In more detail
Background
First of all, it is important to note that Article 5 of the Spanish Wealth Tax Act establishes that non-resident individuals are subject to the Wealth Tax as far as they have assets or rights that are located, may be exercised or must be executed in the Spanish territory.
Moreover, the General Directorate of Taxation (in their rulings V2646-21, V2070-21, V1947-22) and some High Court’s resolutions (3 December 2020) have confirmed that a taxpayer, holding shares in a non-resident entity whose assets are mostly composed by real estate located in Spanish territory, is not subject by real obligation for Wealth Tax purposes.
In that regard, the current amendment of the Spanish Wealth Tax Act consists precisely in establishing that non-resident individuals holding a participation on a non-resident entity, in which at least 50% of whose assets consist, directly or indirectly, of real estate located in Spanish territory, will be subject to taxation for Wealth Tax purposes in Spain by real obligation.
In order to compute the valuation, the net accounting value of the assets will be replaced by the relevant market value by the date of the accrual of the tax (31 December). However, for real estate properties, the net accounting value will be replaced by the specific rules foreseen on Article 10 of the WT Law.
Concretely, the aforementioned Article 10 establishes that the real estate properties would be valued by the major between: (i) cadastral value, (ii) acquisition value and (iii) value determined or verified by the Administration for the purposes of other taxes (i.e., for these real estate properties acquired after FY 2022 the new “reference value” which is a guide value close to the market value).
New Spanish Directorate of Taxation ruling
Recently, the Spanish Directorate of Taxation have published the first binding ruling (V0107-23) on which the new Wealth Tax provisions are applied.
In the case at hand, four individuals (non-resident in Spain for tax purposes) hold the shares of a Germany company. The only asset of this company is a real estate property located in Ibiza.
Specifically, one of the individuals who is tax resident in Germany holding a 25% of this company asked for the tax implications derived from his stake taking into consideration the new provisions for Wealth Tax purposes.
In this regard, the Spanish Directorate of Taxation established that, taking into account that the only asset of the German company is a real estate property located in Spain, the new Wealth Tax provisions are applicable and, therefore, the non-resident individual will be taxed in Spain for Wealth Tax purposes by real obligation.
Conclusions
- Non-resident shareholders of non-resident entities whose assets are mostly composed by real estate properties in Spain would be taxed under the Wealth Tax provisions.
- However, if the value of the real estate property located in Spain is less than 50% of the value of shares, no Wealth Tax will arise.
