B Law & Tax
14 March 2023

Tax Adviser: The deductibility of debts in Wealth Tax by non-residents

Persons who do not have a tax residence in Spain but who nevertheless have assets in their possession in Spanish territory are considered as taxable persons for Wealth Tax by real obligation, and are therefore obliged to pay tax on both the assets and the rights they possess. Article 9.Cuatro of the Wealth Tax Act provides that the charges and encumbrances that affect assets and rights only in Spanish territory may be deducted. This measure also affects capital debts on assets located in Spanish territory.

The General Directorate for Taxation establishes and maintains as a criterion that the charges and encumbrances that can be deducted must necessarily be of a real nature and create a reduction in the value of the asset. As for the deduction of debts, they can only be deductible if there is proof of their existence and that they were used for the acquisition of the property.

In the case in which the non-resident acquiring the property acquires it through a loan with a mortgage charge, the deductibility of the outstanding amounts of the loan is allowed as long as it is accredited that the purpose of the loan is the acquisition of the property.

Other doubts also arise in relation to this tax and its deductibility in which the Supreme Court (SC) states that the “constitution of a mortgage on the property whose ownership determines the tax liability due to real obligation cannot be confused with the personal debt for a loan in whose security and guarantee of payment the mortgage has been contracted. The mortgage is a real right of guarantee of an essentially accessory nature, that is to say, linked to a principal obligation, the fulfilment of which it guarantees”.

Due to this, the SC ratifies its interpretation on the deductibility of the debts borne as in some cases this debt cannot be deducted except when the debt of the property has been contracted to obtain the capital invested in the property.

Finally, it is important to take into account the tax residence verification actions that will be carried out this year, all of which are established in the Annual Tax Control Plan to check whether or not the requirements for residence in Spanish territory have been met.

These are the keys of the law that regulates the new taxes of the large fortunes.

B Law & Tax International Tax & Legal Advisors.


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