Understand the 720 tax form and its implications for your finances
720 Tax form is the mandatory declaration for those who have property and rights outside of Spain. Here you will know what it is exactly and the implications it has on your personal finances.
What is the 720 tax form?
Tax form 720 is an informative declaration that must be submitted to the Tax Agency (AEAT). Specifically, all those people who have assets and rights outside Spain for more than 50,000 euros or with an increase of 20,000 euros from one year to another have to do it. This includes real estate, checking accounts, stocks, insurance or other types of income.
To have this obligation, you must have tax residence in Spain, that is, reside more than 183 days a year. The declaration must be submitted annually, electronically or ask for face-to-face help, if applicable. And you have to do it in the first quarter of the following year, that is, between January 1 and March 31 of the following year. Once you have submitted it, you must review the periodicity, to incorporate the corresponding changes.
As we can see, this is a document that is designed for two types of taxpayer, basically: the foreigner residing in Spain and the Spanish resident who has significant assets abroad. In both cases, this informative statement must be covered to fulfil the tax obligations. For that reason, it is very common that in foreigners of a certain economic status this declaration has to be made.
Of course, the concept of tax resident is fundamental. A foreigner who spends long periods in Spain, but does not reach the middle of the year, would not have to present it. The recommended thing, in this case, is that the tax residence conforms to reality; otherwise, the AEAT can make checks if it suspects that there is a fraud of law.
How the 720 model influences your finances
The presentation and management of the 720 model is fundamental in personal finances for several reasons. But, basically, we can highlight three reasons, which are these:
1. It is mandatory to present it
The informative declaration of the 720 tax form is mandatory, it has no turn of the page. And this is an important point, since you have the obligation to present it and not doing so can generate a double problem. First of all, because if the AEAT detects that you have undeclared property abroad, it will sanction you for it. On the other hand, because according to the amount of these undeclared assets, a criminal case could be opened for tax fraud or money laundering.
Here we are not talking about small amounts for punctual management. Therefore, and by common sense, if you have an important home or bank account abroad, you must declare it.
2. It serves to avoid double taxation (in some cases)
One advantage of this statement is that it can serve to avoid double taxation. If Spain has a treaty with the foreign country in which you have your assets and rights, you will not have to pay twice. Of course, to clarify this extreme, it is necessary that you properly consult a specialist. Double taxation treaties vary greatly, as does the tax situation, so it is common not to know the situation.
Be careful, we insist that here the important thing is the concept of tax residence, whether you have a DNI or a NIE. In the end, it is about clearly defining your responsibilities with the Spanish treasury. In some cases, you will have to pay for the assets you have abroad, while in others it will not be necessary.
3. Change the tax base of taxes
Assets abroad are added to a taxpayer’s tax base and that has tax effects. The most important case is the Wealth Tax (IP) or the Large Fortunes Tax. However, it could also be used for other taxes, such as the Inheritance Tax. Likewise, there are also a number of deductions in reinvestment in housing abroad. All these data will influence when making the calculations, taking into account the Autonomous Community.
We always recommend making realistic calculations to avoid problems in the future. Obviously, in addition to the increases in value, losses can be included. Thus, this scale will be conveniently updated and you will avoid future claims from the tax authorities.
Know how to pay less taxes
The 720 tax form allows the Spanish tax administration to know your real financial situation. Do you have questions about how to make this statement? At Asesoría Orihuela Costa we have a specialised tax advisory service. Contact us without obligation and we will inform you!
