Fiscal Residency 2020 for Non-Residents - Any Allowances for COVID19?

Speculations about how the Spanish Tax Office would treat non-residents that would exceed 183 days in Spain in 2020 due to being ‘stuck’ because of COVID, have now been confirmed by the publication of Hacienda’s binding answer to a case presented to them.

Lawyers’ Office Martínez-Echevarría published an article about the case. The following is a translation.

On June 17, the Directorate General of Taxes has issued a binding reply to a consultation, which analyzes the case of a married couple of tax residents in Lebanon who came to Spain in early 2020, to remain here about three months, although they could not return to their country at the end of that period, due to the declaration of the State of Alarm by COVID-19.

Well, the General Directorate of Taxes states that “the days spent in Spain by the couple, due to the state of alarm, would be computed, so if they remained more than 183 days in Spanish territory in 2020, they would be considered taxpayers of personal income tax. ”

The Directorate General of Taxes has ignored that the Secretariat of the Organization for Economic Cooperation and Development (OECD) published, on April 3, its “Analysis of Tax Treaties and the Impact of the COVID-19 crisis”, which includes a kind of guide in which member countries are recommended to adopt legal measures that respond to the exceptional situations created by this health crisis, in matters such as fiscal residence, among others.

The United Kingdom was the first to respond, introducing into its legislation a rule that does not count the days that a person remains in said territory as a result of the extraordinary mobility limitations caused by the Covid-19 crisis (either by quarantine, border closure with other countries, return to the United Kingdom by indication of the employer of another country suffering from the pandemic,etc.).

Australia and Ireland also joined, with similar rules.

In Spain, the General Directorate of Taxes maintains that the days of the State of Alarm are added to determine fiscal residence, ignoring that it is reasonable to argue that we are facing a case of force majeure, which has limited freedom of movement, and that it should not have implications for tax residence.

Finally, the General Directorate of Taxes even reminded Lebanese citizens that “they could return to their country of origin once the state of alarm ends”, which, remember, took place on June 21, 2020, so, in the absence of only 10 days to be considered as tax residents in Spain.

For both the Lebanese citizens and others in a similar situation, we recommend that you collect all the evidence at your disposal to demonstrate your intention to return to your country as soon as possible after the end of the state of alarm, as it is observed a source of conflicts with the Tax Administration for this matter.

Note from CAB. If you usually only spend the winter months here and couldn’t return to your home country until after the State of Alarm ended, please consider doing your utmost to avoid being considered a fiscal resident. Avoid spending more than 183 days in Spain this tax year = calendar year as not doing so can have important fiscal consequences. Postponing your return to Spain perhaps until after the 2020 tax year = calendar year has ended, could possibly be the only way to avoid this from happening. Please take advice from a qualified professional to get personalised advice for your situation.

Please note: The information provided is based upon our understanding of current legislation. It is not legal advice but is provided freely to enable you to be properly informed. We recommend that if you are considering taking action, you should seek professional advice.

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