Spanish Tax for expats 'Against EU Rules'
January 19th, 2006
BRITISH expatriates in Spain are expected to save thousands of pounds after a legal move to cut capital gains tax by the European Commission.
The Commission is to refer the Spanish Government to the Court of Justice over its taxation of non residents who sell their villas or on their personal income. If the court rules that Spain has flouted European law, as seems likely, it will be forced to reform its domestic law, reducing high tax rates for non residents.
The move would benefit thousands of British people who are not registered with the Spanish authorities as residents if they want to sell property, or those working for short periods in Spain.
The decision to take Madrid to court came after Spain had failed to change its legislation after a formal request from the Commission in July.
Under existing Spanish law, capital gains of non residents made from the sale of property held for more than one year are taxed at a rate of 35 per cent, even if they are European Union residents. Those who are official residents pay only 15 per cent.
Per Svensson, of the Foreign Property Owners’ Institute in Spain, said: “If they change the law, people will be able to charge the real rate for their villas or flats. At the moment they charge less or pay money â??in blackâ??, or undeclared cash, to evade paying capital gains tax.”
Spain also applies a flat withholding tax rate of 25 per cent on employment income for non residents. Residents pay only 15 per cent.
The Commission said that the discriminatory treatment regarding employment income was particularly unfair to those expatriates on low wages, such as Britons teaching English or working in bars during the peak summer holiday season.
A large number do not register as residents because they are put off by Spain’s daunting red tape, do not speak Spanish or do not want to be visible to the tax authorities.
A spokesman for the Commission said: “The Commission considers that the Spanish tax legislation failed to conform to the EC Treaty requirements, in particular to the non discrimination principle”.
“The higher tax burden on non residents makes it less attractive for Spain to recruit labour from member states other than from Spain and thus represents an obstacle to the free movement of workers.” The spokesman added that the tax on capital gains on the sale of property went against EU rules on the free flow of capital.
Story from timesonline.co.uk
