New Solidarity Tax to Inbound Expatriates in Spain, Consultation Agreement on Taxation of Resident Income Between Germany and Switzerland – Market Trends

Posted in Germany, Market trends, News, Saudi Arabia, Spain, Switzerland, Taxation

Spain; Saudi Arabia

Spanish Tax Authorities Confirm Inbound Expatriates Are Subject to New Solidarity Tax Only for Spanish Assets

Two recent rulings from the General Directorate of Taxes have clarified that individuals who fall under the Special Regime for Inbound Expatriates, or the “Beckham Law,” will only be subject to the solidarity wealth tax for high-net-worth individuals for assets and rights located in Spain.

This tax was introduced by Law 38/2022 on December 28, 2022.

The tax authorities recently examined the situation of an individual residing in Saudi Arabia who intends to become a tax resident of Spain, and who possesses assets situated outside of Spain (according to ruling V0420-23). They have also reviewed the overall circumstance of individuals falling under the Special Regime for Inbound Expatriates.

Both rulings state that individuals who are properly covered by the Special Regime for Inbound Expatriates, and therefore taxed under the Non-Resident Income Tax, are subject not only to the Spanish Wealth Tax but also to the solidarity wealth tax for high-net-worth individuals for assets located in Spain while they are under the Non-Resident Income Tax coverage.

Germany; Switzerland

Germany and Switzerland Sign Consultation Agreement on Taxation of Resident Income

A consultation agreement related to the implementation of article 15(4) of the Germany-Switzerland Income and Capital Tax Treaty (1971), which was revised through the 1978, 1989, 1992, 2002 and 2010 protocols, was signed by Switzerland and Germany on April 6, 2023.

Article 15(4) of the treaty outlines that an individual who is a resident of a contracting state, but is engaged by a corporation (Kapitalgesellschaft), resident in the other contracting state as a member of the board of directors (Vorstandsmitglied), managing director (Direktor), manager (Geschäftsführer), or representative with statutory authority (Prokurist) may be taxed in that other state on income derived from these functions, unless the activities are only limited to operations outside that other state. In case the other contracting state does not levy taxes on this income, it can be taxed in the state where the individual is a resident.

The competent authorities had previously agreed to apply article 15(4) of the treaty only to individuals with statutory authority entered in the Commercial Register, in a mutual agreement dated 18 September 2008.

The recent mutual agreement, dated 6 April 2023, expands the scope of article 15(4) of the treaty to include individuals registered in the Swiss Commercial Register with individual or collective signatory, regardless of their function. Additionally, the agreement extends the application of article 15(4) to individuals who hold positions within a corporation that, in terms of management and representation powers, are comparable to those explicitly mentioned in the article, even if they are not entered in the Commercial Register but hold a position from a civil law perspective.

In this context, the management and representation authority must at least correspond to that of a procuration. This can be achieved – also in cases where procuration was granted without entry in the register – by granting a power of attorney that is more extensive than a proxy, which allows to represent the company externally (for example, by submitting a circulation resolution, signature regulations or company statutes). In addition, the following circumstances in particular must be taken into account, while considering the size of the company and the sector in which it operates, as well as its membership of a group of companies. Not all circumstances need to be present in order to meet the requirements of article 15(4) of the treaty:

  • the amount of the salary,
  • the classification in one of the highest salary grades within the enterprise,
  • the granting and the amount of a profit sharing/profit bonus,
  • the granting of a special pecuniary advantage,
  • the number of persons bound by instructions,
  • the authority to hire and fire employees of the company independently,
  • promotion/advancement in connection with a change or extension of the scope of activities,
  • no application of statutory limits on maximum working hours.

The agreement reached in the consultation shall be applicable to all ongoing cases. This consultation agreement has a fixed term and will be effective until 31 December 2025. However, it can be extended if the competent authorities reach an agreement on its continuation.

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