Taxes to pay inheritance abroad in Spain

When a tax resident in Spain receives an inheritance from abroad, understanding the tax obligations is crucial. Spain has specific regulations that apply to inheritances received by residents, even if the assets or money involved are located outside of Spain. Here’s a comprehensive guide on what you need to know about the taxes involved in such situations.

1. Who is Subject to Spanish Inheritance Tax?

In Spain, inheritance tax applies to individuals under two main conditions:

– By “Personal Obligation”

Individuals who are tax residents in Spain are required to pay inheritance tax on assets received, regardless of where those assets are located. This includes property, money, insurance premiums, and bank accounts, among others.

– By “Real Obligation”

Non-residents who receive assets located in Spain are also subject to Spanish inheritance tax. This includes properties, bank accounts, movable assets, or life insurance premiums issued by Spanish insurers.

2. Residency Criteria for Inheritance Tax

To determine whether you are liable to pay inheritance tax in Spain, you must first establish your residency status. Here’s how Spanish law defines tax residency:

– General Criteria

You are considered a tax resident in Spain if you spend more than 183 days (approximately six months) within Spanish territory during a calendar year. Temporary absences, such as vacations or short trips abroad, do not count as interruptions in residency.

– Economic Activity Criterion

If your primary economic activities or interests are based in Spain, you may also be considered a tax resident, regardless of the time spent in the country.

– Family Nucleus Criterion

If your spouse (not legally separated) or dependent children reside in Spain, you are likely to be considered a tax resident.

– Special Cases – Immigrant Regime

Workers who are in Spain solely for employment purposes may be exempt from Personal Income Tax (IRPF) and instead taxed under the Non-Resident Income Tax (IRNR), which generally has lower rates.

3. Legal Recognition as an Heir

Before proceeding with any tax declarations, it’s essential that the person receiving the inheritance is recognized as the legal heir under the law governing the succession abroad. This typically involves complying with the inheritance laws of the country where the deceased was a resident or where the assets are located.

4. Tax Obligations for Inheritances Received Abroad

When you inherit assets from abroad, there are several steps and tax obligations you must fulfill:

a. Presentation of Inheritance Documents at the Spanish Tax Agency

Documents Required

• Notarial and registry documents detailing the succession and the assets inherited.
• Death certificate of the deceased.
• Identification documents (passport, identity card) of the deceased.

These documents must be translated into Spanish and apostilled to be valid. The documentation must be presented in the following locations:

– If the deceased had assets in Spain:  The documents should be submitted in the autonomous community where the majority of the assets are located.
– If the deceased had no assets in Spain: The documents should be submitted in the region where the heir permanently resides.

b. Inheritance Tax Declaration

After submitting the inheritance documents, you must file the corresponding inheritance tax declaration. In Spain, inheritance tax rates and exemptions vary significantly by region, and many autonomous communities offer substantial reductions or exemptions, particularly for close relatives like spouses and children.

– Double Taxation Considerations

If you’ve already paid inheritance tax in the country where the inheritance was executed, Spain typically allows you to offset this amount against your Spanish tax liability, thanks to various tax treaties Spain has with other countries to prevent double taxation.

c. Declaration on Model 720

In addition to the inheritance tax declaration, the law requires that any inherited assets from abroad be declared on “Model 720” for informational purposes. Failing to file this form can result in severe penalties, potentially up to EUR 30,000.

d. Time Limits for Declaring Inheritance

Inheritance tax declarations in Spain must be filed within six months of the date of death. However, you can request an extension of up to an additional six months if you apply before the end of the fifth month after death. If you miss these deadlines, the tax authorities may impose surcharges and penalties for late payment.

5. Do Inherited Assets Need to Be Declared in the Income Tax Return (IRPF)?

No, inherited assets are not considered as “income” for the purposes of personal income tax (IRPF) in Spain. Therefore, they do not need to be declared in your annual income tax return.

6. Must Inherited Assets Be Declared for Wealth Tax Purposes?

Yes, if you are a Spanish tax resident, you are required to declare all assets you own worldwide, including those inherited from abroad. Whether or not you need to pay wealth tax depends on the total value of your assets and the thresholds established by the Spanish government and regional authorities.

– Wealth Tax Thresholds

Wealth tax rates and exemptions vary by region. For example, in some regions, there is a significant exemption threshold (e.g., €700,000), meaning only assets above this value are taxed. However, certain regions may have different thresholds or may offer reductions based on the relationship to the deceased.

7. Special Considerations for Inheritances from Specific Countries

Spain has signed numerous treaties with other countries to avoid double taxation, which impacts how inheritances are taxed. For example:

– EU Countries: Spain has treaties with all EU member states, ensuring that inheritance tax paid in one EU country can often be credited against your Spanish tax liability.

– Non-EU Countries: Treaties also exist with various non-EU countries, but the terms may vary. For example, Spain has agreements with the United States, the United Kingdom, and many Latin American countries, which can affect how and where taxes are paid.

8. Potential Penalties and Legal Risks

Failure to properly declare and pay taxes on an inheritance received from abroad can lead to significant legal and financial consequences, including:

– Fines and Penalties: Failing to declare inherited assets on time or incorrectly reporting them can result in fines. The penalties can be particularly severe for failing to file Model 720, which is required even if no tax is due.

– Surcharges: If inheritance tax is not paid within the designated period, surcharges can be added to the amount owed, increasing the financial burden on the heir.

9. Practical Tips for Managing Inheritance from Abroad

To avoid potential pitfalls and ensure compliance with Spanish tax laws, consider the following tips:

– Consult with a Tax Professional

Navigating inheritance tax laws, especially involving cross-border inheritances, can be complex. Consulting with a tax professional who specializes in Spanish inheritance law can help you understand your obligations and avoid costly mistakes.

– File All Necessary Declarations Promptly

Ensure that all required declarations, including Model 720 and the inheritance tax declaration, are filed within the prescribed deadlines to avoid penalties.

– Document Everything

Keep thorough records of all documentation related to the inheritance, including proof of taxes paid in the foreign country, valuations of inherited assets, and any communications with the Spanish tax authorities.

– Understand Regional Variations

Since inheritance tax rates and exemptions vary by region in Spain, make sure you understand the specific rules that apply in the region where the inheritance is being processed.

Conclusion

Receiving an inheritance from abroad as a tax resident in Spain involves navigating a complex web of tax obligations, declarations, and potential penalties. While the process may seem daunting, being informed about your responsibilities and seeking professional advice can help ensure that you comply with Spanish tax laws while minimizing your tax burden. Whether it’s understanding the criteria for tax residency, properly declaring inherited assets, or leveraging international tax treaties, taking the right steps can protect you from unexpected financial consequences.

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