As a general rule, domicile should be equated with the concept of “residence”. If you are domiciled in Spain, for administrative and tax purposes you will, in principle, be considered a resident or “tax resident”. However, you should take care to ensure that your holiday home does not inadvertently become your main tax residence, since for those who unknowingly become subject to unlimited tax liability, their supposed “second home” can quickly turn into a tax trap.
As a general rule, domicile should be equated with the concept of “residence”. If you are domiciled in Spain, for administrative and tax purposes you will, in principle, be considered a resident or “tax resident”. However, you should take care to ensure that your holiday home does not inadvertently become your main tax residence, since for those who unknowingly become subject to unlimited tax liability, their supposed “second home” can quickly turn into a tax trap.
Unlike residence for administrative purposes, tax residence (residencia fiscal) has much more far-reaching consequences. From the moment you are considered a tax “resident”, you will be required to pay tax in Spain on your worldwide income and assets, as well as comply with the corresponding tax obligations (for example, filing tax returns, Form 720, etc.).
Domestic legislation
Most domestic tax laws do not distinguish between nationals and foreign nationals, but rather between residents (persons subject to unlimited tax liability) and non-residents (persons subject to limited tax liability), since residence is generally determined on the basis of whether a person has a domicile or permanent home available to them.
Under Spanish law and, in particular, Article 9 of the Spanish Personal Income Tax Act, you will be considered a resident of Spain not only if you remain in the country for 183 days a year, but also if you have a permanent home in Spain—whether owned or rented—or if the centre of your vital interests is located in Spain:
A) Presence in Spain for 183 days a year:
Although habitual presence in Spain may initially appear to be the simplest criterion for determining residence, the abolition of border controls makes it practically impossible for the Spanish Tax Agency to establish whether this requirement has been met.
B) A permanent home in Spain:
If you have a permanent home in Spain—whether your main residence or a holiday home—the Spanish Tax Agency may presume that your tax residence is in Spain. Even if you spend fewer than 183 days at your holiday home, electricity, water, telephone and similar bills may be sufficient to presume that your tax residence is located in Spain. In this case, you, as the taxpayer, will have to prove that it is indeed a holiday home, that your main residence is in Germany and that you pay tax on your income there.
C) The centre of your vital interests or the centre of your economic interests:
As a general rule, this final criterion can only be established on the basis of presumptions. For example, a taxpayer is presumed to be resident in Spain when, according to the criteria referred to above, their spouse, from whom they are not legally separated, or their minor children reside in Spanish territory.
Since German law establishes similar presumptions, your tax residence can only be determined unequivocally when you have a permanent home in only one of the two countries. For example, if you are registered as residing at a property you own in Spain and do not have a home available for your personal use in Germany, your tax residence will clearly be in Spain.
Residence conflicts and the Double Taxation Agreement (DTA)
However, if you have a permanent home in both countries or are even registered as residing in both, Germany—under its domestic legislation—and Spain—under Spanish legislation—will each presume that your tax residence is located in their respective territory. This creates a residence conflict that must be resolved under the Double Taxation Agreement (DTA), whose provisions take precedence over domestic legislation.
Article 4(2) of the Agreement between the Federal Republic of Germany and the Kingdom of Spain for the avoidance of double taxation resolves this conflict. Where, by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, the following rules shall apply:
a) The individual shall be deemed to be a resident only of the State in which they have a permanent home available to them. If they have a permanent home available in both States, they shall be deemed to be a resident only of the State with which their personal and economic relations are closer—the centre of their vital interests.
b) If the State in which the individual has their centre of vital interests cannot be determined, or if they do not have a permanent home available in either State, they shall be deemed to be a resident only of the State in which they have a habitual abode;
c) If they have a habitual abode in both States or in neither of them, they shall be deemed to be a resident only of the State of which they are a national.
d) If they are a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
In practice, however, this article of the DTA essentially results in the application of paragraphs a) and b), since both legal systems, like the Spanish legislation examined above, directly take into account habitual presence for 183 days and thus regard such presence as a criterion for determining the centre of vital interests. In practice, paragraphs c) and d) apply only where the individual does not spend more than 183 days a year in either country.
In summary, tax residence is generally determined by remaining in Germany or Spain for more than 183 days in a tax year. However, due to the existing presumptions, in many cases it is the taxpayer who must provide the necessary evidence.
Consequences of having your main residence in Spain:
If, according to the criteria set out above, your main tax residence is in Spain and you are considered a “resident”, you will automatically become subject to limited tax liability in Germany—provided that you have correctly deregistered there—because you will be required to pay tax in Spain on your worldwide income. The tax obligations arising from this situation can generally be summarised as follows:
A) Tax returns:
All persons subject to unlimited tax liability in Spain (residents), regardless of their nationality, must file the corresponding annual tax returns. For individuals, the Spanish Personal Income Tax return (RENTA) and the Wealth Tax return are particularly relevant. You can find further information about persons subject to unlimited tax liability in Spain—“residents”—in the section: Tax basics: “Residents”
B) Gifts and inheritances:
If you receive a gift or an interest in an inheritance, you will be required to pay the corresponding Inheritance and Gift Tax (ISyD), the applicable rules for which vary depending on the autonomous community. Further information is available in the article: Where must an inheritance be taxed in Spain?.
With regard to your own estate, it is also necessary to make the corresponding choice of the law applicable to your succession. Further information on this subject is available in the article: Choosing the law applicable to succession in Spain.
C) Reporting obligation concerning assets and rights located abroad:
Since 2012, persons resident in Spain (residents) have been required to report their assets located abroad. This reporting obligation must be fulfilled by filing an information return concerning assets and rights, separately from the personal income tax return. Further information is available in the articles: Form 720 and Form 721.
Recommendation:
To avoid residence conflicts, it is generally advisable to be registered as residing in only one country. When moving to the other country, it is important to register in the new State and deregister in the State of origin within the same six-month period of the year.
Tax residence certificate:
In practice, the simplest way to prove that you are not resident in a State is to provide a tax residence certificate issued by the State in which you reside. Further information is available in our article: German tax residence certificate.
Our firm will be pleased to help you analyse your particular situation, complete the necessary administrative procedures and file the corresponding tax returns. If you are interested or have any specific questions regarding this matter, you may contact us by email or telephone. We will be pleased to assist you in German.
Author:
Christoph Sander
Lawyer and Tax Advisor
CEO, Partner, Director
info@sspartners.es
Tel: (+34) 951 12 13 06
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