Nowadays, due to factors such as the greater mobility of people and capital, inheritances and gifts with an international component have become increasingly common. In this vein, heirs and donees have to be aware of the tax rules when assessing whether the acquisition of assets by inheritance or gift triggers Spanish tax. In this context, the Spanish General Directorate for Taxes recently issued a binding ruling clarifying the rules for determining when bank accounts (bank deposits) and financial assets are subject to the Spanish Inheritance and Gift Tax (IGT).
Although IGT is generally levied on goods and rights acquired by Spanish tax-resident individuals, IGT also applies to non-Spanish resident individuals who receive goods and rights which “are located, may be exercised or should be complied with ” in Spain.
At this point, we must mention that Spain has only ratified three international tax treaties for avoiding double taxation in connection with inheritance taxes: with France, Sweden and Greece (albeit the latter is not very useful, as it basically relies on domestic rules).
IGT Spanish source rules applicable to tangible property are pretty straightforward. It is easy to identify if the summer house is located in the Spanish Costa del Sol or the French Côte d'Azur.
This analysis may not be so obvious, however, where bank accounts and financial assets are concerned. Banking services may be provided through different branches located in a number of jurisdictions, all with the same financial entity. An example would be a brokerage bank account opened at a Swiss bank by a German tax resident, at one of the bank’s Spanish branches, where the account holds securities of Spanish and non-Spanish issuers.
The Spanish Directorate of Taxes in the referred binding ruling set forth that a bank account will be deemed to be located in Spain if (i) the IBAN number corresponds to a branch located in Spain; and (ii) the cash availability, the cash services and the payment and collection services are rendered mainly by that branch located in Spain. The first requirement would be easy to check; however the second condition requires an analysis of the facts and circumstances on a case-by-case basis.
Likewise, the deposit of securities in a brokerage account of a Spanish branch would lead to the conclusion that those securities are located in Spain for IGT purposes, although an exception may apply with respect to securities issued by undertakings for collective investments (UCIs). It is the view of the Spanish tax authorities that shares or units in UCIs which are registered by the UCIs’ manager in the name of the individual investor are deemed to be located for IGT purposes where the register of the UCIs’ management company is located. The application of the latter rule is confusing (wrong?) when the management company (and its register of units) is located in one jurisdiction whilst the UCI has been formed in a different jurisdiction, but it will be irrelevant for IGT purposes as long as neither of the two jurisdictions is Spain.
Finally, please note that Spanish autonomous regions (for instance, Madrid) have approved specific tax reliefs for Spanish Inheritance and Gift Tax purposes. According to the Spanish Supreme Court criteria, non-Spanish residents can benefit from these regional tax reliefs under certain conditions. As a general rule, in the case of inheritances, the taxpayer may apply the tax reliefs of the autonomous region where the greater value of the assets connected with Spain is located. In the case of gifts, the relevant autonomous region would be that where the greater value of the assets connected with Spain has been located during a greater number of days in the precedent five year period. Therefore, if you are a non-Spanish resident with substantial financial investments in Spain, make sure those are deposited in a brokerage account of a bank or branch which is effectively located within the Madrid region.
In conclusion, it is important to consider these rules as certain bequests or gifts may trigger Spanish Inheritance and Gift Tax even if the deceased and the heir, or the donor and the donee, are not Spanish tax residents. These cases should be analysed as set out above in order to determine whether Inheritance and Gift tax needs to be paid in Spain and whether any regional tax reliefs may be potentially applicable.
Although IGT is generally levied on goods and rights acquired by Spanish tax-resident individuals, IGT also applies to non-Spanish resident individuals who receive goods and rights which “are located, may be exercised or should be complied with” in Spain.