Taxes are often the last consideration when contemplating the possibility of moving out of Spain, unless it is with the explicit goal of reducing the tax burden. Nevertheless, taxes will remain a reality, not only in the new country of residence but also in relation to the decision to cease being a tax resident in Spain. This process may entail the payment of a tax known as “exit tax,” linked to the change of residence.
The implementation of the exit tax in Spain took place in 2014 through Law 26/2014, and its regulatory framework is established by Article 95 bis of the Personal Income Tax Law (IRPF) and Articles 121 and following of the IRPF Regulation. Its main function is to combat changes in tax residence aimed at evading taxes or reducing their payment.
Tax Implications When Ceasing to Be a Resident in Spain: The Exit Tax
The exit tax applies to individuals who cease to be tax residents in Spain, meaning those who move their residence to another country and are no longer considered taxpayers in Spain. These individuals are obligated to pay taxes on deemed gains generated by shares in companies and holdings in investment funds. According to the Tax Office, leaving the country has the same tax impact as selling these shares or holdings in companies. Therefore, when making this change, taxes must be paid on the difference between the current market value of these assets and their acquisition value, following the same principle applied in the Personal Income Tax (IRPF). In effect, the taxes to be settled will be those established by the IRPF for these capital gains.
Requirements and Exclusions of Exit Tax in Spain
The exit tax is conditionally applied, excluding those who do not meet certain requirements. It is necessary to have been a tax resident in Spain for at least 10 of the last 15 years. Additionally, there are specific conditions for shares, where it is required to meet at least one of two cases: that the total market value exceeds 4 million euros or that one owns more than 25% of a company with a market value exceeding one million euros. These requirements aim to exempt foreigners returning to their country and limit the tax to considerable fortunes.
Facing the Exit Tax: Exceptions and Strategies in Relocations and Stock Sales
It is possible to avoid the exit tax by meeting certain criteria, especially during relocations within the European Union (EU) or the European Economic Area (EEA). Tax suspension can be requested if there is a double taxation agreement and an exchange of tax information. The Tax Agency must be informed about the relocation, and values of shares and capital gains should be provided through form 113.
If shares are sold or one moves to a country outside the EU or the EEA before 10 years, the conditions of form 113 for the exit tax will apply. There is an exception for temporary relocations, even outside the EU and the EEA, exempt if they are for work-related reasons to a non-tax haven country, with the possibility of requesting a 5-year deferral. Additionally, the exception applies if the destination country has a double taxation avoidance agreement and an information exchange clause.
Assessment and Taxation of Shares: Implications of Article 95 bis in Spain
Article 95 bis stipulates that taxes must be paid on the difference between the acquisition value and the market value of shares or holdings. For listed stocks, the quoted value on the stock exchange or the net asset value for investment funds is used. In the case of unlisted stocks, the market value is determined by taking the higher of the net assets of the last fiscal year and the capitalization at 20% of the average results of the three previous years. Although this method is applied, the law allows using another market value if its validity is proven. In investments in start-ups, the Tax Office can rely on the last financing round, but this can be problematic if the company’s value has decreased since then.
The “Exit Tax” in Spain involves paying taxes when ceasing to be a tax resident, applying since 2014. This tax affects those who move and are no longer considered taxpayers in Spain. Gains generated by stocks and holdings are taxed when leaving the country, following principles similar to the Personal Income Tax (IRPF). Conditional requirements exist, such as having been a tax resident for at least 10 of the last 15 years. Exceptions and strategies allow avoiding the “Exit Tax,” especially in relocations within the EU or EEA. Asset valuation, such as start-up stocks, is carried out according to Article 95 bis, considering various conditions and allowing certain flexibilities.
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