28/02/23

EUROPE: Spain to clamp down on tax fraud by digital nomads and fake non-residents.

As published on thelocal.es, Tuesday 28 February, 2023.

Spain’s Agencia Tributaria on Monday February 27th announced that it wants to “intensify its control on residents who artificially reduce their fiscal bill by using the non-resident tax”.

Spain considers its resident population to be tax residents if they spend more than 183 days in Spain, their main economic interests are in Spain and their spouse and/or children live in Spain.

According to Hacienda, as Spain’s tax agency is also known, the focus will be on residents in Spain who meet this criteria and should therefore pay IRPF that applies to all their worldwide income, but instead file their taxes using the more favourable IRNR non-resident tax which applies only to income made in Spain.

Non-resident tax (IRNR) is generally 24 percent whereas IRPF income tax is progressive based on earnings and can go up to 47 percent.

José María Mollinedo, general secretary of the Spanish Tax Technicians Union (Gestha), told 20minutos that these ‘fake non-residents’ usually have a high income and live in Spain with their families.

Of the measures announced by Hacienda, the ones that stand out for catching residents who claim to be non-residents are “strengthening control over online payments through entities or applications located abroad” and “boosting investigations into cryptocurrencies to locate assets subject to seizure and with links to criminal networks”.

The Spanish tax agency also talks about carrying out peinados, ‘combing’ the country’s underground economy, in the sense of tracking undeclared payments.

These plans to crack down on tax evasion have been published in Spain’s BOE state bulletin and form part of the agency’s 2023 official control plan.

The warning comes just weeks after the Spanish government fully approved its highly anticipated Startups Law, which includes favourable tax conditions for foreign entrepreneurs and digital nomads who move to Spain and bring their talent with them.

According to the legislation, foreign workers who get Spain’s new digital nomad visa can pay non-resident tax AND stay longer than 183 days a year, but this is subject to them not earning more than 20 percent of their income from Spanish companies, and earning below €600,000 a year.

Spain’s digital nomad visa is for non-EU foreigners, giving them the right to residency in Spain. Hacienda’s message will serve as a deterrent from breaching the rules of the new visa.

But perhaps the tax fraud crackdown should be primarily aimed at EU digital nomads and remote workers whose EU rights to freedom of movement within the bloc and free movement of capital allow them to sidestep the 183-day rule more easily.

A 2021 report by Spanish tax advisors concluded that more than half of the tax address changes from Spain to overseas (or even another Spanish region with better fiscal conditions) were fake, in the sense that they’d only moved on paper and remained living at the same place in Spain.