The Modelo 720 and fiscal Residency

We are fast approaching the time of year again when any fiscal resident of Spain that meets the criteria for having to submit a modelo 720 is required to do so. To be more specific, they have until the end of March to submit the declaration. Just to recap, the modelo 720 obligates any and all fiscal residents of Spain to disclose the assets they hold outside of Spain that exceed €50,000 in value in any of the 3 designated asset classes – those being bank accounts, investments and property. An overall value in excess of €50,000 across the 3 asset classes but lower than €50,000 in any single asset class doesn’t create the need to submit a modelo 720.

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So, now we have established the financial circumstances which give rise to an obligation to submit the modelo 720, let’s have a look at what is most certainly the more contentious part of the criteria – residency. The issue of residency seems to be an area of great uncertainty. Unfortunately for those trying their best to argue their residency one way or the other, “residency is a matter of fact, not a matter of choice” as we like to say at Blacktower.

The introduction of the modelo 720 has brought the issue of residency to the forefront of the minds of many expatriates whom previously hadn’t given it too much consideration. As a consequence, being correct about where you are a fiscal resident is more important than ever.

The jurisdiction in which a person is fiscally resident can often be considerably more complicated to establish than might be presumed. In the UK for example there is roughly a 3 step process in which a person is assessed in order to establish whether they should in fact be paying UK tax. This process starts with the Statutory UK Residence Test which basically sets out the conditions in which a person will automatically be classed as non-resident in the UK. If an individual doesn’t meet any of these conditions then the screening process will move onto a set of conditions that if met will automatically deem the person fiscally resident of the UK. Failing a conclusive result from these first 2 stages, residency is determined according to the sufficient UK Ties Test which in itself is quite complicated but becomes even more complicated due to the fact that the test is applied in different ways depending on the persons residency for the previous 3 years.

The parameters which if met deem a person fiscally resident of Spain are simpler than their UK equivalent but still not as straight forward as they may first appear.

The main issues over fiscal residency stem from the fact that there are scenarios in which an individual can be deemed a fiscal resident of more than one jurisdiction at the same time. If such a person’s residency was ever looked into by the authorities then where a double taxation agreement exists between the 2 jurisdictions, the 2 fiscal bodies of each jurisdiction will review the individuals’ case and deem that person resident of the jurisdiction in which there is a stronger claim.

The potential for uncertainty over your own residency coupled with the potential for massive taxes and fines for failing to submit a modelo 720 when obligated to do so make taking financial advice absolutely imperative.

First posted in Citizens advice.
For more info on Tenerife read the Red Queen Musings everyone’s favourite Tenerife Blog
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