May.05 2024

Consequences of brexit regarding income tax for non-residents from january 1st 2021, if there is no agreement


 This tax is regulated by Royal Legislative Decree 5/2004, of March 5, which approves the revised text of the Non-Resident Income Tax Law (TRLIRNR).

It burdens on the income obtained in Spanish territory by non-resident taxpayers, both individuals and entities (article 1 TRLIRNR).

There are two forms of taxation (article 15 TRLIRNR): a) income obtained without mediation of permanent setlement, and b) income obtained through permanent setlement..

This tax includes specific provisions applicable to residents of other Member States of the European Union, provisions that will cease to be applicable to taxpayers residing in the United Kingdom once the transitional period has ended.

Nevertheless,o obstante, It should be noted that there is a bilateral agreement between the United Kingdom and Spain to avoid double taxation, an agreement that will continue to be applicable. For this reason, certain income that will no longer be exempt when applying internal regulations, would not be considered as income calling upon the right to apply the Convention (for example, interest).

Consequences of Brexit in the ITNR (income tax for non-residents), in case of any income gained without having any permanente setlement:

Regarding any income gained by residents of the United Kingdom earned from January 1st 2021, the following changes arisen from not being taxpayers residing in a member estate of the European Union shall have to be taken into account:

Exempt income (article 14 TRLIRNR)

The following exemptions will stop being applicable:

  • Any interest or estate income arising from chattels acquired by residents in another member state of the European Union (EU) with some exceptions.
  • Profits distributed by subsidiary companies located in Spain to their parent companies located in another state member of the EU or the EEE with effective exchange of information, or to the permanente establishments of the latter located in other member states, whenever they fulfill certain conditions.
  • Dividends and profit shares obtained by pension funds equivalent to those regulated in the revised text of the Pension Plans and Funds Act (Royal Legislative Decree 1/2002, of November 29), who are residents of another member state of the European Union or the EEA with effective exchange of information, or by permanent establishments of said institutions located in another member state.
  • Dividends and profit shares obtained by collective investment institutions regulated by Directive 2009/65 / EC of the European Parliament and of the Council, or by collective investment institutions resident in the member states of the EEA with effective exchange of information.
  • Royalties between associated companies, paid to a company resident in a member state of the European Union or to a permanent establishment of said company located in another member state of the EU, provided that certain requirements are met.
  • Exemption for reinvestment in habitual residence for taxpayers of the EU, Iceland and Norway: the capital gains obtained by the transmission of what may have been their regular residence in Spain may be excluded from the tax, provided that the total amount obtained by the transmission is reinvested in acquiring a new regular residence.

Tax base (article 24.6 TRLIRNR)

The expenses provided for in article 24.6 TRIRNR may not be deducted, an article according to which taxpayers residing in another state of the European Union, private persons, may deduct the expenses provided for in the IRPF Law, and in the case of entities, those provided for in the Corporation Tax Law, provided it is proven that they are directly related to the income obtained in Spain and that they have a direct and inseparable link with the activity carried out in Spain.

Tax rate (article 25 TRLIRNR)

Regarding income taxed at the general tax rate, the general tax rate of 19%, applied to residents of the EU, will stop being aplicable and the tax rate of 24% will be applied. Among those incomes we can mention: income from real estate, income from job, ascribed income from real estate,…

Option for EU residents to pay income tax (article 46 TRLIRNR)

The regime of article 46 TRLIRNR will not be applicable, regime by which non-resident taxpayers, private persons, who prove to be residents in another member state of the European Union or in a member state of the European Economic Area with which there is an effective exchange of tax information, except residents in countries or territories classified by regulation as fiscal paradises, who have gained, during that year in Spain from income from work and income from economic activities, at least 75 percent of their total income, or that the income gained during that year in Spain has been less than 90 percent of the personal and family minimum that would have corresponded to him according to his personal and family circumstances had he been a resident in Spain, and that the income obtained outside of Spain has been, likewise, lower than said minimum, and when the income obtained in Spain has been effectively taken by the IRNR, they may choose to pay as a taxpayer for the Personal Income Tax, but without losing their taxpayer status for the IRNR.:

This is required from permanent establishments of non-resident entities when they transfer income abroad. The complementary tax will not be applicable in the case of income obtained in Spanish territory through permanent establishments by entities that have their tax residence in another member state of the European Unit, except in the case of a country or territory considered as a fiscal paradise, or in a state that has signed an agreement with Spain to avoid double taxation, in which nothing else is expressly established, provided that there is reciprocal treatment.

With the United Kingdom there is an agreement to avoid double taxation, which is not affected by Brexit and which does not provide for such additional taxation, for which reason said additional taxation would continue not being aplicable by agreement.

NOTICE: These are the consequences of a non-deal Brexit from January 1st 2020 for the income tax for non-residents. It is important to stress that they will not be applied during 2020, and in case there is an agreement, we shall inform you of what the conditions are.