The Spanish tax authorities recently ruled that foreigners forced to stay in Spain because of lockdown are tax resident and therefore liable to personal income tax. The ruling stands even when the foreigners receive no income in Spain and when their stay is against their will.
Tax residents because of COVID-19
The Spanish state of alarm because of COVID-19 lasted from 14 March to 21 June this year. As a result of the situation, some foreigners were unable to leave Spain and return to their home country.
According to the General Directorate of Taxes, this period of 14 weeks counts for the purpose of determining tax residence in the country even when the stay was against the will of the foreigner citizens and due to confinement.
Find out more about taxes in Spain.
Personal income tax liability
In Spain, in common with most countries, you are deemed a tax resident when you spend more than 183 days in a calendar year in Spain. The 14 weeks for the state of alarm form part of this period making many foreigners tax residents in circumstances out of their control.
Under the personal income tax law in Spain, tax residence is determined by the provisions in Article 9. It states, among other things, that the taxpayer will be deemed to have his habitual residence in Spain when “he stays more than 183 days, during the calendar year, in Spanish territory”. The law also states that sporadic absences also count towards residency unless the taxpayer can prove tax residence in another country.
This means that foreign citizens who were forced to stay in Spain during the lockdown period because of the pandemic and as a result, resided in the country for more than 183 days, are considered residents for tax purposes.
They must therefore pay personal income tax in Spain for the 2020 tax year.
Tax consultation
In June, two citizens who are tax resident in Lebanon consulted the tax authorities on this matter. They arrived in Spain in January of this year to stay for three months but, due to the state of alarm, were unable to return to Lebanon.
In their consultation, they also specified that they do not receive income in Spain and that they usually spend less than six months a year in the country.
The tax authorities’ response makes it clear that the 14-week state of alarm counts towards tax residency even when the citizens are in Spain against their will.
It also states that the Lebanon is one of the territories that Spain considers a tax haven. In this case, the tax administration may require proof of permanence in it for 183 days in the calendar year.
Exceptions to this rule
Under Spanish law, there are few exceptions to this rule. The main one is when a stay is temporary, and a result of obligations contracted “in cultural or humanitarian collaboration agreements and with no remuneration”. Work with public administration in Spain does not fall into this category.
Forced Spanish tax residents
As a result of the tax residency law in Spain, the days that the Lebanese citizens spent in Spain during the state of alarm count towards the over 183 days rule.
If they were in Spain for more than 183 days in 2020, they are considered a Spanish tax resident. And therefore, liable to personal income tax in Spain.
Help with taxation in Spain
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Maria Luisa Castro
