Tax residence in Spain

The deadline for applying tax returns for income tax for individuals and corporate profit tax for the past year is approaching, and those who live in more than one country or own business companies in several countries must again determine which country they consider resident for tax purposes, in other words, in which country they are obliged to pay their taxes. The place and form of payment of income tax is determined depending on the person’s place of residence during the financial year. First of all, I would like to point out that the place of residence for tax purposes is a concept which differs from the place of residence within the meaning of the Aliens Act or the place of residence of the person within the meaning of the Civil Procedure Code.

The term “residence” refers to the accomplishment and effect of the place of residence or establishment in a particular place.
According to the provisions of Royal Decree 240/2007 of 16 February 2009 on the Entry, free movement and residence in Spain of nationals of the Member States of the European Union and other countries which are parties to the Agreement on the European Economic Area, if an alien exceeds the term for temporary stay in Spanish territory, defined by the law as three months term, is deemed to be permanent resident in Spain.

The Civil Procedure Code defines the concept of real and legal residence of the person. The actual address requires the actual physical residence of the person in one place. Determining a new real address cancels the effect of previous real addresses.

Given that a person may own several properties in the fiscal year in which he actually resides in the territory of different countries, the domicile does not determine the tax liability in a particular country, although in some cases a conflict of interest may to tip the scales to one or another country.
The concept of “place of residence for tax purposes” is defined in Art. 9 of the Personal Income Taxation Act (LIRPF).

A person is deemed to be habitually resident in Spain when one of the following circumstances is fulfilled:
1. When the individual resides in Spain for more than 183 days during the calendar year. In order to determine this period, extraordinary absences of the residents are included unless there is proof of residence for tax purposes in another country. In the case of countries or territories classified as offshore zones, tax authorities may require factual proof of residence in that country for 183 days during the calendar year.
Temporary stay in Spain as a result of commitments for free cultural and humanitarian cooperation with the Spanish state authorities must not be included to determine the term of residence.
2. When the center or basis of business activities or economic interests of individuals, either directly or indirectly, is established in Spain.
3. Unless otherwise proven, the taxpayer is habitually resident in Spain when, according to the above criteria, the husband or wife when the marriage is not legally dissolved and the underage children who depend on them, are habitually residents in Spain.

Apart from domestic legislation, and especially where the term “tax residence” differs according to the laws of two countries between which residence is to be determined, the term “residence for tax purposes” is defined in the Double Taxation agreement concluded between these two countries. Agreements generally accept the following criteria for determining whether a person is considered to be a resident of a certain country:

(1) The individual is considered to be a resident of the State in which he has a permanent home.
2) If a person has permanent dwellings in both states, he is considered a resident in the country, where he maintains the closest personal and economic ties (ie where he or she established the center of his or her vital interests).
3) If it is not possible to determine where the permanent residence of the person is located, he is considered to be a resident of the State where he usually lives.
(4) If he or she is habitually resident in either State or in any of them, he shall be deemed to be a resident of the State of which he is a national.
5) If he / she is a national of both States or of none of them, the competent authorities will resolve the matter by mutual agreement.
The determination of the place of residence of a person for tax purposes in Spanish territory obliges him to pay taxes in Spain under the Personal Income Tax Act (IRPF) or corporation tax (Profit tax), while foreign individuals, both physical and legal, are taxed in Spain with foreign-income tax (IRNR).