Exit tax upon loss of Spanish tax residency

If you are a Spanish tax resident and are thinking about changing your tax residency to a different country, you might have a tax liability for unrealised capital gains.

Binding consultation ref. V2959-19 explains the tax consequence for an individual who changes his tax residency to Switzerland.

Under Spanish tax law, an exit tax is triggered when a taxpayer losses its tax residency due to moving to a different country in which case unrealised capital gains would be the remainder between market share value and its purchase value and as long as the taxpayer has been a tax resident during ten of the last fifteen tax years. Also, any of the following situations must be met:

– Market value of all and any shares held must be over 4.000.000 EUR.
– If the above is not met, a 25% ownership stake value over 1.000.000 EUR must be held in a single company.

In the case at hand, the taxpayer declares to be owner of shares valued over 4.000.000 EUR and wishes to benefit from certain waivers in relation to the above capital gains liability provided under Spanish tax law by which when a taxpayer changes its tax residency to another EU state, it will only be liable of paying capital gains if any of the following happen:

– Share transfer;
– Taxpayer changes residency to a non-EU member state; or
– Fails to notify the authorities the choice of this waiver.

The authorities conclude that following the Treaty between the European Community and the Swiss Confederation on the free movement of persons as well as the interpretation given to this Treaty by the European Court of Justice, the same benefits must be applied when changing tax residency to an EU member state or to Switzerland.