France

Tax residents in Spain with income from France

(The content of this document is for informational purposes only and has been prepared for educational purposes only. For more information, please consult the Personal Income Tax Law and the Spanish-French Agreement to avoid double taxation.

I.- Tax residence

A natural person is resident in Spanish territory when any of the following circumstances occur:

• They have stayed longer than 183 days in Spanish territory over the calendar year.

  To determine this period of stay, sporadic absences will be taken into account unless the taxpayer proves his tax residence in another country (through a tax residence certificate issued by the tax authorities of that other country). In the case of countries or territories labelled as tax havens, the Tax Administration can demand proof of stay in that tax haven over a period of 183 days within the calendar year.

• They situate the main base or centre of their activities or economic activities, directly or indirectly, in Spain.

• They have dependent not legally separated spouse and/or underage children who are usually resident in Spain. This latter situation accepts evidence to the contrary.

II.- Personal Income Tax

If a natural person, in accordance with the above, turns out to be tax resident in Spain , he/she will be a taxpayer for the Personal Income Tax (IRPF) and must pay taxes in Spain on his/her worldwide income , that is, he/she must declare in Spain the income he/she obtains anywhere in the world, without prejudice to the provisions of the Agreement to avoid international double taxation signed between Spain and the country of origin of the income.

The agreements list certain types of income and, with respect to each of them, establish the tax powers that correspond to each signatory State:

• In some cases, exclusive power for the taxpayer's country of residence,

• In others, exclusive power for the country of origin of the income and,

• Finally, in some cases, shared power between both countries, with both being able to tax the same income, but with the obligation for the taxpayer's country of residence to take measures to avoid double taxation.

The personal income tax period is the calendar year. A person will be a resident or non-resident throughout the calendar year since a change of residence does not imply an interruption of the tax period.

The income tax return of individuals who are tax residents in Spain is submitted in the months of April, May and June of the year following the year of accrual. The Personal Income Tax regulations set limits and conditions that determine the obligation to file a tax return, which must be consulted each year. Exempt income is not taken into account when determining the obligation to file a tax return.

Example : Taxpayer, tax resident in Spain, whose only income in 2019 is a pension from France, caused by having worked in a company in that country (Spain has the exclusive power to tax it because it is a pension derived from previous employment in the private sector. The treatment in the Agreement is explained below). If the pension exceeds the amount of 14,000 euros per year, taking into account the limits and conditions of the obligation to declare for the year 2019, he would be obliged to file a personal income tax return for 2019, since the payer of the French pension is not obliged to make withholdings on account of Spanish personal income tax.

Spanish-French agreement

(The text of the Agreement can be consulted at https://sede.agenciatributaria.gob.es in the following path: Home > Regulations and interpretative criteria > International taxation)

In a simplified manner, taking into account the provisions of the Convention between Spain and France ( CDI ), the taxation for tax residents in Spain on income from French sources most commonly obtained would be:

Pensions:

Understood as remuneration that is based on a previously held job, they are treated differently depending on whether they are granted for services rendered in the public or private sector.

• Pension received by reason of dependent work provided to the State, territorial entities or legal entity under public law (article 19.2 CDI) . Your treatment is:

  1. In general, these pensions will only be taxed in France.

     In Spain they would be exempt, although the exemption would be applied progressively. This means that if the taxpayer were required to file a personal income tax return for other income, the amount of the exempt pension would be taken into account when calculating the tax applicable to the remaining income.

  2. However, if the beneficiary of the pension residing in Spain had Spanish nationality, without at the same time having French nationality, the aforementioned pensions would only be taxed in Spain.

• Pension received due to a previous employment in the private sector (article 18 CDI) : Pensions will only be subject to taxation in Spain.

Income from real estate (Article 6 CDI):

Income from real estate located in France may be taxed in both Spain and France. The resident taxpayer would be entitled to apply the deduction for international double taxation in the personal income tax in Spain.

Dividends (article 10 CDI):

Dividends from French sources may be taxed in Spain in accordance with its domestic legislation. These dividends may also be subject to taxation in France, if this is the State in which the company paying the dividends is resident and according to its internal legislation, but if the recipient of the dividends is the beneficial owner resident in Spain, the tax thus imposed in France will have a maximum limit of 15% of the gross amount of the dividends. The resident taxpayer would be entitled to apply the deduction for international double taxation in the personal income tax in Spain up to that limit.

On the other hand, a resident of Spain who receives dividends from a company that is a resident of France of which he is the beneficial owner and which would give rise to a "tax credit" ("avoir fiscal») if they were received by a resident of France, he will be entitled to a payment from the French Treasury, in an amount equal to the aforementioned "tax credit" ("avoir fiscal"), without prejudice to the fact that said dividends may also be subject to taxation in France, up to a maximum limit of 15% of the gross amount of said dividends. This tax credit will only apply to the beneficial owner of the dividends who is subject to Spanish tax due to these dividends and the payment to the French Treasury.

Furthermore, unless he does not obtain the benefit of the payment from the French Treasury mentioned above, a resident of Spain who receives dividends paid by a company that is a resident of France may obtain a refund of the withholding tax ("précompte») to the extent that it has actually been paid by the company by reason of these dividends.

Finally, the gross amounts of the payment to the French Treasury and the withholding tax just mentioned are considered as dividends for the purposes of applying the Spanish-French Convention.

Interests (Article 11 CDI):

Interests from France may be taxed in Spain in accordance with its domestic legislation. However, such interest may also be taxed in France, the country in which it originates, but if the recipient of the interest is the beneficial owner, the tax charged in France may not exceed 10% of the gross amount of the interest. In Spain, you would be entitled to apply the deduction for international double taxation in your personal income tax up to that limit.

Remuneration of members of boards of directors of companies resident in France (Article 16 CDI):

They can be taxed in both France and Spain. In Spain, the taxpayer would be entitled to apply the deduction for international double taxation in personal income tax.

Capital gains:

• Derived from real estate (article 13.1.a CDI) : Gains from the sale of real estate located in France may be taxed in both Spain and France. The taxpayer has the right to apply the deduction for international double taxation in the personal income tax in Spain.

• Derived from shares , participations or other rights in companies or legal entities the assets of which consist mainly, directly or through one or more companies or legal entities, of immovable property located in France or rights relating to immovable property ( article 13.1.b CDI ): The profits derived from the sale of these shares or interests may be subject to taxation in both Spain and France. The taxpayer has the right to apply the deduction for international double taxation in the personal income tax in Spain.

• Gains derived from shares, participations or other rights [other than shares, participations or rights covered by Article 13.1.b) CDI] that constitute a substantial participation in a company that is a resident of France (Article 13.2.a) CDI): Gains from the sale of such shares, interests or rights may be taxed in both Spain and France. The taxpayer has the right to apply the deduction for international double taxation in the personal income tax in Spain.

  A substantial interest is deemed to exist when the transferor, alone or with related persons, directly or indirectly holds at any time during the twelve months preceding the date of the transfer:

  • At least 25% of the capital of this company, or
  • Shares, interests or other rights that together give the right to at least 25% of the company's profits.

• Derived from movable property belonging to a permanent establishment or a fixed base (article 13.3 CDI): Gains from the alienation of movable property belonging to a permanent establishment or a fixed base that a resident of Spain owns in France for the purposes of carrying out business activities or performing independent work, including gains from the alienation of the establishment or fixed base, may be taxed in both France and Spain. The taxpayer has the right to apply the deduction for international double taxation in the personal income tax in Spain.

• Derived from other types of goods (article 13.5 CDI) : In general, profits derived from the alienation of any other type of property may only be taxed in Spain, provided that this is the State of residence of the transferor. An example of this type would be the capital gain obtained from the sale of shares in a French company.

In addition to those mentioned above, the Agreement lists other types of income (business profits, professional services, remuneration for salaried work, artists and athletes, public functions, other income, etc.), the treatment of which can be consulted in the text of the Agreement.

III.- Obligation to report assets abroad

Residents in Spain must inform the Spanish tax authorities about three different categories of assets and rights located abroad:

• accounts in financial institutions located abroad
• Securities, rights, insurance and income deposited, managed or obtained abroad
• Real estate and rights to real estate located abroad

This obligation must be fulfilled, using Form 720, between January 1 and March 31 of the year following the year to which the information to be supplied refers.

There will be no obligation to report on each of the categories of assets when the value of the set of assets corresponding to each category does not exceed 50,000 euros. Once the information declaration has been submitted for one or more of the categories of assets and rights, the submission of the declaration in subsequent years will be mandatory when the value has experienced an increase of more than 20,000 euros compared to that which determined the submission of the last declaration.

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https://sede.agenciatributaria.gob.es