Consequences of Brexit on the Non-Resident Income Tax (IRNR) without permanent establishment

IRNR provides for specific provisions applicable to residents of other EU Member States, which will no longer be applicable to taxpayers living in the United Kingdom after the end of the transitional period.

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 apply. Therefore, certain incomes that will cease to be exempt from internal regulations would, however, be exempt incomes, invoking the right to apply the Agreement (for example, interest).

With regard to the income obtained by residents in the United Kingdom accrued from 1 January 2021, the following changes resulting from the cessation of being taxpayers resident in a Member State of the European Union must be taken into account:

Exempt incomes (article 14 and Additional Provision of the TRLINR)

The following exemptions shall cease to apply:

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

• The profits distributed by subsidiaries resident in Spain to their parent companies resident in another EU Member State, or from the EEA with the existence of regulations on mutual assistance in the area of information exchange, or the permanent establishments of the latter located in other Member States, provided that they meet certain conditions.

• Dividends and shares in profits obtained by pension funds equivalent to those regulated in the consolidated text of the Pension Plans and Funds Act pensions (Royal Legislative Decree 1/2002, of 29 November), which are residents of another Member State of the European Union or of the EEA with which there are regulations on mutual assistance in the area of information exchange, or by permanent establishments of these 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 Board, or by collective investment institutions resident in the EEA States with which there are regulations on mutual assistance in the area of information exchange.

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

• Exemption for reinvestment in habitual residence for taxpayers residing in an EU Member State or EEA State with which there are regulations on mutual assistance in the area of information exchange: Capital gains obtained from the transfer of the property that was your main residence in Spain may be excluded from tax, provided that the total amount obtained by 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, an article in which taxpayers residing in another State of the European Union or of the EEA with which there are regulations on mutual assistance in the field of information exchange, individuals, can deduct the expenses provided for in the Personal Income Tax Act, and in the case of entities, those provided for in the Corporation Tax Act, always that they are accredited to be directly related to the yields obtained in Spain and that they have a direct and unsociable link to the activity carried out in Spain.   

Tax rate (article 25 TRLIRNR)

In relation to the income taxed at the general tax rate, the general tax rate of 19%, which is the same, will cease to be applicable of residents in another EU Member State or EEA with which there are regulations on mutual assistance in the area of information exchange, and will become applicable 24%. These incomes include: Income from real estate, earned income, income from real estate assets, etc.

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

The regime of article 46 TRLIRNR will not be applicable, whereby non-resident taxpayers, natural persons, who can prove be resident in another Member State of the European Union or in a Member State of the European Economic Area with which there are regulations on mutual assistance in tax information exchange, except for residents in countries or territories classified as non-cooperative jurisdictions, who have obtained during the financial year in Spain for earned income and earnings from economic activities, at least 75% of its total income, or the income obtained during the financial year in Spain was less than 90% of the personal and family tax-free threshold that would have been applicable to it in accordance with its personal and family circumstances of having been a resident in Spain and that the income obtained outside Spain has also been lower than that minimum, and when the income obtained in Spain has actually been taxed by the IRNR, they can choose to pay tax as a taxpayer for the Tax on Personal Income, but without losing their status as payers for IRNR.