Spanish Wealth Tax shall be re-established for the years 2011 and 2012 for both residents and non-residents in the Country.

HOW THE “NEW” WEALTH TAX AFFECTS THE NON-RESIDENTS

1.- On September 17th, 2011, Royal Decree 13/2011 was published that re-establishes the Wealth Tax. On September 18th, this came into force. At the current time, this is only for the years 2011 and 2012, although we cannot rule out the possibility that this will be extended. Therefore, the aforementioned tax shall accrue on December 31st 2011 and December 31st 2012, and tax declarations should be submitted in 2012 and 2013 respectively.

2.- Individuals who are non-resident for tax in Spain, are subject to the Wealth Tax on the ownership of real estate and rights when these were located or could have been exercised or fulfilled in Spain. Debts and personal obligations will be deducted from the real estate, properties and rights to obtain the tax base. The law foresees an exemption of €700.000.Although the wealth subject to the tax comprises real estate, assets and rights, we will focus now only on real estate.

3.- The taxable base is composed of the value of net wealth and that will be the difference between:

The value of the assets and rights owned by the taxpayer, less their liens and encumbrances, when they diminish in value, as well as the personal debts or obligations of the taxpayer. In the case of a mortgage on a property, the amount to be discounted is the amount of the debt outstanding at December 31st.The value of real estate will be calculated according to the following rules:

– By the highest value of the following three: The cadastral value, the one provided by the Administration for other taxes or the acquisition value.

– When a property is under construction, the value will be the amounts that effectively had been invested in this building until the date of accrual of the tax, as well as the value of the plot.

– When a property is owned by several people (e.g. marriage), each of them will be subject proportionally and according to their percentage in the value of the property and the debts.

4.- Once the exemption of €700.000 mentioned in section 2 has been applied, we obtain the taxable base. The tax to be paid is the result of applying a scale established by law.

A progressive quota is applied to the difference between the tax base and the amount shown on that scale starting at 0.2% and progressing to 2.5%.

5.- In any case, the possible existence of an Agreement to Avoid Double Taxation between Spain and the country of residence of the individual non-resident should be taken into consideration. For example:

* United Kingdom: Taxpayers must pay Wealth Tax on property located in Spain, but not on other assets they may have in Spain, such as bank deposits.

* Germany: Under the new agreement signed between Spain and Germany, which could come into force on January 1st 2012, those German residents who own real estate in Spain through a Spanish company will also be taxed.

Marbella, October 20th 2.011

Ángeles Contreras Liger.
Pérez de Vargas Abogados.