INTERNATIONAL TAX: Spain, Gibraltar and UK reach tax residency agreement.

As published on international-adviser.com, Tuesday 1 June, 2021.

Brexit has triggered a review of how Spain, Gibraltar and the UK work together in establishing tax residence and tackling tax avoidance.

The provisions in the latest agreement will take effect from the start of the next tax year, so on 1 July 2021 in Gibraltar and 1 January 2022 in Spain, writes Jason Porter, director at Blevins Franks.

It addresses:

  • Tax co-operation between the authorities in Spain and Gibraltar;
  • Tax residence criteria for people and companies; and,
  • A specific procedure for administrative cooperation.

It aims to eliminate tax fraud and the detrimental effects derived from the characteristics of the current tax system.

This could affect people who have interests in both territories; for example, those who are registered as resident in Gibraltar and work, or own and spend time in property in Spain.

If they are determined to be tax resident in Spain rather than Gibraltar, this will have considerable tax consequences.

The agreement states that, from the date on which EU law ceases to apply in Gibraltar due to Brexit, legislation equivalent to EU law in force on that date will be maintained in Gibraltar regarding transparency; administrative cooperation; harmful tax practises and the fight against money laundering.

Conflicts that arise when a person is a tax resident in both jurisdictions will now be resolved in favour of Spain if any of the following criteria apply:

  • The person spends more than 183 overnight stays in Spanish territory; or,
  • The spouse – or partner in a similar relationship – and/or economically dependent ascendants and descendants, have their habitual residence in Spain; or,
  • The individual’s only permanent home is in Spain; or,
  • At least two-thirds of the individual’s net assets are located in Spain.

Spanish nationals who transferred their residence to Gibraltar after 4 March 2019 – the date it was originally signed – will be considered tax resident only in Spain.

For non-Spanish nationals, the tax quarantine rule provided for Spanish nationals will apply – ie they will keep Spanish tax residence in the year of changing residence and the following four years – excluding:

  • Those who spend less than a full tax year in Spain; and,
  • Registered Gibraltarians who spend less than four years in Spain.

Companies and other legal structures incorporated and managed in Gibraltar or regulated under its laws will be exclusively considered resident of Spain where any of the following criteria apply:

  • Most of their assets are located, or most of their rights are enforceable, in Spanish territory; or,
  • Most of their income is Spanish-sourced; or,
  • Most of the people in charge of effective management are tax residents in Spain; or,
  • Residents of Spain politically or financially control the company, entity, or other legal form.

The agreement also provides a regime for enhanced administrative cooperation and exchange of information on tax matters, to help enforcement and tax collection.

The authorities will exchange information each year on individuals who are tax resident in one jurisdiction but are employed or carry out a trade in the other.

The first exchange will cover the period starting 1 January 2014 to the date the agreement came into force.

The agreement does not contain any mechanism to avoid double taxation; just a reference to domestic regulations of each territory.

News of the agreement between Spain, Gibraltar and the UK follows reports by British newspaper The Guardian claiming that Brits in some EU member states – including France, Latvia, Malta and Luxembourg – have until 30 June to apply for tax residency. Those in the Netherlands will have until 1 October 2021.

Whereas UK citizens in other 14 EU countries such as Italy, Spain, Portugal and Germany will be able to take advantage of an automatic post-Brexit residence status if they were already legal residents beforehand.

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