B Law & Tax
11 December 2023

Tax advisor: Exit Tax in Spain

 

The Exit Tax, also known as the “exit tax,” is configured as a tax designed to levy the transfer of assets outside of Spain. This measure aims to prevent individuals and companies from moving their assets to jurisdictions with more favorable tax regimes to avoid taxes in hypothetical future transfers.

It is worth noting that the Exit Tax will not be applied in situations where the change of residence is made to another Member State of the European Union or the European Economic Area that has regulations for mutual assistance in the exchange of tax information.

 

Regulation of Exit Tax in Spain: Requirements and Valuation according to the Personal Income Tax Law

In Spain, the legal provisions for Exit Tax are established in Article 95 bis of the Personal Income Tax Law (IRPF). According to this article, gains, whether implicit or unrealized, will be subject to taxation when the following requirements are met:

  1. Have been a tax resident in Spain for at least ten of the fifteen tax periods preceding the last tax period to be declared for the IRPF.
  2. Cease to be a tax resident in Spain.
  3. Be the holder of:
  • Shares or stakes in entities whose market value, determined according to the provisions of Article 95 bis 3, exceeds a total of 4,000,000 euros.
  • In case of not meeting the condition in letter a), it is required to be the holder of shares or stakes that exceed a 25% stake in the entity, with a market value exceeding 1,000,000 euros. In this situation, the IRPF only applies to implicit capital gains from the mentioned shares or stakes.

 

Article 95 bis 3 of the IRPF Law establishes the following valuation rules to determine the market value depending on the type of share/participation:

  1. Tradable securities are valued based on their quotation.
  2. Shares or stakes representing the capital or equity of Collective Investment Institutions (IIC) are valued based on the applicable net asset value on the accrual date of the last tax period.
  3. Non-tradable securities in those markets are valued, unless evidence of a different market value is provided, based on the higher of the following:
  • The market value is determined by the net worth according to the balance sheet of the last closed fiscal year before the accrual date of the Tax.
  • The market value can also be calculated by capitalizing 20% of the average results of the three fiscal years closed before the accrual date of the Tax. Profits include distributed dividends and allocations to reserves, excluding those for balance regularization or update.

 

Regime and Tax Benefits

When shares or stakes meet the requirements, the capital gain is determined by the difference between the market value and the acquisition value. These gains are part of savings income and are allocated to the last declared tax period. A complementary self-assessment is made without penalties or interest during the declaration period of the first fiscal year without the condition of tax residence due to the change of residence.

To avoid an immediate economic burden, the payment of the tax can be deferred for five years, with the assets subject to a commitment of permanence. An additional transfer or a change of tax residence outside the European Union requires the immediate payment of the tax. Recovering Spanish tax residence in that period extinguishes the tax debt of the deferral, with the right to a refund of the exit tax if it has already been paid.

 

 

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