Declaring Your Foreign Assets In Spain: The March 31st Deadline
Only two things in life are guaranteed: death and taxes. And if you're a resident in Spain, whether you're a Spanish citizen or a foreigner, your tax deadline is fast approaching.
Before 31st March each year, residents in Spain need to complete a Modelo 720 form. This is a tax declaration of the assets held overseas. The purpose of the Modelo 720 is to combat money laundering and fiscal fraud, and it was introduced in 2012.
The requirement to complete this form applies equally to Spanish citizens and foreigners who are tax residents in Spain, meaning those who've lived in Spain for more than 183 days in a year. But the good news is that this form is used for information purposes only, meaning that you won't be expected to pay tax on assets held abroad. However you can be fined if you don't declare any assets, so it's important not to miss completing this form.
Here's what you need to know.
Who needs to complete a Modelo 720 form?
The window for filing the Modelo 720 form opens on January 1st and closes on March 31st. This form relates specifically to assets held overseas in the last calendar year. You don't have to complete this annually if your circumstances don't change. So who does have to complete the Modelo 720 form?
For this to apply to you, you'll have to fall into one of the following groups: you have bank accounts held overseas with a value exceeding €50,000; you have assets and/or private pensions held overseas with a value exceeding €50,000, which could also include stocks, shares, and insurance policies; or you have a property with a purchase value of over €50,000, including private property or business premises.
How often do you complete a Modelo 720 form?
A Modelo 720 form isn't something you have to complete on an annual basis like you do with an income tax form. Instead, you complete this form once and then you don't have to resubmit the form until you have a change in circumstances in the last calendar year.
A change of circumstances is anything that might impact the three categories listed above, including, but not limited to, having purchased or sold overseas property, having investments mature, or cancelling previously declared assets.
You'll need to declare again if you declared last year in one category but this year have reached more than €50,000 in a previously undeclared category, and you'll also need to file again if your assets have increased by €20,000 in any given group previously declared.
Calculating your assets
It's important to use the right exchange rate when calculating your assets. You'll need to convert your assets from your home currency into euros and, for this purpose, you should use the exchange rate as it was on December 31st. A favourable exchange rate may see your assets tip over into the declaration zone, so it's important to keep an eye on this.
2022 changes to the Modelo 720 declaration form
Several changes were made to the Modelo 720 declaration form in 2022. This was because the EU ruled that the form in Spain wasn't considered legitimate and was "extremely repressive". As a result, the Spanish government made significant changes.
Previously, income abroad that was not declared, or which was reported after the March 31st deadline, would be treated as an unjustified capital gain, and the wrongdoer would receive a penalty of up to 150 percent of the value of the amount. These fines could amount to huge sums, actually exceeding the value of the assets.
However in 2022, the Spanish government voted to reduce the maximum fine from 150% to just 50%. Another essential change to be aware of is that those who have been fined for breaching Spain's foreign asset declaration laws can be reimbursed. The process varies, depending on whether the plaintiff has already appealed or not before the deadline.
What are the fines for failing to submit a Modelo 720?
If you fail to submit a Modelo 720 form then you could be subjected to a fine. As there is no financial payment required for submitting the form, this should act as an incentive to complete the form before the deadline.
The lowest fine is €20 for each item of information that should have been included in the declaration but wasn't, with a minimum penalty of €300 and a maximum of €20,000. But if you still complete the form after the deadline, but before you receive a non-compliance notification from the Spanish taxman, then you will get a 50% reduction on this fine amount.
Fines are doubled for undeclared assets or rights located outside of the EU, so British and American residents in Spain should beware.
I haven't filed yet, what should I do?
If you haven't filed a Modelo 720 form yet but you need to, don't worry, there's still time.
If you've recently moved to Spain then you will need to declare all assets that you held up to December 31st of last year. You will also need to file now if your assets have recently crossed into the €50,000 threshold in the last 12 months.
But if you have been living here for longer than a year and realise that you should have filed a Modelo 720 but didn't, the legal advice is don't put it off again. You're likely to be subjected to fines, but these will be reduced if you put your hands up and admit to your mistake. For your own peace of mind, you're advised to come clean now. Seek advice from a tax specialist who can help you take the right steps as soon as possible.
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