Non-resident donations refer to those donations made to non-residents in Spain, which are subject to specific tax regulations that we will now explain. By knowing and understanding the tax obligations that these citizens have in relation to Inheritance and Gift Tax, we will be able to comply with the current regulations and avoid falling into tax irregularities.
JDV Asesores for Expats y Self-employed would like to explain the process of filing and paying the tax, and the consequences of non-compliance with the tax obligations regarding non-resident donations.
Regulations on donations from Non-Residents in Spain
It should be noted that the regulations relating to donations to non-residents in Spain are constantly evolving. A good manager and advisor has to be aware of any changes regarding its application, as we do at JDV Asesores.
The legal framework for non-resident donations is therefore structured by the Inheritance and Gift Tax (ISD), which is applied to the acquisition of assets and rights by inheritance or donation. Although the state law regulating this tax was established in 1987, it is the autonomous communities that have the capacity to regulate and apply allowances according to their particular legislation.
This tax affects all beneficiaries, regardless of their residence. However, the application of reductions and allowances is only available to residents, which has led to a debate on the fairness of the tax treatment between residents and non-residents.
Relevant legislative reforms
Since the ruling of the Court of Justice of the European Union (CJEU) in 2014, the legislation on ISD has undergone significant changes, as mentioned above. This ruling obliged Spain to allow heirs and donees from the EU and the European Economic Area (EEA) to access the allowances offered by the autonomous communities. As of 1 January 2015, the situation for these groups has been improved, although non-EU residents still face disadvantages.
Reforms have sought to correct the disparity in tax treatment, but the implementation of specific changes for non-EU non-residents is still pending. Differences in tax treatment continue to be the subject of legislative and judicial discussion.
Impact of the judgment of the Court of Justice of the European Union
The CJEU ruling in 2014 marked a milestone in Spanish tax law. The court ruled that unequal treatment of non-residents violated the principle of free movement of capital, which led to a review of the current tax structure in Spain.
As a result, EU and EEA nationals gained access to regional bonuses, bringing the tax burden a little more in line with their resident counterparts. However, this improvement does not extend to non-residents from non-EU countries, who remain subject to state restrictions, which continues to generate controversy and calls for further reforms.
Tax obligations for Non-Residents
Non-resident citizens in Spain who receive donations are aware that they have to comply with certain tax obligations that their advisor must notify them of. Like any other citizen, they have to file and settle Inheritance and Gift Tax, as well as appointing a tax representative in the country when necessary.
Use of form 651 for donations
Form 651 is the form used for the self-assessment of gift tax. This document enables non-residents to declare the donation received, detailing the nature of the goods and their valuation. Thanks to this information and the correct presentation of the form, the taxable base and the calculation of the tax payable can be determined.
Form 651 must be filed within 30 working days of the donation becoming effective. It is essential not to exceed this period, as delays may result in surcharges and variations in the applicable regulations.
The procedures for submission include:
- Gather the necessary documentation to support the donation.
- Complete Form 651 with all the required data.
- Submit the self-assessment to the Spanish Tax Agency.
Tax representative in Spain
In order to facilitate the management of tax obligations relating to non-resident donations, these taxpayers can appoint a tax representative in our country. This representative, who must be duly accredited, will assume responsibility for managing all tax formalities on behalf of the donee (especially useful when there is no in-depth knowledge of the Spanish tax system).
Application of the tax by geographical area
In the case of non-resident donations of real estate located in Spanish territory, inheritance and gift tax is applied directly. This tax is levied on the transfer of ownership of real estate and establishes that the value of the property at the time of the donation will determine the taxable base.
It is important to take into account the official valuations that in many cases are required to validate the declared value. The tax rate varies according to the autonomous community where the property is located, which can have a significant impact on the tax burden of the non-resident donee.
Movable property and financial rights
In the case of movable assets, such as valuables, bank accounts or company shares, the tax treatment is also governed by ISD. Movable assets located in Spain are subject to this tax, regardless of the residence of the donee.
Financial rights that are transferred, such as money in bank accounts held in Spanish institutions, must also be declared and are subject to ISD taxation. The management of these assets can be more complex due to the internal regulations of each financial institution.
Regional regulations and subsidies
Each autonomous community in Spain has the power to regulate the ISD and to establish reductions in the tax liability. This means that the tax burden on donations can vary considerably from one region to another, benefiting residents in certain territories with significant reductions.
- Community of Madrid: Known for offering bonuses that can reach up to 99% in some circumstances.
- Andalusia: Like Madrid, it has implemented tax reliefs that can alleviate the tax burden for the donee.
- Catalonia: It has its own regulatory framework that establishes various reductions depending on the value of the donated asset.
- Other communities: Several are in the process of adjusting their legislation to offer more favourable conditions to non-residents.
Implementation in the European Economic Area
It is important to point out that recipients resident in the European Economic Area (EEA) can benefit from the rebates applied by the autonomous communities. This measure was implemented following the legislative reform resulting from the ruling of the Court of Justice of the European Union, which called for equal treatment between EU and EEA residents and non-residents.
However, non-residents from non-EU countries are not eligible for these allowances, perpetuating an inequality that has been the subject of criticism and legal reviews. This implies that the impact of the tax for this group will be significantly higher compared to their counterparts within the EEA.
Non-Resident Donations: Consequences of tax non-compliance
We are mainly talking about fines and penalties. The tax authorities impose severe penalties on those who do not file or settle Inheritance and Gift Tax within the corresponding deadline.
There are the financial penalties, which are calculated according to the amount of unpaid tax, and which can range from a fixed percentage to a considerable amount that affects the estate of the donee. There are also surcharges for late filing. This increases the tax debt and can lead to further financial problems for the taxpayer.
Similarly, there is interest for late payment in the event that the tax is not paid on the stipulated date. It is the tax office that charges interest for the time of delay.
Differences for non-EU residents
Tax regulations in Spain present special peculiarities for donees who are resident in non-EU countries. These differences lie in the way in which Inheritance and Gift Tax is applied, as well as in possible tax planning opportunities.
Residents of non-EU countries face a more restrictive ISD tax regime. Firstly, they do not have access to the allowances and reductions enjoyed by EU residents. This means that, when receiving a donation of assets located in Spain, they face higher tax rates and a taxable base calculated only under Spanish rules.
Despite the existence of laws that seek fairness in the tax treatment, non-EU donors continue to suffer a higher tax burden. The lack of access to regional regulations prevents them from benefiting from the reductions implemented in several Spanish autonomous communities. This creates a picture of inequality compared to EU residents.
Changes in administrative practices
In the current context, there has been a gradual change in administrative practices related to ISD and its application to non-residents. Although the tax guidelines remain fundamentally the same, the Tax Administration has shown greater openness in accepting self-assessments of non-resident donations.
- They have begun to recognise situations where a point of connection allows more favourable conditions to apply, although this does not translate into a definite regulatory change.
- Administrative management has evolved, facilitating certain procedures so that non-residents can navigate the Spanish tax system more efficiently.
- In recent years, steps have been taken to increase clarity in tax compliance, although limitations remain.
Conclusions
For non-resident donations in Spain, if we have proper planning by our tax advisor, we will be able to reduce the tax burden associated with these acts.
We must analyse the structure of the donation and determine whether it is more advantageous to receive the donation in the form of goods or in cash. See in which autonomous community the donated goods are located (and check the autonomous community legislation on donations) and find out about the tax reductions offered by some autonomous communities for recipients residing in the EU or in the European Economic Area.
JDV Asesores for Expats and Self-Employed foreigners lead these strategies in order to carry out a correct and meticulous management of non-resident donations.
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