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Law
UK and Spain Tax Treaty and how it affects Gibraltar
By Melo Triay and the Private Client Team, Triay and Triay
Following the recent signing of a Tax Treaty between the United Kingdom and Spain, individuals, companies, trusts, foundations and other legal structures/entities resident in or established and managed in Gibraltar with connections to Spain should consider their potential liability to taxation.
Aside from dealing with issues of tax residency and where tax is payable, the Treaty provides for enhanced administrative cooperation and exchange of information. Beneficially, it provides that persons should not end up paying taxes both in Spain and Gibraltar.
Under the Treaty, tax residency in Spain is determined for the taxable period starting, or if there are no taxable periods, to cover any charge to tax arising, on or after the Treaty takes legal effect. The Treaty will come into force once internal procedures in Spain have been completed.
Individuals
The Treaty does not change an individual’s existing tax liability under Spanish Law for previous tax years.
A non-Spanish national who spends one year in Spain or a Gibraltarian who spends four years in Spain, who moves to Gibraltar, will not lose their tax residency in Spain and will continue to pay tax in Spain that tax year and for the following four tax years.
A Spanish national who moves to Gibraltar on or after the 4th March 2019 will pay tax in Spain continuously.
If you are paying tax in Gibraltar from employment or self-employment and are tax resident in Spain, then currently Spain gives unilateral tax relief to the amount of tax paid in Gibraltar, but you are fully taxable in Spain under Spanish law on all income and assets worldwide.
Under the Treaty, whilst residency is determined according to the laws of Spain or Gibraltar, certain provisions determine residency in the event of “... tax residency conflicts”.
A ‘residency’ conflict is not defined, so one may be ignited, for example, by Spain
deciding, on reasonable grounds, that someone is Spanish tax resident. Once this happens that person is presumed to be resident in Spain unless he/she proves the contrary.
The two Treaty provisions which determine an individuals tax residency status, where he/she is said to be resident in both Spain and Gibraltar are: first, residency for 183 days in Spain by the individual or spouse, secondly, any time spent away from Spain or Gibraltar is added to where one has spent most time.
If there is a conflict, tax residency in Spain may also be triggered by only having a permanent home at one’s disposal in Spain or where two thirds of one’s direct or indirect net assets are located in Spain.
Companies or trusts
Companies or trusts established and managed in Gibraltar or governed by Gibraltar law will be resident in Spain when: (a) the majority of its direct or indirect assets are in or are rights that can be exercised in Spain;
(b) the majority of its annual income derives Continued p10
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