Exit Tax Spain leaving tax regime 2021 explained - What do you have to pay taxes for leaving Spain?

Taxes are the last thing you think about when you consider leaving Spain, unless you do it specifically to pay less. However, the taxes will always be there, and not just for the ones you have to pay in your destination country.

Stop being a tax resident in Spain can also have your tax bill. It is what is known as exit tax, a tax related to the change of residence.

The exit tax was introduced in Spain in 2014 through Law 26/2014 and is regulated by article 95 bis of the Personal Income Tax Law and Article 121 et seq. of the Personal Income Tax Regulation. Its main mission is to fight against changes of tax domicile focused on evading taxes or simply paying less taxes.

The exit tax applies to people who lose their tax resident status in Spain. That is, those who move their residence to another country and are no longer Spanish taxpayers.

Exit Tax Spain leaving tax regime 2021 explained

These persons shall be taxed on the tacit gains of the shares they hold in companies and also shares in investment funds. For the Treasury leaving the country has the same tax effect as selling shares or shares in companies. That is why in doing so you have to pay taxes for the difference between the market value of those shares and the purchase value, exactly as it is done in the personal income tax.

In fact, the taxes to be paid will be those marked by the personal income tax for those capital gains.

Although it is general in nature, to be subject to the exit tax you must meet a number of requirements. For practical purposes, this means that not everyone pays taxes to stop living in Spain.

Exit Tax Spain leaving tax regime 2021 explained

The first condition is to have been a tax resident in Spain for at least 10 of the last 15 years.

In addition, there are also a number of requirements on the shares themselves. At least one of the following should occur:

- That the total market value of all shares or participations exceeds 4 million euros.
- Have a stake of more than 25% in a company and that its market value exceeds one million euros. In this case, the exit tax would only apply to those shares.

The first requirement is that foreigners who move their residence to Spain do not have to pay the exit tax when returning to their country.

The second helps to ensure that only large assets have to be taxed.

Is it possible to avoid exit tax while meeting these criteria? The answer is yes.

Exit Tax Spain leaving tax regime 2021 explained

The most common case is that of transfers within the European Union (EU) or the European Economic Area (EEA). Whenever there is a double taxation agreement and exchange of tax information it will be possible to request the suspension of the exit tax.

To do so, the Tax Agency must be informed of the transfer, the value of the shares and the latent capital gain through model 113.

If the shares are sold or moved to another country outside the EU or EEA within 10 years, it would have to be taxed at exit tax under the conditions set out in model 113.

The other assumption for not paying the exit tax are temporary displacements. This exception applies even to those who move to live outside the EU and the EEA. Temporary displacements are exempt from taxation if:

- It is for work reasons and is carried out to a country that does not have the consideration of a tax haven. In this case a 5-year deferment can be requested.
- The country of destination has a double taxation convention and there is a clause for the exchange of information.

Article 95a provides that the difference between the purchase value of the shares and their market value shall be taxed. How do you make that calculation?

Exit Tax Spain leaving tax regime 2021 explained: In the case of securities or shares, the stock market value or its net asset value in the case of investment funds shall be taken as a reference.

What about unlisted stocks? For these values, the greater of the following figures will be taken as the market value:

- The net worth corresponding to the value resulting from the balance sheet of the last financial year.
- That resulting from capitalizing at the rate of 20% of the average of the results of the three fiscal years closed before the date of the accrual of the Tax.

This would apply, for example, to the valuation of shares in a start-up. However, the law itself establishes that this system will be used “unless proof of a different market value”, specifies the Income Tax Law.

This is what usually happens with investment in start-ups, where Hacienda can take as a reference the last round of financing if it is close enough in time. This is a problem for many investors if, as usual, the value of the company has fallen since then.

# Exit Tax Spain leaving tax regime 2021 explained #