The ides of March are upon us once more and with it a reminder for the 31st March deadline to file the Modelo 720 for tax residents in Spain who have assets outside the country.
Despite the European Court of Justice’s ruling in January of this year declaring some sections of the tax form null and void, the speculation in some of the media that this heralded its end is not coming any time soon.
The core argument of the petition for the 720 removal as being incompatible with core principles of the movement of capital within the EU was dismissed.
So for the avoidance of doubt in any lingering minds the 720 remains, and will remain, a tax form that all tax residents in Spain will need to file.
The Spanish Tax Office has already tweaked the penalties to be fully compliant with the ECJ’s ruling, so that penalties on non-compliance or mistakes will be in line with other tax forms.
So what it it?
It is a Spanish tax declaration that must be made yearly for all Spanish tax residents ( Spaniards and foreigners) who have assets of €50,000 abroad.
The form is an informative return, which does not involve paying taxes, of all the assets they have abroad and for the first time includes cryptocurrencies.
In addition, one must be sure that all income generated by these assets has been declared in personal income tax return (IRPF) of the last four years. This means that in some cases where taxes have not been paid on those returns, it will be necessary to present complementary declarations, to regularize the tax situation.
The declaration has three sections being:
- Accounts in financial institutions abroad, which includes current accounts, savings accounts,deposit or credit accounts.
- Stocks, bonds, life insurance, pensions, trust funds, savings accounts, securities or holdings in any type of legal entity.
- Any type of real estate ownership, participation, rights, enjoyment or equity stake including timeshares.
Do I have to file this every year?
Form 720 must be filed if any of these sections exceeds €50,000 for the corresponding section(s) for the first year and then again the value has increased by €20,000 over the previous year or should any of the assets had been liquidated the previous year.
What is going on with cryptocurrencies?
You must report and pay taxes of your gains in cryptocurrencies in your 2021 IRPF (April to June 2022.) We have also known that the AEAT has started to ask taxpayers and exchanges for the status of their cryptocurrencies over the last four years (2017 to 2020), just a snapshoot of your situation of every year.
With the new ruling they will include a new block with the information, value among others, of cryptocurrency located abroad that are held, or of which there is a beneficiary or authorized.
Accordingly, the obligation to declare will depend on the wallets where the cryptocurrency is allocated.
In the case of hot wallets, those cryptocurrencies that store private keys in places that are always connected to the Internet. It will depend on the country where the company rendering the services (=exchanges), or the location of the server is located.
Regarding the cold wallets, offline devices not connected to the Internet to avoid hacking, it will be more complicated to determine when to declare them as they are devices that are portable. Accordingly, if the device is not located outside Spain there will be no obligation to declare them.
The penalties are up to 5.000€ per data of each cryptocurrency not declared with a minimum fine of 10.000€. The penalties for late or wrong presentation are 100€ per data of each cryptocurrency with a minimum fine of 1.500€.
What are the penalties?
Given the ECJ´s ruling these are now in line with late penalty fees for other tax forms and whilst no longer the “abusive” 150% are still substantial.
For non, incomplete or incorrect filing penalties range from 100 to 10,000 Euros.
Can the Spanish Tax Agency find my assets outside the country?
Yes, the Tax Agency have all the tolls and reciprocal tax sharing information with other countries though FATCA which has been in operation since 2013.
In addition the Spanish Tax Agency can request any information on Spaniards or foreign residents in Spain from any country or international institution.
For citizens of fellow EU countries the Tax Agency provides shared tax information.
For more information or a free consultation session, conctact our partners US Tax Consultants +34 915 194 392