Consequences of BREXIT on IRNR without permanent establishment

The IRNR contains specific provisions applicable to residents of other Member States of the European Union, provisions that will no longer apply to taxpayers resident in the United Kingdom once the transition period has ended.

However, it should be noted that there is a bilateral agreement between the United Kingdom and Spain to avoid double taxation, an agreement that will continue to be applicable. For this reason, certain incomes that will no longer be exempt under the application of internal regulations, however, would be exempt income invoking the right to apply the Convention (For example, interest).

Regarding income earned by residents of the United Kingdom accrued from 1 January 2021 the following changes arising from the fact that taxpayers are no longer resident in a Member State of the European Union must be taken into account:

Exempt income (article 14 and DA Seventh TRLIRNR)

The following exemptions will no longer apply:

• Interest and capital gains derived from movable property obtained by residents in another Member State of the European Union (EU), or of the EEA with which there are regulations on mutual assistance in the exchange of information, with certain exceptions.

• Profits distributed by subsidiary companies resident in Spain to their parent companies resident in another EU Member State, or in the EEA with which there are regulations on mutual assistance in the exchange of information, or to the permanent establishments of the latter located in other Member States, provided that they meet certain conditions.

• Dividends and profit shares obtained by pension funds equivalent to those regulated in the consolidated text of the Law on Pension Plans and Funds (Royal Legislative Decree 1/2002, of November 29), which are resident in another Member State of the European Union or the EEA with which there are regulations on mutual assistance in the matter of exchange of information, or by permanent establishments of said institutions located in another Member State.

• Dividends and profit shares obtained by collective investment institutions regulated by Directive 2009/65/EC of the European Parliament and of the Council, or by collective investment institutions resident in EEA member states with which there are regulations on mutual assistance in the exchange of information.

• Royalties between associated companies, paid to a company resident in a Member State of the European Union or to a permanent establishment of said company located in another Member State of the EU, provided that certain requirements are met.

• Exemption for reinvestment in primary residence for taxpayers resident in an EU Member State or in the EEA with which there are regulations on mutual assistance in the exchange of information: Capital gains obtained from the transfer of what was your habitual residence in Spain may be excluded from taxation, provided that the total amount obtained from the transfer is reinvested in the acquisition of a new habitual residence.

Taxable base (article 24.6 TRLIRNR)

The expenses provided for in article 24.6 TRLIRNR may not be deducted, according to which taxpayers resident in another State of the European Union or the EEA with which there is legislation on mutual assistance in the matter of the exchange of information, natural persons, may deduct the expenses provided for in Law IRPF , and in the case of entities, those provided for in the Corporate Tax Law, provided that it is proven that they are directly related to the income obtained in Spain and that they have a direct and inseparable link with the activity carried out in Spain.   

Type of tax (article 25 TRLIRNR)

In relation to income taxed at the general tax rate, the general tax rate of 19%, typical of residents in another Member State of the EU , or the EEA, will no longer be applicable. with which there are regulations on mutual assistance in terms of information exchange, and 24% will become applicable. These incomes include: income from real estate, income from work, imputed income from real estate, …

Option for EU residents to pay personal income tax (article 46 TRLIRNR)

The regime of article 46 TRLIRNR will not be applicable, a regime under which non-resident taxpayers, natural persons, who prove to be residents of another Member State of the European Union or of a Member State of the European Economic Area with which there are regulations on mutual assistance in matters of exchange of tax information, except residents in countries or territories classified by regulation as non-cooperative jurisdictions, who have obtained during the year in Spain from work and income from economic activities, at least 75 percent of their total income, or whose income obtained during the year in Spain has been less than 90 percent of the personal and family minimum that would have corresponded to them according to their personal and family circumstances if they had been resident in Spain and whose income obtained outside Spain has also been less than said minimum, and when the income obtained in Spain has actually been taxed by the IRNR, may choose to pay taxes as a taxpayer under the Personal Income Tax, but without losing their status as taxpayers under the IRNR.