In this section, we are going to focus on a topic that can be of great interest to the general public and which we considered key when individuals and companies are about to make a decision about moving permanently to Spain or investing in our country, either by buying a property or opening a branch of a company. We are talking about Double Taxation Agreements.
What do these Double Taxation Agreements regulate?
Double Taxation Agreements are international agreements between two countries, in our case between Spain and a third country, whose main objective is to avoid that a natural or legal person pays taxes in two different countries for the same concept (Income Tax for example) or that an asset/good is taxed by the same concept in two different countries.
When would the above circumstances take place?
In a world where Globalisation is already a fact, it is very common for people, even entire families, to move to another country and set up their Tax Residence there. Likewise, it is also very common for people from other countries to buy a property in Spain, either as an investment to obtain rental income or to sale it afterwards obtaining a profit. It is also increasingly frequent, especially in certain areas of Spain, for companies that have their fiscal residence in another country, to open a branch in Spain or operate part of their activity from our country.
In all the above cases, we could find situations where the same income could be taxed in two different countries. To illustrate the case, if a Belgian citizen with tax residence in Belgium purchases a property in Spain and obtains a rental income, a situation of double taxation could arise: on the one hand, Belgium could maintain that this citizen is a tax resident in this country and therefore must declare his world income in Belgium. On the other hand, the Spanish Tax Agency could argue that the rental income has been originated in Spain since the property is located in our territory, therefore, the citizen would have to pay taxes in Spain through the Non-Residents tax form.
Having explained the above, If there were no such double taxation agreements, these Belgian citizens and people from other countries would not want to invest in Spain, since they would have to pay taxes twice and it would be pointless and inefficient; However, thanks to these agreements, taxation is regulated between different countries in such a way that individuals and companies only pay taxes once. Sometimes there may be discrepancies but taxation law establishes very clear criteria to resolve those conflict points where the situation is not completely clear.
Currently, Spain has signed double taxation agreements with 103 countries. All the Conventions are public and can be found in the official websites of the corresponding Ministry; however, the interpretation of such Agreements should be done by an expert on the subject since the texts could lead to confusion. A mistake in the interpretation of a Tax matter could be very costly in the medium to long term.
Navas & Cusí is law firm with a strong international focus, stressed by the establishments of our office in Brussels, in the heart of the European Union. Should you need further information on the different Double Taxation Agreements or any other International Convention in the EU or World-wide related, you may contact our office and our specialised team of Lawyers will analyze the query and issue the corresponding Legal Opinion.