my apartment to my granddaughter and was staying there for a month. My solicitor had previously advised me that this tax would not be collected for many months, perhaps years. I was offered the choice of paying the debt in full or monthly with 5% interest. If I had not been staying in the apartment at that time and picked up the note then the usual fines would have been added and eventually my bank account would have been raided.

Soapboxes. How many times over the years have there been postings on the subject of Illegality and how often have these claims of action through the EC courts born fruit. The only tax that I can remember being resinded was the Wealth Tax which,I am told, has returned in a different form. Perhaps I am  being unfair to the current posters but so often these post use information that is at best second hand and often rumour. I doubt that we will ever see the day when some form of tax has to be paid for holiday homes and, lets face it, it's not a lot.

[Ivemovedon]

soapboxes work both ways cockney..if i had a 10 euro note for every post saying this is illegal thats illegal, you have to pay this, you'll be fined for that i'd be extremely rich. No doubt they are trying to help but you often get the whiff of scaremongering. Personally, although  i am aware they are in no way as reliable as English solicitors, i generally take the advice of my local solicitor in corralejo who has saved my bacon on a couple of occassions. If i'd taken all the advice you get on here i'd be tied up in legal knots and probably with a much lighter wallet. As i said before if this particular tax is being disputed better for you to owe them than vica verca.

I keep hearing about this ability to raid bank accounts but i've only ever seen it put into practice in greece. Question is like the rental inspections..has it ever actually happened to anyone. Would be interested to know.

[beachlife]

Stedge, surprisingly the local council do not use post but hand deliver a note into your post box stating, in my case, that they had tried contact me and that I had to attend the council offices within 14 days. Upon my arrival I was handed a letter which said that I owed 4000+ Euros in unpaid capital gains tax. I had recently sold my apartment to my granddaughter and was staying there for a month. My solicitor had previously advised me that this tax would not be collected for many months, perhaps years. I was offered the choice of paying the debt in full or monthly with 5% interest. If I had not been staying in the apartment at that time and picked up the note then the usual fines would have been added and eventually my bank account would have been raided.

When you sell your house you will need to pay tax to the Hacienda or tax office for the profits you will have made on the sale of your house. So I`m confused you said you had a note from the local council, the council have nothing to do with collecting capital gains tax.

Capital gains tax which you raised, is a tax which has indeed been changed as the rate for non-residents used to be a whopping 35%, as opposed to 15% for Spanish nationals. This higher rate contravened the European Community Treaty rules on discrimination and the court said the higher levy must be repaid, with 6 per cent interest. So some things do bear fruit.

[cockney]

Beachlife, you are misinformed. In this age of computers the local office now carries out much of the work that previously required visits to the Hacienda and the Registry. Most of the receipts in my new Escritora are stamped by the office in Corralejo, you do not even have to go to La Oliva anymore. It also seems that they collect CG tax as well.

Again you quote information gathered from various web sites but do not back it up with reference to Spanish Legislation, ie the Lay reference. The calculation of CG tax is not a straight percentage of profit, if it were then I could check whether I have paid too much. This is an article which like you I have found through Google.

" Property in Spain: what non-resident should know about tax on capital gains from the sale of Spanish property

From 2012 onwards, a 21% flat rate (formerly 19%) is applicable to capital gains obtained by non-residents on the sale of Spanish real estate.  This rate applies to the taxable base resulting from the difference between acquisition value and transfer value.

But finding out the acquisition price and the transfer price for tax calculation purposes is not that simple, since it involves:

    (a) adding certain amounts relating to expenses and taxes inherent in the acquisition;

    (b) determining the tax impact of any relevant subsequent building works
    or improvements made on the property;

    (c) establishing whether any depreciation charges must be subtracted,
    which diminish the acquisition value for tax purposes;

    (d) applying an updating coefficient which varies depending on the date the acquisition was made;

    (e) if the property was acquired before the end of 1996, determining whether
    any reduction on the tax gain could apply;

    (f) establishing the local capital gains tax due to the town hall where the property is located, which decreases the transfer price for tax purposes."

[beachlife]

Cockney where is the local council office you mentioned? Does this mean that the ayuntamiento are dealing with Spanish taxes which the AEAT were previously dealing with?

Maybe I am still misunderstanding but can you give tell me which office you used to pay the CGT ? Be delighted if I can deal with the office in Corralejo in future if I have problems. I totally understand that the ayuntamiento will deal with the deeds (Escritora) as they need to know who is responsible for payment of local taxes. However I`m surprised that the are now collecting CGT. I believed that a retention tax (3%) was withheld by the Spanish tax authorities until non residents CGT was calculated, so the purchaser (usually a solicitor deals with this) would not be able to hand over the full amount of the purchase price. However from your experience it seems that this is not the case now. So I am shocked that you ended up with a 4000+ bill over and above the retention tax you would have paid, especially as the value of properties have dropped over recent years.

Of course I assumed that everyone would know that you can offset many things against CGT (just like you can in UK) so didn`t feel a need to list the things that you can offset, but I`m sure your listing of them is very useful for those who didn`t know. CGT is complicated anywhere in the world and anyone would be wise to consult a lawyer.

I appreciate that the Spanish authorities are at last using IT to make things easier. At least you now no longer have to go to the Hacienda in Rosario now to pay for a tax form to pay taxes to the Spanish government.

[cockney]

I dealt with the ayuntamiento office near the play square, they now have a whole floor of offices just dealing with tax. I am coming out to the island next week where my paperwork is stored and I can provide answers in more detail.

[beachlife]

So the office you mentioned earlier was the one in the music square. Hope you make sure you speak to one of the Canarian employees there. As have been a number of people I know, who have been ignored because they did not speak any Spanish, when discussing things with people who work for the ayuntamiento who come from the mainland. However the Canarians have always been more than helpful, but never mentioned that they were dealing with national taxation as well.

I was considering registering with the AEAT so I can deal with all tax problems online but be much better face to face when you tell us that the ayuntamiento is dealing with national taxation. That will be a great result for the new year, looking forward to your feedback. Wish the local authorities in the UK also dealt with national taxation as well save me endless letters and long waits to get replies.

[cockney]

The office I dealt with is adjacent to the Play square beachlife. I have not had any problems in conversing in English either on the bottom floor when obtaining Padrons etc. or on the second level when dealing with tax issues. When I have stumbled with my limited Spanish they have called for an English speaker to assist. When I contacted them from the UK by email they answered in English and could not have been more helpful. Perhaps I am just lucky.
I did not say that they deal with all National tax but in my case they dealt with all tax involved with my sale including CGT.

[beachlife]

The majority of the employees in the offices are Canarian so most of the time you will have no problem speaking English. However if you do not speak some Spanish to the mainlanders, you will experience a different experience.

Sorry I took it when you said "In this age of computers the local office now carries out much of the work that previously required visits to the Hacienda " you ment other taxation issues.