So, scary headlines aside, is there really anything to be concerned about and are you going to be clobbered with a 25% tax bill?
Well, in reality, for most of us expats living in Spain the simple answer is no. As always, the devil is in the detail, not in the headlines – even from such an august publication as the FT.
Checking the legislation gives a completely different and much less dramatic story (shock headlines and horror stories sell papers) for us EU expats living in Spain and the reality is that the Overseas Transfer Charge (OTC) of 25% does not apply under the following circumstances:
- If the transfer request was before 8/3/17.
Or if any one of the following five conditions apply:
- The Member (you) is tax resident in the country in which the QROPS is established –
- The Member is tax resident in the European Economic Area and the QROPS is established in the European Economic Area.
- The QROPS is an Occupational Scheme and the member is an employee of the sponsoring employer under the scheme.
- The QROPS is a Public-Sector scheme and the member is an employee of a sponsoring employer under the scheme.
- The QROPS is set up by an International Organisation and the member is an employee of a sponsoring employer under the scheme.
Condition 2 is highlighted as this probably applies to most readers of The Olive Press, and the majority of my clients.
For example, when UK (or other European Economic Area) citizens who have moved to Spain (also EEA) discuss moving a pension, the most likely jurisdictions for a transfer to QROPS are Malta or Gibraltar (both EEA). Of course, Gibraltar as a Crown Dependency of the UK may be out of the frame when the UK exits the EU and I will discuss Malta in a future article.
What does this mean to a Spanish Tax resident who originally came from a European Economic Area country like the UK? In simple terms, point 2 above applies. “The member is a tax resident in the European Economic Area and the new pension (QROPS) is established in the European Economic Area”.
The result for most of us flies in the face of the headlines above which should now read:
“No Overseas Tax Charge to pay for the majority of Expats in Spain”
But maybe that would not sell as many papers!
In September 2017, it was announced that the Portuguese Government, following pressure from Sweden and a number of other European countries, was looking to water down the country’s non-habitual residency (NHR) tax regime, potentially bringing to an end a programme that has worked in the interests of expats since 2009. The uncertainty this proposed move provoked certainly threatened to put a dampener on the financial plans of quite a number of expats and would-be expats as they moved into 2018.
If you are resident in Spain (if you live here more than 183 days in a calendar year, the Spanish tax authorities and in turn the UK HMRC will class you as Spanish resident) and held assets outside Spain as at 29 December 2017 worth over Euro 50,000, and you haven’t already declared them on a Modelo 720, you need to so by the end of March.