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In line with the changes introduced at the beginning of the year 2015 lowering the tax rates for Spanish Non Residents from the 12^th of July 2015 some of these have changed again.

The general tax rate remains unchanged as established at the beginning of the year. This rate is applicable for the income received on rental of Properties and also on the presumed income in case of own use of property. The rate was 24,75% in 2014 and was reduced to 24% for 2015 and 2016. However, if this income is received by persons residents in the UE or EEE  they will have to pay tax at the rate of 20% up to the 12^th of July 2015 and from that day until the end of the year  tax  at the rate of 19,5%. In 2016 the tax rate will be reduced to 19%.

Due to the said changes and as the income tax for own use of the property becomes due at the end of the year (31-12-2015) the rate of tax to be applied to residents in the UE and EEE owning property in Spain which is not rented out will be 19,5% on the presumed income which is either 1,1% or 2% of the ratable value of the property depending on when the revision of the ratable value of the property has taken place and this differs in the different municipalities.

Also the tax rate applicable to non residents for the receipt of interest, dividends and capital gains (i.e. sale of property) which in 2014 was 21% and reduced to 20% at the beginning of the year 2015  is now  from the 12^th of July up to the end of the year 19,5%. In 2016 this will be 19%.

Summarising we have the following rates;

Rafael Berdaguer
Lawyer within the firm
Rafael Berdaguer Abogados based in Marbella, Spain.
www.berdaguerabogados.com
Copyright © 2016 Rafael Berdaguer Abogados All Rights Reserved

On the 4th of July 2012 the regulation 650/2012 of the European Union was approved to try to unify the European legislation on successions due to the increase in the movement of European citizens and the fact that they may have assets or other kind of relations in different countries. It regulates the competence, the law applicable the recognition and execution of resolutions in succession in the European Union.

Entry into force

In Spain the regulation will enter into force on the 17th of August 2015 and will be applied to any succession originated since that date.

Territorial Scope

The regulation will be applied to the transnational successions irrelevant of the nationality of the deceased if they take place in the countries of the European Union which are bound by same or to the citizens of those countries.

Although this is an EU regulation it will not be applicable in Denmark, Ireland and United Kingdom. It will however affect those citizens from these countries that reside normally in another member state bound by the regulation.

It is not applicable to an European citizen that resides in the country of his nationality and has all his assets there.

Material Scope

The regulation applies to all which is related to succession, simple or joint Wills and agreements on succession. Amongst the issues expressly excluded are tax and administrative issues, also civil matters relating to the legal status, legal capacity, economical regimes, gifts, and company law. Also it does not regulate the requirements for the registration in the Land Registry of any rights on property be movable or real estate.

Competence

As general rule the courts of the member state where the deceased had his permanent address at the time of the death will be competent to resolve any issue on the succession, unless the deceased had chosen his personal law, i.e the law of his nationality to apply to his succession, in this latter case the courts of the country of the nationality state will be competent.

Law applicable to the succession

In Spain, at present the civil code establishes that the law applicable to a succession is the personal law, i.e. the law of the nationality of the deceased at the time of his death.

The new regulation establishes as general rule that the law applicable to all the succession is the law of the country where the deceased had his last permanent address except in the case that this person was more closely connected to another state in which case the law of this latter one would be applicable.

However, the regulation expressly allows that one can choose that the law to be applied to his succession is his/her personal law, i.e. that of the country of his nationality at the time of his death, having to expressly state this in a Will.

Therefore at the time of a transnational succession the first thing which should be established is which law is applicable.

Resolutions of a member state

The regulation establishes as a general rule that the resolutions issued by a member state are recognized in the other member state with the same execution force unless they have been issued against the public order or issued in default of the defendant.

Also the regulation establishes that the public documents issued in a member state will have the same proof value and execution force in the other member countries.

European certificate of succession

In order to be in a position to arrange for a transnational easy and quick succession its is required that the heirs, legatees, executors and others interesting parties can easily prove their rights in the succession in another member state where assets are located to be inherited. To this effect an European succession certificate is issued by the country on the application of the interested party, which has automatic validity in the other member states, the application of same being voluntary. Once the law applicable is established in a succession, the competent authorities of this state can issue the certificate to confirm the succession rights that has a citizen (heir, legatees, executors, administrators, etc.). Each state will establish who the competent authorities are to issue the certificate. In Spain they will be the Notaries and courts.

Importance of the regulation

The importance of this new regulation is that it tries to unify and facilitate the procedure of the succession when more than one country is involved and which affects mainly the citizens of the European Union.

Also it allows them to choose the law applicable to the succession which can be the personal law, i.e. the law of the nationality or the law of the country of the last permanent address of the deceased; this is an important matter to take into account when planning the succession. The internal inheritance regulations applicable in the countries of the EU are very different, i.e., in Spain there is an obligation by law to leave part of the Estate compulsory to certain heirs, this being something not known in other countries of the EU and if not foreseen can have detrimental effects for the interested parties.

Please note the information provided in this article is of general knowledge only and is not to be construed or intended as substitute for professional legal advice.

The Spanish Government passed in November 2014 various regulations which include important amendments to Spanish Corporate Tax, Personal Income Tax.

Also minor changes with respect to VAT and taxation of nonresidents.

In this latter case the amendments aim to adapt the legislation to the EU law and also to the changes introduced in the personal Income tax applicable for Spanish residents.

These regulations came into force in January 2015 and the main aspects introduced for non residents are as follows:

Tax rate for non residents without permanent establishment in Spain.

The general tax rate on income to be received by a non resident is reduced from 24.75 percent to 24 percent.

EU and Economical European Area residents will benefit from a reduced tax rate of 20 percent in 2015 and 19 percent in 2016.

This tax rate is applicable for example to the presumed income for the use of the property by a non Resident owner, or if the property is rented out to the income for rental received.

The tax rate for dividends interest and capital gains is also reduced from 21 percent to 20 percent in 2015 and to 19 percent in 2016.

Summarising we have the following Rates:

Transfer of Spanish Property by a Non Resident.

The Tax Reform eliminated, when calculating the capital gain obtained by the owner of a Spanish property who sells same the application of coefficients which update the purchase value of the property depending on the acquisition date of the property to take into account the inflation.

This results in an increase of the capital gain and thus of the tax to be paid.

They are maintaining an inflation relief for properties purchased before 1994, ,however this will be only applicable for those assets where the sale’s price does not exceed 400.000 Euros.

On the other hand the reduction on the tax rate as indicated above which has fallen from 21 to 20 % and will in 2016 go down to 19% mitigates slightly the tax increase.

Transfer permanent residence in compliance with UE law.

When a Spanish resident sells his home and reinvests the proceeds in a new one the capital gains in the sale is tax exempt, this now also applies to any former Spanish resident who purchases his new property in the UE or European Economic Space , no capital gains tax on the sale will become due.

No tax exemption on dividends.

The tax exemption on the first 1.500 Euros dividends to be received by a Non resident has been eliminated in line with the amendments made in the Income Tax for residents.

Changes to the Inheritance and Gift Tax in compliance with the UE law.

Non-resident individuals that are tax resident in a EU or EEA member State are now entitled to apply the tax reliefs approved by the Autonomous Region where the assets or rights concerned are located, instead of the State legislation, which is normally more burdensome.

This way Spain has eliminated the different tax treatments between resident and non resident, for which Spain was denounced before the European Court of Justice.

Please note the information provided in this article is of general knowledge only and is not to be construed or intended as substitute for professional legal advice.

Many Irish have in recent times, motivated for different reasons, invested in Real Estate in Spain. They have already gone through the experience of the real estate business in the said Country and they enjoy life in the sun during holiday periods. A great deal of them is no longer young (of age) and their expectation of life is obviously reduced as unfortunately it is a human condition that sooner or later the death arrives. For those who are in the said situation and also for those who would like to save their heirs a legal entanglement upon their death it is strongly advisable to execute a Spanish Will which will facilitate a speedy and smooth transfer of the part of their Estate left in Spain.

Advantages of having a Spanish Will

The Will as institution whereby a person (“The Testator”)disposes of his assets upon his death to certain persons (“Heirs”) has existed in practically all ancient civilisations and is at present available as an useful tool for inheritance purposes in the majority legislations of the countries of the world.

In case of Irish having assets in Spain the advantage to execute a Spanish Will is mainly the save of administrative backlog to the heirs upon the death of the owners of those assets. This means that on death of the Testator, the Spanish part of the Estate can be wound up without delay and simultaneously to the Irish Estate. Apart from the Spanish Will, only two other documents will be required to transfer the assets in Spain to the heirs : 1) The Death Certificate from the Testator which must be translated to the Spanish Language by a sworn translator and legalised at the Foreign Office in Dublin and 2) A Certificate from the Central Last Will Registry in Madrid confirming that the Testator has left a Will executed before a Notary Public, being the recorded Will the last will left by the testator. The Central Last Will Registry is an official registry where all Wills executed before Spanish Notaries are recorded. Upon the execution of a Spanish Will, the attesting Notary must compulsory remit a note to the said Registry with information of the name of the Testator, the date of execution and the protocol number of the Will. If a testator has executed a second or further Will, under Spanish Law the latter will automatically revoke any former Will, unless otherwise specifically provided for by the testator and therefore in the aforereferred Registry the last Will left by the Testator in Spain will always appear. In such Registry Wills executed in Ireland before an Irish Notary Public can also be registered providing the Will is drawn up in Spanish Language or same has been duly translated into Spanish and legalised by the Foreign Office in Dublin.

With the said two documents and a notarised copy of the Spanish Will, the appointed heirs or someone under Power of Attorney from them, usually a Lawyer, can proceed with the execution of the Deed of Declaration and Acceptance of Inheritance (“Escritura de Declaración y aceptación de Herencia”) before a Notary Public whereby the assets of the Testator left by way of the Will are transferred to the appointed Heirs. The said Deed has to be submitted for the payment of the Death Duty before the Spanish Revenue within six months of the demise and once the tax has been paid same is lodged with the Land Registry for final registration of the assets in the name of the heirs.

If the demised person has not left a Spanish Will to govern the transfer of his assets on his death, the normal scenario the Heirs will face is that they contact a firm of Irish Solicitors in order to wind up the Irish Estate. If there is an Irish will and same has provisions for the Spanish assets a Grant of Probate will have to be obtained through the Irish Courts ratifying who are the legal heirs to the part of the Estate left in Spain. If no Will was ever left by the deceased person the corresponding intestacy proceedings will have to be followed through the Courts in Ireland in order to obtain a Resolution declaring who are the legal heirs to the Estate. The Grant of Probate or whatever the Resolution declaring who the Heirs are have to be translated by a sworn translator to the Spanish Language and legalised by the Foreign Office in Dublin. By the time the Heirs have gone through this lengthy and costly process the six month statutory period to make the Death Duty Tax return in Spain for the Spanish Assets will most likely be over and surcharges and penalties will have accrued to the Tax Bill. Thus, the advice for every Irish property owner in Spain is to make a Spanish Will.

Law governing the Inheritance

The International Law provisions of the Spanish Civil Code provides for the Law of the Nationality of the Demised person to be the Law governing all Inheritance Matters relating to the said person. This means in case of an Irish Citizen, Irish Law will be applicable to his Inheritance and in particular to his Spanish Estate.

The Irish Succession Act 1965 contains what are the limitations to the Testator’s freedom to dispose of his assets and has provisions for specific shares of the Estate which must compulsory be transferred to specific Heirs. This is what in juridical terms is known as the Legal Right. In the majority of cases of Irish property owners in Spain having executed a Spanish Will, the said limitations will not be applicable as the part constituted by the Spanish Estate left by way of a Spanish Will would be a bequest or legacy which will not affect the Legal Right of the compulsory Heirs in Ireland who will satisfy the said Legal Right to the Estate with the remaining assets of the Demised person in Ireland. Apart from this, in a vast number of cases the appointed heirs under the Spanish Will will be the spouse or children of the Testator who are the persons entitled to the Legal Right of the Estate, thus the Spanish property transferred by way of the Spanish Will will be considered a specific bequest for the appointed Heir in such Will.

Formalities in the Execution of a Spanish Will

I shall refer to the most common type of Will in Spain which is the Open Will (“Testamento Abierto”) which is signed by the Testator before a Notary Public.

An Irish person executing a Will before a Spanish Notary will have to use an interpreter who will translate the terms of the will to English and who will sign the Will as well. The Will can be engrossed in bilingual form. The translator in most cases will be the lawyer assisting his client in this matter.

The Will is a personal and individual act which means that same has to be signed personally by the Testator and not by someone with power of attorney from him and that two persons cannot execute the same will, therefore the joint will is not valid under Spanish Law.

The Notary will read the last Will as given by the Testator and the latter, the Notary and the translator will subsequently sign the Will. The Notary will make reference in the document to the exact time and date of execution of the Will. In certain cases the use of witnesses is required as provided for in the Law or when the Notary or the Testator so require. The Notary will declare in the Will that he has identified the Testator by his passport and that the latter has enough legal capacity for the execution of the Will. All the aforereferred formalities have to be completed in one sole act and if same are not complied with the Will can be declared null and void.

In case the Will is signed before an Irish Notary Public, the formalities of the place of execution (“Locus Regit Actum”) will be applicable i.e. Irish Law and therefore the need of Witnesses and any other formalities as required by Irish Law will have to be complied with. The Will executed in Ireland will have to be executed in bilingual form and legalised at the Foreign Office and further registered in the Last Will Registry in Madrid.

Proposal for a Spanish Will

Before we consider the concrete proposal, one has to part with an important aspect of the Will which is that same must be confined to the Spanish Assets which means that specific mention will be made in the Spanish Will that any other Will executed by the Testator for his remaining assets elsewhere will not be revoked by the Spanish Will.

The Notary will make the warning to the Irish Testator that the latter states that the dispositions made in the Spanish Will can be made in accordance to his National Law which is applicable to his Inheritance. At this point the Notary is trying to cover his responsibility as layman in Irish Law and here an implicit reference is made to the Will not affecting the Legal Right of certain Heirs to the Testator’s Estate to which we have previously herein referred.

If we consider the most normal scenario a couple with children and the Spanish Property has been registered in the name of the parents, these would normally leave in their respective Will all their assets, interests and rights in Spain to each other and in case of predecease or simultaneous decease of the other consort, or in case of unexpected incapacity or waiver by the latter, the appointed heir shall be substituted by their children in equal shares. It is very important to include the substitution clause in the Will as in the aforereferred events the aim of the Will, which is the express regulation of the inheritance of the Testator to avoid intestacy proceedings, might be aborted.

Any other provisions are also valid so long as they respect Irish Law and the applicable regulations as expressly required by Spanish Law and it is not unusual to see in our practice that Properties are left to Foundations or Charities and some pet lovers leave a few thousand pounds to a dog with specific provisions for its burial and with the most eccentric literature setting out the terms of the Will.

Therefore, apart from enjoying their property in sunny Spain if the Irish Property Owners intend to leave a tidy paperwork to their Heirs they should execute a Spanish Will. After this they can take a fly without worrying about what would happen with their Spanish Property if the plane crashes- although I suppose that would be the least of their problems.

Please note the information provided in this article is of general knowledge only and is not to be construed or intended as substitute for professional legal advice.

The Act 14/2013 of September 27, 2013 in support of entrepreneurs and their internationalization regulates for the first time the Entrepreneur with limited liability (ERL).

The individual professionals or entrepreneurs usually respond with their personal assets for professional debts and the new regulation may limit their liability for debts incurred in the development of their activity so that these do NOT affect their family home.

¿What assets are not affected by business debts and where should this be recorded?

The family home would not be affected by business or professional debts provided the value does not exceed 300,000 Euros or 450.000 Euros in the case of cities of more than 1,000,000 inhabitants. When registering the ERL in the Company’s Registry , they will have to provide the details of their home which they wish to exclude to be affected from business debts. Once registered the Company’s Registry will have to issue a certificate which in turn will be registered in the Land Registry to prevent any entry of an embargo for business and professional debts on the property.

Exclusions

Entrepreneur: No person can benefit from this limited liability if he has acted under fraud or with gross negligence in the performance of its obligations to third parties, providing there is a firm court resolution or a conviction in an insolvency proceedings.

Debt: The entrepreneur will maintain the universal liability on his assets for any debts incurred in prior to his registration in the Company’s Registry as limited liability individual entrepreneur.

The limitation of liability does not apply to debts with the public administration which can cause the embargo of the property and in this case this can also be subject to execution proceedings whenever the following conditions are met:

A – Other known assets of the debtor with sufficient value can be realised immediately in the proceedings.

B – There must elapse a minimum period of two years between the notification of the first embargo and the realization of the property.

Requirements of the ERL system.

The scheme is similar to a limited partnership but without having to put down share capital.

The entrepreneur must register in the Company’s Registry as limited liability entrepreneur for which a notarial document will have to be executed.

All the documentation must show the status of limited liability entrepreneur.

The entrepreneur has to prepare annual accounts of his business or professional activity, and if applicable submit same to an audit, unless he is registered under a specific tax regime denominated “estimación objetiva”.

The entrepreneur has to deposit the annual accounts with the Companies Registry within seven months after the end of the tax exercise as otherwise he will lose the benefit of limited liability with respect to debts incurred after the end of that term. In any case after presenting the accounts he will recover this limited liability.

Please note the information provided in this article is of general knowledge only and is not to be construed or intended as substitute for professional legal advice.

On the 26^th of June 2013 new regulations came into force which have resulted in changes in the Horizontal Property Act, amongst which is one that has special importance for the Community of Owners regarding the collection of community debts.

The communities of owners due to the economical circumstances have suffered a considerable increase of debtors of community fees which in may cases does not allow them to fulfill their work or forces them to initially distribute the cost of the service amongst a few solvent owners, thus the owners that pay are the one that suffer the consequences in both cases.

The changes provide that the new owner of a Real Estate property belonging to a Horizontal Division has to take over the community debts of the former owner, which include the apportion of the fee of the current year up to the date of the purchase and the outstanding debts of the 3 years prior to buying the property. Also the law provides for the preferential nature of these debts with the community in respect of other charges, this means that the law gives the communities of owners the right that its debt up to the amounts stated (part of the current year of community fees up to the date of the purchase and the three previous years) are paid before others, as for example the mortgage loans. In addition to this the property is legally affected to the fulfillment of this obligation. Before these changes took place the law limited the responsibility of the new owner and the affection of the property only to the debt of the apportion of the current annual fee up to the purchase and the year before.

These changes are beneficial for the communities of owners as they establish the preference of the credit and also the assumption of former community debts prior to the purchase by the new buyer for a longer period, therefore improving their rights and the possibility to recover community fees. This will also result that whenever there is a transfer of the property the community is consulted to check the state of charges and request a certificate that the property is up to date in the payment of fees, or, if there are debts due that the necessary amount is retained to arrange for the payment of the outstanding fee to the community.

Taken into account that numerous properties are transferred with community debts this is an important change, that should allow the communities to receive payment of a bigger part of the outstanding community fees. However, the collection of debt and regularization of the community service will only be achieved once the property market is reactivated and there is an increase in the number of transactions.

Please note the information provided in this article is of general knowledge only and is not to be construed or intended as substitute for professional legal advice.