In Spain, an individual or entity is considered a tax resident if they meet any of the following conditions outlined in Article 9 of the Spanish Personal Income Tax Law (Ley del Impuesto sobre la Renta de las Personas Físicas):
- Physical Presence: The individual spends more than 183 days in a calendar year in Spanish territory. These days need not be consecutive.
- Main Center of Interests: The individual's spouse and dependent minor children habitually reside in Spain. Additionally, the main center of economic interests or activities of the individual is located in Spain.
- Nationality: Individuals of Spanish nationality who move their main residence to a tax haven are considered tax residents in Spain for four years following the move.
These criteria are designed to ensure that individuals or entities with significant ties to Spain, whether through physical presence, family connections, or economic activities, are subject to taxation in the country. They aim to prevent tax evasion and ensure that individuals contribute their fair share to Spain's tax revenue.
International tax treaties, including those signed by Spain, may modify or introduce exceptions to the standard criteria for tax residency. Regarding tax treaties signed by Spain, let's consider the example of the tax treaty between Spain and Portugal.
The tax treaty between Spain and Portugal, known as the Convention for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income, may modify the standard criteria for tax residency as outlined in the Spanish Personal Income Tax Law.
Key Provisions:
- Article 4 - Resident: This article defines the criteria for determining tax residency in the context of the treaty. It typically provides more specific guidelines for individuals or entities with dual residency (e.g., residency in both Spain and Portugal) and outlines tie-breaker rules to determine residency status.
Exceptions or Modifications:
- The treaty may introduce exceptions or modifications to the standard criteria outlined in Spanish domestic law to prevent double taxation and provide clarity in cases of dual residency. For example, it may provide specific guidelines for determining residency status based on factors such as permanent home, center of vital interests, or habitual abode.
Tax treaties aim to eliminate double taxation and provide certainty for taxpayers by establishing clear rules for determining tax residency and allocating taxing rights between treaty countries. The modifications or exceptions introduced in tax treaties serve to harmonize the tax treatment of cross-border transactions and prevent disputes between treaty partners.
