Spain's Ministry of Finance is preparing a change to its so-called "tax on large fortunes", meaning that affluent foreigners will be able to access a tax shield limit to prevent being overcharged.
This follows a legal ruling in December that extended the shield to foreigners paying wealth tax in Spain.
The reform, despite being described as "small print" in the Spanish press, will essentially resolve a form of tax discrimination affecting non-resident taxpayers in Spain.
READ ALSO: Everything you need to know about Spain's wealth tax
In the Spanish tax system, there's a standard wealth tax (known as el impuesto de patrimonio in Spanish) that is levied on net worth, and in recent years the Spanish government has also established the 'solidarity' or 'large fortune' tax, which is known as the impuesto de solidaridad a las grandes fortunas and levied on the assets of millionaires.
You may also see it referred to as the 'millionaire's tax' in Spanish media.
READ ALSO: What’s the difference between Spain’s wealth tax and the solidarity tax?
The Spanish Treasury recently published a draft ministerial order amending the tax return form for the tax on large fortunes, a tax affecting taxpayers with assets exceeding €3 million and originally introduced to complement the wealth tax.
As such, when introduced, the tax worked from the framework already governing Spain's wealth tax with regards to caps on total tax liability, a mechanism that acts as a ceiling to prevent the tax burden from being excessive in relation to income, and which previously applied only to residents.
However, a Spanish court recently ruled that excluding non-residents who pay wealth tax was discriminatory, forcing the authorities to amend the regulations.
The government now intends to do the same with the grand fortunes tax.
The aim of this amendment is to bring the tax on large fortunes into line with the criteria established by the Supreme Court for the wealth tax, under which it considered the difference in treatment allowing taxpayers resident in Spain to apply the total tax liability limit (whereby the sum of income tax and wealth tax paid may not exceed 60 percent of the taxable income base) to be "discriminatory" and unjustified, but not for non-residents.
Spain's Central Economic-Administrative Court (TEAC) has ruled that both taxpayers subject to the tax on large fortunes by personal obligation, in other words, those resident in Spain, and by real obligation (non-residents) may apply the total tax liability limit.
From now on, both taxpayers liable on a personal basis, such as residents, and those liable on a real basis, such as those who only hold assets and rights within Spain, will be able to benefit from the threshold in their tax assessments, both for wealth tax and the tax on large fortunes.
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