If you're considering moving your tax residence outside Spain and you own significant assets in shares, have you thought about the tax implications of this decision? There's a little-known tax with significant consequences you'll want to be aware of: the so-called Exit Tax. This tax, introduced more than ten years ago and regulated by Law 26/2014 of the 27th of November, was designed to prevent tax evasion and safeguard public revenue. Interested to know whether it affects you? Keep reading.
This tax, established under Spanish Personal Income Tax (IRPF), is intended to tax “latent” capital gains (even if such gains have not yet materialised because the shares have not been sold) generated by the ownership of the shares or holdings of the taxpayer who loses such status due to the change of residence.
This levy does not apply to all taxpayers, but only to those who meet two key conditions:
If you lose your status as a Spanish taxpayer due to a change of tax residence, and you have been tax resident in Spain for at least ten of the previous fifteen years, you may be subject to this tax.
If you have benefited from the special tax regime applicable to inbound workers (the so-called Beckham Regime), the ten-year period begins once you stop benefiting from this scheme.
In addition, the Exit Tax only applies where either of the following circumstances exists:
The combined market value of your shares exceeds €4,000,000.
On the accrual date of the final tax period in which you are required to file for the purposes of this tax, you hold more than 25% of the shares in the entity and the market value of entity exceeds €1,000,000.
In this case, the special regime applies only to the capital gains attributable to those shares.
Even if you meet the conditions, with proper planning it is sometimes possible to avoid paying the tax. For example, if the move is to a Member State of the European Union or the European Economic Area, the latent gain will not be triggered unless within the following ten years you move to a non-EU country, sell the shares, or fail to comply with reporting obligations.
The calculation of the Exit Tax involves several key steps:
Only those assets exceeding the above thresholds are taxed. A detailed review of your portfolio is therefore essential before taking any decision to change your tax residence.
The market value of your assets is determined at the point when you cease to be a Spanish resident. This value forms the basis for calculating the tax. In some cases, particularly for unlisted companies or difficult-to-value assets, it may be necessary to appoint an independent expert valuer.
The latent gain is the difference between the original acquisition price and the current market value. This is the amount that the Spanish Tax Agency will treat as taxable profit, even if the assets have not yet been sold.
The gain is taxed under the progressive IRPF rates on capital gains, ranging from 19% to 28% depending on the amount. The greater the gain, the higher the rate applied.
The tax must be declared in the last personal income tax return you file before losing your tax resident status in Spain.
The accrual of the tax occurs in the last tax period in which you are resident in Spain, and the taxable base will be the difference between the market value of the shares and their acquisition value.
In some cases, payment of the Exit Tax may be deferred, postponed or even avoided, provided certain conditions are met:
Relocation within the EU/EEA: If you move to a country within the EU or the EEA and comply with reporting requirements, you may be able to defer payment of tax.
Employment-related relocation: If the move is due to a job offer and specific criteria are satisfied, you may be exempt.
Payment postponed: In certain cases, it is possible to postpone payment until the assets are actually sold abroad.
To minimise the impact of the Exit Tax, consider:
Restructuring your estate to reduce the taxable base and prevent certain assets from being taxed.
Selling some shares in advance of the change of residence in order to be taxed under more favourable conditions.
Optimising taxation in your destination country to take advantage of exemptions and avoid double taxation.
Seeking advice from international tax specialists to identify the best options tailored to your circumstances and financial objectives.
Failure to declare this tax can have serious consequences. Non-declaration when required can result in penalties, late-payment interest and surcharges.
If you later return to Spain, you may be entitled to a refund of the tax provided you did not sell the assets during your absence. However, this process is complex and subject to strict conditions.
Don't underestimate the importance of meeting your tax obligations. Penalties can outweigh any short-term “savings” achieved by failing to declare the Exit Tax.
Before changing your tax residence, it is vital to assess the impact of the Exit Tax and develop an appropriate strategy. Acting without advice can prove costly, both fiscally and legally.
At Conesa Legal, you'll find international tax specialists who can help you avoid problems and optimise your tax position. We'll analyse your situation in depth and provide tailored solutions. We'll support you in assessing your specific case and designing a personalised strategy to prevent unexpected tax burdens.