Renouncing tax residency (Spain) - still liable for tax after I leave?

[DrunkFlamingo]

Hi guys.

I am currently resident in Spain, and having made realised gains in crypto and using algorithmic trading (lots of small trades with small profits, ie. taxable events) I realise I already will need to pull my pants down for the Hacienda.

Looking to the future, I would prefer not to be bent over like this and am considering moving to a more tax friendly jurisdiction.

I know Spain decides you are a tax resident after 183 days of being in the country, and having vital life interests here, for which both apply to me. From what I have researched, once that applies, Spain then considers you a resident for the entire tax year, which is the same as the calendar year. This would suggest, I need to pay tax on all my worldwide income for the year of 2021 in Spain. Which would also suggest, I can't simply move to Portugal, say next week, and tell the tax man I am a resident there now, so I don't need to pay my tax in Spain any longer, as I would still be considered a tax resident in Spain for the tax year of 2021. Is that correct?

My questions are how to go about renouncing my tax residency without incurring any problems:

1) As I am considered a tax resident in Spain for the tax year of 2021, does this mean there is pretty much nothing I can do to (legally) avoid paying tax in Spain, such as say renouncing my tax residency tomorrow? Or is there some nuance here?
2) If, next year, I chose Dubai as an option to relocate, would It be necessary to have proof of tax residency in Dubai - or is just regular residency enough?
3) I would like to eventually move back to Spain (I do like living here after all) how long would I need to "stay away" without it looking like tax avoidance or causing me future problems? A couple years enough?
4) Would it muddy the waters / potentially make my life difficult if I were to spend say 3 or 4 months of the year in Spain after moving away from the country? (don't own property or have family here)

(A few assumptions: I do not hold a Spanish passport. When I say move jurisdictions, I mean physically move my whole life - not just on paper. I don't own any property here, nor have a family, so it's not such a big undertaking. When leaving the country I would tick as many boxes as possible such as deregistering as a resident, closing accounts, notifying the hacienda etc. I have a feeling my algo trading will cause me tax issues with Portugal, so it's looking like the UAE / freezone is the most likely the best option. In the years I am away from Spain I would prefer to be a bit of a nomad, spending time here and there, and would prefer to spend as little time as possible in Dubai.)

 

[Sols]

For very specific questions about Spanish law, you really should be speaking with a Spanish lawyer. It's well worth the investment. Maybe not the answer you wanted, but it's the right answer.

That said, in general terms:

1) As I am considered a tax resident in Spain for the tax year of 2021, does this mean there is pretty much nothing I can do to (legally) avoid paying tax in Spain, such as say renouncing my tax residency tomorrow? Or is there some nuance here?

You don't really renounce tax residence. Tax residence is a fact of circumstances. These circumstances are what you'd need to sort out with a tax adviser.

For 2021, there is nothing you can do.

For 2022, you have to start acting quickly. It's not just about days spent in the country. If you have children going to school, a spouse still living in Spain, or other familial or financial ties/interests, Spain may consider you tax resident even if you don't set foot in the country.

2) If, next year, I chose Dubai as an option to relocate, would It be necessary to have proof of tax residency in Dubai - or is just regular residency enough?

What distinction are you making between tax residence and regular residence? What do the two terms means to you?

Once you live in Dubai, you are resident there. Once you have lived there for at least 180 days within a 12-month period, you can apply for a TRC (Tax Residence Certificate). But you can be tax resident in multiple jurisdictions at the same time. Having a TRC is helpful, but they are mostly there to satisfy Double Tax Avoidance Agreements. It alone wouldn't make the Spanish tax authority back off, if you still have ties to Spain.

3) I would like to eventually move back to Spain (I do like living here after all) how long would I need to "stay away" without it looking like tax avoidance or causing me future problems? A couple years enough?

This is one of those circumstances you'd discuss with a lawyer. I would plan for at least two years, but probably three - four years to be safe.

4) Would it muddy the waters / potentially make my life difficult if I were to spend say 3 or 4 months of the year in Spain after moving away from the country? (don't own property or have family here)

It's a risk and depends on how you do it. Again, a topic to discuss with a lawyer to sort out the details. There's sometimes a distinction made between visiting for a week or two every couple of months vs spending uninterrupted months.

There are vague concepts in some tax law about habituation, access to permanent residence (even if unused), belonging, economic/familiar interest, and other murky areas.

 

[Martin Everson]

As you may know Spain has an exit tax when you leave Spain. They brought this law in by Royal decree in 2015. If you have lived in Spain for 10 of the last 15 years and then leave you are forced to pay capital gains tax on unrealized gains on certain global assets i.e stocks. For example exit tax applies from when you have over Euro 4m in shareholdings for example. The unrealized gains are taxed at between 19-23%. However, this tax is deferred if you move to a country with a DTA or information exchange agreement with Spain. When you move to another EU/EEA country then the gain only needs to be declared if you sell your shares within the next 10 years or become resident outside the EU/EEA. This will likely apply to crypto also.

Read the below in any case and speak to them.

https://www.relocateandsave.org/en/exit-tax-spain/

1) As I am considered a tax resident in Spain for the tax year of 2021, does this mean there is pretty much nothing I can do to (legally) avoid paying tax in Spain, such as say renouncing my tax residency tomorrow? Or is there some nuance here?

Nothing you can do.

2) If, next year, I chose Dubai as an option to relocate, would It be necessary to have proof of tax residency in Dubai - or is just regular residency enough?

Spain will want to see no ties remain with Spain. A tax certificate from UAE will not be respected if ties remain.

3) I would like to eventually move back to Spain (I do like living here after all) how long would I need to "stay away" without it looking like tax avoidance or causing me future problems? A couple years enough?

More then a couple of years. You need proper Spanish tax advice. Maybe speak to people in link above I gave you.

4) Would it muddy the waters / potentially make my life difficult if I were to spend say 3 or 4 months of the year in Spain after moving away from the country? (don't own property or have family here)

Yes

 

[DrunkFlamingo]

Hey Sols, I had a feeling you might shine some light on this, so thanks for your response. I actually have a call scheduled with a tax lawyer next week, so will see what they advise.

What distinction are you making between tax residence and regular residence? What do the two terms means to you?

I have read here that obtaining tax residency is better than just regular residency if you need to provide proof to the Spanish tax authority that you have in fact left Spain. The distinction being that tax residency is a better form of proof than regular residency. Obviously this only works if I genuinely cut ties from Spain.

As you may know Spain has an exit tax when you leave Spain. They brought this law in by Royal decree in 2015. If you have lived in Spain for 10 of the last 15 years and then leave you are forced to pay capital gains tax on unrealized gains on certain global assets i.e stocks. For example exit tax applies from when you have over Euro 4m in shareholdings for example.

Thanks for pointing this out Martin. I was aware of this, and luckily (or unluckily!?) I fall below the threshold. However, they look like good people to chat to about this, so will give them a shout, cheers.

Seems you both have emphasised on genuinely cutting ties with Spain. As mentioned I don't have a Spanish passport, family, or property. I would just need to shut down by business and close all accounts, and it should be pretty clear I no longer have any ties to the country.

And of course, I will wait to see what the lawyers have to say.

Thanks for your input gents.

 

[Konstanz]

Have not you considered moving to Andorra since you are Spanish?
Of course it depends on your budget

Moving out of country for 1 year and moving back is never good idea. No one would believe you really cut your ties with home country.
It's better look long term move out 5-10 years.. or for good.

 

[DrunkFlamingo]

Have not you considered moving to Andorra since you are Spanish?
Of course it depends on your budget

Moving out of country for 1 year and moving back is never good idea. No one would believe you really cut your ties with home country.
It's better look long term move out 5-10 years.. or for good.

I'm not Spanish, and I don't particularly like Andorra. If I am going to move I figure I might as well do it in a way I like, or I can just pay the tax and stay where I am.

I have multiple passports and friends and family all over the world, so being a bit of nomad works for me. So far the best option appears to be being based in Dubai as there are zero taxes on crypto - but more importantly - zero tax on income generated by day trading. I say this as places that have zero tax on crypto (like Portugal for example) will tax day trading as an income source. Andorra isn't completely tax free either.

 

[Konstanz]

I'm not Spanish, and I don't particularly like Andorra. If I am going to move I figure I might as well do it in a way I like, or I can just pay the tax and stay where I am.

I have multiple passports and friends and family all over the world, so being a bit of nomad works for me. So far the best option appears to be being based in Dubai as there are zero taxes on crypto - but more importantly - zero tax on income generated by day trading. I say this as places that have zero tax on crypto (like Portugal for example) will tax day trading as an income source. Andorra isn't completely tax free either.

what is you budget for relocation?

 

[DrunkFlamingo]

what is you budget for relocation?

I don't have a budget set currently. Partly because I haven't looked too deeply into relocation costs yet, and partly as it depends on what the best solution is going to be.
It really comes down to if it makes sense to relocate. If considering everything (taxes, time cost, stress, financial freedom, lifestyle, etc etc) it makes sense to go, then I will pay whatever it costs.

 

[Konstanz]

I don't have a budget set currently. Partly because I haven't looked too deeply into relocation costs yet, and partly as it depends on what the best solution is going to be.
It really comes down to if it makes sense to relocate. If considering everything (taxes, time cost, stress, financial freedom, lifestyle, etc etc) it makes sense to go, then I will pay whatever it costs.

Well it depends. If you can do Andorra, I would do Andorra if you like Spain and make substance (buy or rent apartment etc.).
It depends case by case. THere is also Gibraltar
Real residences with substance is not cheap as you can understand. So you have evaluate all costs

 

[Verbatim]

Definitely issues to be discussed with lawyers and tax advisors due to their complexity.
In some countries, if you absolutely don't live there then it is enough and they don't even care where you are.
In other countries, you need to declare your tax number abroad even if you have foreign tax resident status. So they reserve the right to check if you have a tax residency certificate.
There is also a blurred disctinction between private assets and business assets when you do professional trading. It can be considered business so you are taking your business outside of the EU (can be different if you take it within the EU).