When moving your home to a different country, there are many factors to be considered. These considerations may pertain to legal, administrative or housing requirements, or to the situation of children of school age. Furthermore, it is essential to have fulfilled one’s fiscal obligations to one’s current fiscal authorities, because the so-called “Exit Tax,” which is imposed by certain countries in the event of a change in fiscal residence, may apply. As this tax is now becoming increasingly important, this article will explain who will be liable to the tax, and its implications. It should be noted, however, that not everyone will be liable to this tax, as it is targeted specifically at people whose “net worth” is high. Please refer to the following section for a more detailed explanation of this fiscal obligation.
Table of contents:
- What is Exit Tax?
In which cases does the exit tax apply in Spain?
How much Exit Tax do you pay if you are liable?
Other countries that apply Exit Tax
Benefits of transferring one’s fiscal residence to Andorra
The importance of planning for relocation
What is Exit Tax?
This tax, whose constraints vary from country to country, is essentially levied on anticipated or unrealised capital gains when the taxpayer transfers their fiscal residence to another country, which usually has a lighter fiscal burden.
This tax is designed to prevent the avoidance of tax through the transfer of assets to other jurisdictions. Consequently, the tax is levied on the potential gains that would have been generated by the disposal of stocks or shares prior to the taxpayer’s relocation to another country. The transfer of residence nevertheless confers on the new country the right to tax these unrealised gains, even if the assets have not yet been sold. This results in a considerable reduction in revenue for the country of origin, particularly in cases where substantial estates are involved.
Consequently, by means of this tax, the current administration is able to guarantee the revenue concerned.
In which cases does the exit tax apply in Spain?
In Spain, Exit Tax, which is an additional personal income tax liability, came into force in 2015. The tax will be applicable in the event of a transfer of fiscal residence to another country, in the following circumstances:
• The tax is applicable to people who are fiscally resident in Spain, and who decide to relocate to a country that is not a member of the European Union or of the European Economic Area.
• The legislation in question affects individuals who, for tax purposes, have been resident in Spain for at least ten of the past fifteen years.
In addition, the following financial circumstances will apply:
• Individuals who hold stocks or shares valued at 4 million euros.
• Failing that, individuals who have a shareholding of more than 25 % in a company, and the value of the shares or holdings exceeds 1 million euros.
In either of the aforementioned cases, the fiscal resident of Spain will be subject to the tax. In this case, the tax liability is aimed at taxpayers with substantial personal wealth, so the majority of Spanish residents will not be affected.
How much Exit Tax do you pay if you are liable?
Exit Tax is a levy imposed on the gain represented by the difference between the current market value of the shares concerned and their original acquisition value. The applicable rates for this capital gain currently range between 23% and 27%. Consequently, when one relocates one’s fiscal tax residence outside Spain, one becomes liable to pay tax on the accumulated gains made on one’s investments. This is a factor that should be taken into consideration when planning one’s financial affairs. It should be noted, however, that Exit Tax will only be imposed on individuals whose fiscal and financial circumstances are those described above.
Other countries that apply Exit Tax
Several countries, including the United States, Canada, Norway, Germany and France, have implemented an exit tax. The conditions imposed by each state are determined at the discretion of the relevant authorities, but the purpose is always the same: to secure capital gains that were not realised in the country of origin prior to a change of fiscal residence, and to combat tax evasion.
For example, in France Exit Tax is levied on those who were fiscally resident for at least six of the last ten years before the change of fiscal residence. The tax is levied on shareholdings whose value is equal to or greater than €800,000 or which represent at least 50% of the company’s business profits.
Benefits of transferring one’s fiscal residence to Andorra
More and more people are contemplating relocation to Andorra, motivated not only by the country’s more favourable fiscal policies compared to those of other jurisdictions but also by the security and quality of life that the Pyrenean nation offers.
• Fiscal advantages
The Principality of Andorra has a lighter fiscal burden than France, Spain, and the majority of other European Union member states. By way of illustration, the most significant taxes, namely personal income tax and corporate income tax, are subject to a maximum rate of 10%, and the Andorran equivalent of VAT, IGI, is levied at a rate of only 4.5%. Furthermore, Andorra adheres to all international standards and is committed to the automatic exchange of fiscal information. These are good reasons for relocating to Andorra and establishing fiscal residence there. However, they are not the only reasons.
• The standard of living in Andorra
The Principality, situated in the Pyrenees, is the perfect place for those with a penchant for skiing and other snow-based activities during the winter months. During the summer months, the region offers hiking and tranquil lakes, providing visitors with a chance to observe and appreciate the area’s natural beauty.
Nevertheless, the appeal of Andorra extends beyond its natural beauty. Security is another significant consideration. The Principality has recently been reaffirmed as one of the safest countries in the world, as evidenced by its low crime rate. Furthermore, the Principality is an ideal location for families, offering a diverse array of public education systems, including Andorran, Spanish, French, British, and international (private) curricula.
Additionally, the proximity of Andorra to Spain and France is a significant advantage for those contemplating relocation. Its excellent healthcare system is another noteworthy benefit. For a comprehensive overview of the Benefits of living in Andorra, we recommend referring to our blog article.
The importance of planning for relocation
An exit tax is a liability incurred by residents whose “net worth” is high. When planning a change of fiscal residence, it is very important to understand how it is levied and how it could affect you.
Should you require further information or personalised advice, don’t hesitate to contact us. Our team of experts is available to assist you in dealing with these complex fiscal matters and to ensure that you make well-informed decisions.