The Inheritances of Non-Residents in the EU: Tax Benefits

The taxation of acquisitions by donation in life and mortis causa, are regulated at the state level, in the Inheritance and Donations Tax (Impuesto sobre Sucessiones y Donaciones, ISD), although each Autonomous Community has the broad authority to establish its own reductions, rates and bonuses in the tax quota, making that the result varies a lot according to the territory in which the taxpayer of the operation resides.

The subject on which we will focus in this article will be the taxation of acquisitions by inheritance of individuals residents in Spain, in which the deceased is not a Spanish resident (and more specifically, when neither is resident in any other country of the European Union or the European Economic Area).

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Taxation of acquisitions by inheritance of any resident in Spain

Any individual who has his fiscal residence in Spanish territory and who is a beneficiary of inheritance will have the status of a taxpayer by personal obligation, that is, he will be taxed for all the assets and rights acquired, regardless of where they are located.

On the other hand, for the determination of the Autonomous Community from which the regulations may be applied, it is needed to attend to what the IRPF (Personal Income Tax) regulations establish, as a general rule, will be the one where the taxpayer stays more days during the tax period.

Specificities for cases in which the deceased is a non-resident

The debate arose because according to the Inheritance and Donations Tax Law, only in those cases in which all the participants were residents of Spanish territory, the taxpayers could opt for the application of their own regulations approved by the Autonomous Communities, and consequently enjoy their tax benefits, while in cases where the deceased was non-resident, they could only apply the state regulations.

This problem came to the CJEU, that in 2014 sentenced Spain, which was forced to adapt the ISD regulations because it violated the Treaty on the Functioning of the European Union and the Agreement on the European Economic Area by allowing differences in the tax treatment of donations and inheritances according to whether the participants were tax residents in Spain or not.

Since then, the option of applying the regulations of each Autonomous Community to those operations in which there were intervening non-resident Spanish tax is allowed, as long as they were residents in any EU or EEA country. This change continued to cause discrimination to a part of the taxpayers, which is why during 2018 the Supreme Court published different sentences, among others judgments 242/2018, of February 19, 2018 (download the sentence), and 492/2018, of March 22, 2018 (download the sentence).

Even so, insecurity on the part of taxpayers was still present as having to reach the Supreme Court to resolve this issue is not in reach to everyone because of the costs involved, until, at the end of 2018, the General Direction of Taxes (Dirección General de Tributos) was pronounced in this sense through the Binding Consultation V3193-18 (download file), which equates the option of choosing the application of the own regulations approved by the Autonomous Community in which it resides for any taxpayer, regardless of where the tax residence of the deceased was located.

In addition to the situation described in this article (mortis causa acquisition by a non-resident in the EU or the EEA), in the attached Consultation the same problem is resolved in different cases of acquisition of assets and rights for the lucrative title. If you have been a beneficiary of a donation or inheritance and want to make sure that you accomplish the Law without paying more taxes than necessary, contact our tax advisors in Barcelona. We will take care of your case in a personalized way and we will help you in all steps.

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