The impact of Brexit: Income Tax for non-residents in Spain

21/12/2020.- The Brexit transition period ends on 31 December 2020. All movements of goods are expected to be subject to new formalities and customs controls from 1 January 2021. This will have a significant impact on cross-border relations between Spain and the UK. From a tax perspective, the impact of Brexit will be of especial importance on trade and transactions and their direct (PIT, CIT, NRIT) and indirect (VAT) taxation.

As regards the Non-Resident Income Tax or NRIT (it taxes income obtained in Spanish territory by non-resident taxpayers, both individuals and entities) readers should take into account that this tax contains specific provisions applicable to residents of other EU Member States, which will no longer be applicable to taxpayers resident in the United Kingdom after the end of the transitional period. However, it should be noted that there is a bilateral convention between the United Kingdom and Spain for the avoidance of double taxation, which will continue to apply. For this reason, certain income that will no longer be exempt under domestic law would nevertheless be exempt by virtue of the right to apply the Convention (e.g. interest).

In any case, the following exemptions shall cease to apply as of January 1st, 2021:

  • Interest and capital gains deriving from personal property obtained by residents in another member state of the European Union (EU), with certain exceptions.
  • Profits distributed by subsidiary companies resident in Spain to their parent companies resident in another member state of the EU or the EES with effective information exchange, or to their permanent establishments located in other member states, provided that they fulfil certain conditions.
  • Dividends and shares in profits obtained by pension funds equivalent to those regulated in the Revised Text of the Pension Plans and Funds Act (Legislative Royal Decree 1/2002 of 29 November), resident in another member state of the European Union or the EES with effective information exchange, or by permanent establishments of such institutions located in another member state.
  • Dividends and shares in profits obtained by collective investment institutions regulated by Directive 2009/65/EC of the European Parliament and the Council, or by collective investment institutions resident in member states of the EES with effective information exchange.
  • Fees between associated companies paid to a company resident in an EU member state or to a permanent establishment of this company in another EU member state, provided that certain requirements are fulfilled.
  • Exemption for reinvestment in usual residence for taxpayers from the EU, Iceland and Norway: capital gains obtained from the transfer of the 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.

Tax rate

In relation to income taxed at the general tax rate, the general tax rate of 19% for EU residents will cease to be applicable because of Brexit and 24% will become applicable. The following incomes can be mentioned: income from real estate, income from work, imputed income from real estate, etc.

Should you have any doubts or need any further infomration, do not hesitate to contact our tax experts at AVANTGES.