Investors face increased tax bill after law change in Spain
From Products Jan 17 2012 BY: Simon Danaher
, Online News Editor
, International Adviser
A temporary amendment to the personal income tax law in Spain could leave investors in non tax-compliant offshore bonds facing a higher tax bill in 2012 and 2013, according to Skandia International.
On 1 January, the Spanish personal income tax regime was temporarily modified resulting in a rise in income tax for 2012 and 2013. While the changes will have “little or no impact” on those who hold tax-compliant offshore bond policies until at least 2014, those using non compliant tax-compliant products will pay up to 2% more each year in tax both this year and next.
Skandia said, from the 1 January this year to the end of 2013, gains on tax-compliant offshore bonds will be taxed at a rate of 21% (as opposed to the normal rate of 19%) which is then withheld by tax-compliant providers. There will be no further personal income tax liability for the policyholder if the gains amount to less than €6,000 (£4,981, $7,661) savings income in a tax year – including interest earned on savings accounts and dividends received in the same tax year. A further 4% personal income tax liability will need to be accounted for by the policyholder on the next €18,000 savings income and a further 6% if the overall savings income for that tax year is above €24,000. If the policy suffers a loss over the tax period, the loss can be offset against other income tax liabilities.
In contrast, non tax-compliant policies are required to withhold tax every year and so will be further affected by the increase during the next two years, said Skandia. Furthermore, in instances where the provider of a non-compliant policy fails to withhold tax correctly, and in a timely manner, policyholders may become subject to penalties for non-reporting, and these can range from 50% to 150%.
However, Skandia conceded that non tax-compliant policies have their merits as such policies can offer other features which can make them attractive to certain types of investors – for example, by providing access to a wider investment universe of assets and the ability offset losses on an annual basis.
Rachael Griffin, head of product law and commercial development at Skandia International, said “In today’s world, the choices available to investors can be overwhelming. It is crucial they understand the implications of choosing the right product in order to utilise the available tax advantages to the full.
“For example, tax-compliant bonds reduce the burden of reporting on individuals classed as tax-resident in Spain and can be affected by changes in tax regimes to a lesser degree than non tax-complaint alternatives. The recent changes introduced on 1st January 2012 illustrate these advantages perfectly.”