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CONFIRMED: How Spain’s foreign asset declaration laws are finally changing for the better

Following the recent EU ruling that Spain’s 'Modelo 720' foreign assets declaration form was “extremely repressive” and breaching community rules, the Spanish government has actually listened and on Thursday voted in favour of more lenient fines and conditions.

Published: 31 January 2022 14:36 CET
Updated: 25 February 2022 10:14 CET

Spain's Tax Minister Maria Jesús Montero has admitted that the Modelo 720 fines are "extortionate". Photo: GABRIEL BOUYS/AFP

What is Spain’s Modelo 720?

If you live in Spain and own assets abroad, you’re no doubt familiar with Modelo 720 and the risks you face for not declaring your assets overseas.

If you have bank accounts, assets/private pensions or a property abroad which are worth more than €50,000, you have to declare all this to the Spanish taxman.

Why is Modelo 720 so controversial?

For the past decade, Spain established that 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 exceed the real value of the assets declared after the deadline, since they were set at an amount of €1,500 for each group of goods affected, or €5,000 for undeclared or incorrectly recorded data, with a minimum of €10,000 per group.

One of the most widely reported cases was that of a Spanish national who returned home to Spain from Switzerland and who had €330,000 euros in a Swiss account. He declared after the deadline and was fined €442,000.

In the first couple of years after Spain introduced its foreign assets declaration rule, knowledge about it among the general population was limited, with only 131,000 Modelo 720 forms submitted out of an estimated 2.5 million potential declarants. Upon finding out, many foreigners who were residing in Spain chose to leave the country due to fears they would be heavily fined.

Since the Modelo 720’s implementation in 2012, Spain’s Agencia Tributaria tax agency has added at least €230 million to public coffers through these fines.

What has happened recently?

On Thursday January 27th, the Court of Justice of the European Union (CJEU) ruled that Spain has failed to comply with its obligations under the principle of free movement of capital.

The Luxembourg-based court found that the obligation to present the ‘Modelo 720’ and the penalties derived from non-compliance, late entry or mistakes – with no equivalence for those with assets situated in Spain – establish a difference in treatment among residents in Spain based on the location of their assets.

“This obligation may dissuade residents of that Member State (Spain) from investing in other Member States, prevent them from doing so or limit their possibilities of doing so,” judges concluded, adding that the system put in place by Spain’s Tax Agency meant they had more information on foreign assets than those in Spain itself.

CJEU judges also spoke out against the 150 percent fines as being “extremely repressive” and again “impairing” the free movement of capital.

The ruling was a victory for two Spanish tax lawyers who raised the alarm in the European courts back in 2013; one of them being Mallorca-based Alejandro del Campo, who The Local has interviewed on several occasions regarding Spain’s most disproportionate tax laws.

READ MORE:

Has Spain actually changed anything?

Yes, although the Modelo 720 is still in force in Spain. On February 24th the Spanish Parliament voted unanimously in favour of scrapping the imprescriptibility of Modelo 720 fines, which allowed Spain to fine wrongdoers in perpetuity.

Now any misconduct will only be punishable for four years as is the case with other fiscal crimes.

Spanish Members of Parliament also voted for the maximum fines to be reduced from 150 percent of the value of the undeclared assets to a maximum of 50 percent of the value.

Therefore, Tax Minister María Jesús Montero has stuck to her word after announcing last month that her government “respected” the European court ruling and would modify the rules relating to the Modelo 720 “as soon as possible” before the next March 31st deadline.

It remains unclear if the changes include a grace period for delayed and erroneous declarations as promised.

Montero and her ruling Socialists have been quick to distance themselves from the controversial Modelo 720 law, referring to the fines introduced by former Tax Minister Cristobal Montoro of the opposition Popular Party as “extortionate”.

Declaring foreign assets through the Modelo 720 is “still in force”, Montero did stress, so the Spanish government doesn’t seem quite that willing yet to ditch a rule that only applies to those with assets abroad but not for those with assets in Spain, as denounced by the European Court of Justice.

Crucially however, those who have been fined for breaching Spain’s foreign asset declaration laws can be reimbursed.

The MO varies depending on whether the plaintiff has already appealed or not before the deadline.

According to Alejandro del Campo, who is being championed in the Spanish press as the ‘Don Quijote’ who took on Hacienda and won, “all the people who are fighting in court and who have continued to fight will now see the battle turn in their favour.

“There are many procedures underway that will be resolved in favour of the taxpayers.

“My advice is that whoever is within the deadline, claims back the fine and whoever is outside the deadline should also do so because Spain can no longer massacre you and ask you for more than what you have.”

Is it the first time Spain gets called out on this?

No. Spain’s asset declaration penalty system was first implemented in 2012 by then Tax Minister Cristóbal Montoro under the right-wing PP government of former Prime Minister Mariano Rajoy, and the legislation has been causing legal problems for Spain’s Tax Agency ever since.

In February 2017, the European Commission already issued a complaint against Spain arguing that the fines were in conflict with EU rules and breached four community freedoms of the European Economic Area: free movement of people and workers, freedom of establishment, free presentation of services and the free movement of capital.

Despite the EC’s damning report, in which it called for the “discriminatory” system to be overhauled within two months, nothing changed and Brussels ended up taking the matter to the Court of Justice of the European Union.

However, Spain’s Hacienda tax agency continued to penalise taxpayers who didn’t get their asset declaration 100 percent right, as the European Commission wasn’t initially able to show enough evidence of irregularities in Spain’s tax system.

A number of Spanish judges have lifted fines for these taxpayers but ongoing sanctions meant the matter was again debated in the EU’s Court of Justice in July 2021 and in January 2022.

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Seven reasons to get Spanish nationality (and four not to)

The real and complete answer is extremely personal and complex. Nothing is certain in today’s roller-coaster times. And changing your nationality isn’t a step to take lightly.

It also takes time to obtain. However, to help you make a considered decision and to provide food for thought, Costa del Sol resident Joanna Styles outlines seven reasons why it’s worth taking Spanish nationality and four why it may not be.

Seven reasons FOR taking Spanish nationality:

1. You want freedom of movement

An advantage that many non-resident UK nationals in Spain are well aware of is that since Brexit they no longer enjoy the freedom of movement to live and work across the EU/EEA, having lost their EU citizenship.

Gaining Spanish nationality will give you plenty of choice and freedom in this regard, as becoming Spanish also means enjoying greater rights to live, work and travel where you please across 27 Member States, without having to worry about overstaying under the 90 in 180 days Schengen rule.

The Spanish passport is also one of the most ‘powerful’ in the word, allowing for visa-free travel to 190 different countries.

2. You don’t want to worry about time spent outside Spain

If you’re a naturalised Spanish citizen with a Spanish passport and ID, border officials are not going to keep tabs on your absences from Spain.

Logically, if you’re thinking of applying for Spanish nationality, the idea is that you do so because you’re going to be in Spain long term. But at least you’ll have the peace of mind of knowing that you won’t lose the right to return if you have to leave Spain for some time.

Only foreigners who are not of Spanish origin but achieve nationality through naturalisation and who for a period of three years use their previous nationality (which they were supposed to have given up) risk losing their Spanish nationality.

3. Spanish nationality is cheap and easy to renew

The price for applying for Spanish nationality is 104.05 € in 2022.

Spanish nationality documents (ID card and passport) do need renewal every 10 years, which on paper sounds time-consuming. But all you do is book an appointment at your nearest National Police station (and the online booking service works a treat), go along at your designated time and your documents are renewed in a few minutes. And it’s cheap – €12 for an ID card and €30 for a passport.

4. You want to vote

A sometimes inevitable part of a foreigner’s life in Spain is no participation or say in who governs your adopted country. Foreigners often find themselves in a voting limbo – how many Britons in Spain who had been living here for more than 15 years found they weren’t allowed to vote in the Brexit referendum? And they can’t vote in general elections in Spain either.

This voting limbo changes when you take Spanish nationality and are permitted to vote in all the elections held in Spain. There is a disadvantage to this – Spanish nationals are obliged by law to do electoral duty if they’re picked in the random draw.

Electoral duty involves spending the entire Sunday at the voting station and staying for hours afterwards while you count the votes. It’s hugely difficult to get out of as well – barring death or very advanced pregnancy, it’s compulsory unless you pay a large fine (think several thousand euros). I’ve done my bit once and I have my fingers well crossed not to be called again.

5. You want easier paperwork

As any foreign resident in Spain will tell you, Spanish bureaucracy is notoriously fussy and time-consuming. While it has improved in leaps and bounds over the last couple of decades, becoming Spanish and having a Spanish ID card complete with microchip can make a difference, especially when it comes to legal processes. This means that if you get into trouble with the law, there’s no risk of you being kicked out of the country.

It’s also worth noting that you won’t have to go to the trouble of renewing your residency documents, proving earnings, time spent in Spain or any other requirement that foreigners can be asked for.

6. You want to give Spanish nationality and residency to family

If you’re a Spanish national your children under 18 have the option of obtaining Spanish nationality through patria potestad (parental rights), which isn’t subject to the same long periods of residency in Spain that most foreigners have to abide by for nationality through naturalisation.

If your spouse is not an EU citizen, they can also obtain residency in Spain easily because they’re married to a Spanish citizen and they won’t have to meet other stricter work or visa requirements. After a year, they can also apply for Spanish nationality.

It can also prove easier to grant Spanish residency to other family members such as parents or parents in law.

7. You want to be a proper part of it

One of the main drawbacks of the life of a foreigner in Spain is that you’re a little bit out on a limb in terms of taking a full part in life in your chosen country. There’s definitely a sort of temporary status to being a so-called ‘expat’ and one way of making this more permanent is to adopt the country’s nationality.

After taking Spanish nationality and going ‘truly native’, I certainly feel more part of it, although at the same time, there are things about life here that I will never quite get or agree with. But maybe that’s because despite your new passport, deep down you’re always foreign.

On a light-hearted note, an additional advantage is that you’re more justified than ever to complain about life in Spain without getting disapproving looks from Spaniards. Once you’re Spanish, you have a legitimate excuse!

Four reasons for NOT taking Spanish nationality:

1. You don’t speak Spanish or know the culture

To obtain Spanish nationality you need to have a good level of the language and a pretty comprehensive understanding of Spanish culture. You need both of these because the process of becoming Spanish involves a formal exam with 25 multiple-choice questions on a wide range of aspects of Spanish life.

Expect to be asked about Spanish law, geography, history, institutional roles, climate and the obligations and rights of Spanish citizens. Some of these questions are challenging and obviously, they’re all in Spanish. And in true exam style, some of them are a little bit tricky (double-negatives, very similar answers etc).

There also a language exam you’ll have to sit, but this is a beginners A2 level Cervantes test.

2. You don’t want to renounce your own nationality

Maybe you feel you’re not ready to give up your passport. Obtaining Spanish nationality means giving up your own nationality unless you’re a citizen from most Latin American countries, Portugal, the Philippines, Andorra and more recently France, all of whom are allowed dual nationality.

You don’t have to hand over your old passport when you obtain your Spanish ID papers – no one asked me for my British passport – but by law, you’re not allowed double nationality.

3. You don’t have the patience

Apart from the ten years of almost continuous residency in Spain that you have to prove (it’s five years in most European countries) keep in mind that it takes on average one to three years to obtain Spanish nationality after applying.

If you don’t hand in the right documents, it could hold up the application even longer.

In Belgium, it takes four months to get a decision on your file on average and less than a year in the Netherlands but admittedly in other countries such as France and Italy it takes as long as in Spain.

Either way, waiting up to 13 years to achieve Spanish nationality through residency is a very long time.

4. You’re not ready to be a Spaniard

Becoming Spanish does involve an element of ‘playing the part’ so if you’re not prepared to jump in and become a true native, then it may not be worth taking Spanish nationality.

I took Spanish nationality over 15 years ago. My main reason for this was that I knew I was in Spain to stay. I also wanted to ‘join’ my husband and daughters who are all Spanish. I have never once regretted my decision and in the light of Brexit, I am very glad to have taken the step.

Joanna Styles is a freelance journalist and copywriter, based on the Costa del Sol where she arrived in 1989. She lives in Malaga, a city she is more than happy to call home. You can find out more about her work on www.joannastyles.com. Joanna is also the author of The 5 Best of Everything in Malaga, a comprehensive guide to Malaga with over 240 listings, and its sister website, Guide to Malaga.

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