expat financial advice spain

Expat Financial Advice in Spain and The Common  Reporting Standard

Are you an expat investor in Spain? 

It is vital for expats in many countries with assets in ‘non-compliant’ investment to be aware of changes implemented in 2017.  Data from financial institutions collated during 2016 was exchanged between more than 50 nations, with over 50 more following suit in 2018 and beyond.  This is now an annual occurrence following the introduction of the Common Reporting Standard (CRS) by the Organisation for Economic Co-operation and Development (OECD).  Referred to by some as ‘GATCA’, the intentions of the CRS are FATCA-esque in nature but on a global and much wider scale.


This exposure of financial affairs will affect anyone that has assets in one country and lives in another.  As establishing residency is often complicated and now more so after Brexit, it's never been more important to determine which tax authorities you should report to. Any country with a large expatriate community will now be of particular interest and one of the largest is of course, Spain.  


As a Mecca for expats, 'residents' in Spain often often bury their heads in the sand regarding taxation, believing that holding assets in offshore investment centres such as the Isle of Man or Jersey, or receiving a cross-border income negates the need to declare their assets. This is not the case, and blaming lack of clarity in Spanish residency criteria won’t be deemed acceptable by the local tax authorities for not addressing it. Tax residents in Spain should be reporting worldwide income, gains and increases in wealth and even if you are being taxed elsewhere, it should still be declared in Spain.

Like it or not, information relating to wealth at home and overseas will be shared, including bank balances, dividend payments and interest earned, in addition to your tax reference, name and address(es).  Once received, verification of whether the correct income and tax payable has been declared will be possible and in Spain, it will also allow simplified comparisons against Modelo 720 declarations in which assets outside of the country need to be reported.

The CRS is still only 4 years in but ultimately change is definitely on its way and as with all tax authorities, it is always better to find them before they find you.  According to Spanish tax expert Francesco Bertagnin at Foresight Consultancy, the clock is ticking for expats in Spain and it’s a case of when, and not if.  He told us “there has been a huge increase in those seeking help with their tax affairs.  Sadly however, many come to us having already received formal notification from the tax authorities so the fines applied are far higher than they would have been”.


What happens if you declare your assets?


Quite simply, you’ll mitigate the possibility of incurring heavy fines and avoid suffering the infinite inconvenience, expense and stress of having the tax authorities audit your life. While ‘going compliant' may incur some costs, there are ways of offsetting these with the implementation of compliant investment structures that could ultimately leave you far better off financially.


Offshore bonds have been big business over the last 20 years, often controversially owing to the large commissions paid to expat financial advisors for selling them. If used correctly however, with all commission structures removed and replaced with advice fees mutually agreed between client and adviser, they can be extremely effective.


If you are resident in Spain and have an offshore bond in the Isle of Man or Guernsey for example, or any other non-compliant investment, you are not breaking the law if it’s being declared as it should be.  If it is not being declared you run the risk of your investment becoming more visible and subject to increased scrutiny. Taxation is also higher than it needs to be and it’s a cost that can be easily avoided by making a few simple adjustments.


Spanish savings tax is calculated on a progressive scale:


Up to EUR 6,000:                 19%

EUR 6,001 – EUR 50,000:     21%

EUR 50,000 upwards:           23%


Non-compliant structures should be reported to the authorities by the owner and then tax paid on the growth, regardless of whether withdrawals are made or not. With Spanish compliant investments reporting is automatic and when making a withdrawal, you are only taxed on the growth element and only when that withdrawal is made, not annually, making the differences too significant to ignore. 


Using an example of a EUR 100,000 investment and making a withdrawal of 10% growth, we've made comparisons to the Spanish savings tax above.


Spanish taxation on non-compliant investments - Requires reporting by the holder and will then be taxed directly as follows:  


(6,000 x 19% = 1,140) + (4,000 x 21% = 840) = EUR 1,980 payable


Spanish taxation on compliant investments - Reporting is automatic by the investment provider and taxed only on withdrawals made, using the following calculation to define the capital and growth elements:


(Initial Investment / surrender or current value) x withdrawal amount


(100,000 / 110,000) x 10,000 = 9,091 (capital)

10,000 – 9,091 = 909 (growth)

909 x 19% = EUR 172.71 payable


Bond Segmentation 

Compliant investments also provide the option of withdrawals by ‘segmentation’. Sub-policies can be created and drawn on individually, allowing you to assess varying growth rates in relation to the size of withdrawal, and decide which method is most tax-efficient for you.  Segments of a bond can also be assigned to others, meaning anyone on a lower tax rate can be gifted segments and significantly reduce your own tax bill.  This can be of particular benefit to expats with loved ones in other countries, such as funding their children's university fees or helping them purchase a property.


Assets held in a compliant Spanish investment need to be UCITS compliant (undertakings for the collective investment of transferable securities), which is generally perceived as a mark of quality for investors. Many exchange traded funds (ETF’s) fall into this category providing a huge range of regulated, low-cost securities to choose from, many of which pay dividends either for re-investment or income, further reducing the underlying costs of portfolios.


In summary, establish your position as soon as possible to avoid unwanted complications. The transition from ‘non-compliant’ to ‘compliant’ can be made with the minimum of effort, and a portfolio review can make a considerable improvement to underlying costs and performance. We do understand that many older portfolio bonds may have charging structures that incur early redemption charges on closure, but this can be easily avoided and investments  transitioned  without  penalty.


To learn more about the benefits of investing in liquid, low-cost securities within a Spanish Compliant Investment, get in touch today and we'll provide regulated expat financial advice to guide you through the process.


Arrange a Consultation

The information contained in this article is provided for informational purposes only and is not intended to substitute formal tax or financial planning advice. While we make reasonable efforts to make sure the content of the article is correct and up to date we do not assume any responsibility for any errors or omissions.

Francesco Bertagnin offers expert tax advice in Spain, Gibraltar and the UK.  For more information please visit www.foresightconsultancy.com or call +34 956 614 549.