Exit Tax

19 de febrero de 2019

“Exit Tax” is applied in Spain since January 1st of 2015. This Act says that all the profit coming from actions or participations from relevant entities will be taxed in the cases where the taxpayer relocates his legal residence to another country.

Section 71 from article 1, from the Act of Amendment of the Personal Income Tax (IRPF) introduces a new article 95bis that creates more content to the latest 7th section from Title X, called “Capital gains in a change in residence”. It’s about an extended legal precept that regulates a new special tax regime for those taxpayers who change their residence obtaining a realized gain derived from the difference between the market value from their actions and the acquisition value of the same ones. It’s true that the application realm of the precept is fully reduced by the relevance requirement which has to rate the capital gain, that is, the economic value of the share stake of the taxpayer who in order to be involved in this special regimen, has to be above 4 million euros, reduced to 1 million if the percentage of the participation from the taxpayer in the share capital is above 25%.

Ultimately, a complex tax regime has been set and it’s subject to many determinants and several specialities. It’s important to avoid that any capital gains obtained in Spain and which come from the participation in equity, are taxed outside the country. That is, the rule that tries to stop the chances of those taxpayers who having constituted societies in our country or participated in them, and after experimenting an increase in value during a long period of time (ten years at least), when they plan the selling the capital gains of their shares, they relocate outside Spain in countries where they have a lower taxation, or even they lack of it, that way they dislocate the taxation of the profit gained in Spain. The problem comes when good entrepreneurs want to expand their market and establish outside Spain.

In our opinion, this is a rule which is very common in other countries but could be included in the so called “Anti-fraud Policy” that only punishes those taxpayers who leave Spain to sell with a lower taxation, being that the profit generated came from Spain. Proof of that is that a taxpayer that relocates to an EU member country does not contribute (they have a similar taxation to ours), nor the one not selling the shares during the time they stay out of Spain.

Many entrepreneurs do not share the Tax Agency opinion that this measure only affects companies with a big equity. They assure that the exit tax is an obstacle in the creation of new start-ups in Spain, where the owners of these companies can achieve the fixed thresholds only when they get investors, venture capital funds or business angels to invest in their companies. In this context, they point out the disproportionate exit tax that a business man who changes his place of residence has to pay even when he hasn’t sold his shares or wants to do so.