Application of the state law enables savings
It’s not easy, because anyone who deals with taxes is not given any breathing space. Because as soon as taxes are changed to the advantage of taxpayers, it can be over very quickly. A Spanish proverb says: “Joy is short-lived in the house of the poor” (La alegría dura poco en la casa del pobre)
For example, 2014 brought a long-awaited victory on the tax front for non-residents. The European Court of Justice (ECJ) made it unmistakably clear in its ruling of September 3 that the (central) Spanish inheritance tax, which is so disadvantageous for non-residents, is not EU-compliant and that non-residents are also entitled to the rates of the regional inheritance tax of the Balearic Islands and, like residents, would therefore have to pay just 1% in most cases. This very welcome amendment to the law, with which the Spanish state complied with the ECJ’s request, was implemented by Law 26/2014 of November 27, whereby this fundamental equal treatment should also apply to wealth tax. All good until then.
But as I said above, the joy was short-lived. As early as January 1, 2016, barely a year later, inheritance tax was reintroduced with general validity for residents and non-residents alike and therefore “fairly”, as the ECJ had demanded. Although the amount of tax is no longer quite as hefty as it used to be and “only” goes up to 20%, which is payable on an estate value of more than €3 million, the whole process shows once again how short-lived strategic decisions can be.
The fact that wealth tax was also affected by the equal treatment demanded by the ECJ was initially not particularly noticeable, as the differences between the state regulation and that of the Balearic Islands were very small, in contrast to inheritance tax.
However, this can no longer be completely upheld, as various taxes were increased significantly in the Balearic Islands with effect from January 1, 2016, including property tax. This results in the quite curious situation that, conversely, the state regulation is now more favorable than that of the Balearic Islands. As a non-resident, is it possible to submit a wealth tax declaration according to the state tax table, or are you obliged to comply exclusively with the regulations in the Balearic Islands? The answer is clear: Spanish law grants non-residents a “right” (tendrán derecho a…), but does not oblige them to apply the Balearic rules. So there is definitely a right to choose here. Those who do this are certainly better off, especially if they have larger assets. Here are two examples:
With assets of €1,000,000, Balearic residents are required to pay €1,008.39 in wealth tax, while non-residents who exercise their right to choose and pay tax according to the national scale pay €732.87, a difference of €275.52.
With assets of €3,000,000, Balearic residents pay €36,051.42 in wealth tax, whereas non-residents, who pay tax according to the state table, pay €26,242.36. Non-residents are in a much better position here: they pay €9,809.06 less.
(The text was made available to us by Dr. Reichmann )