Simply put, it is a tax form to inform about foreign assets to intensify the fight against tax evasion.

It is one form to declare three different obligations which are divided in the following groups.

• Inform about foreign bank accounts
• Inform about values, right, insurance and deposits outside of Spain or managed outside of Spain.
• Inform about any properties or rights to properties which are located outside of Spain.

Each group also have some exemptions.

The form is regulated by the following law.

“Orden HAP/72/2013, de 30 de enero, por la que se aprueba el modelo 720, declaración informativa sobre bienes y derechos situados en el extranjero, a que se refiere la disposición adicional decimoctava de la Ley 58/2003, de 17 de diciembre, General Tributaria y se determinan el lugar, forma, plazo y el procedimiento para su presentación.”

https://www.boe.es/diario_boe/txt.php?id=BOE-A-2013-954

It first emerged with the intention to make assets hidden abroad to be declared and came about in conjunction with an amnesty for hidden assets during 2012. You could during a period declare assets from abroad with few sanctions even if you never had declared the assets before. After that period all future assets abroad would have to be declared with the aim of avoiding undeclared assets.

The form is followed by heavy sanctions for not reporting, without mentioning the tax charge relative to the undeclared assets. We will later in this article get back to the sanction’s regime, let’s get into some more background.

The form is made of three groups as mentioned where the obligation to declare arises independently in each group. So, if any of the groups reach the requirement you need to declare.

Modelo 720 is a mandatory tax form to inform about foreign assets if you are a tax resident in Spain where missing to declare can lead to so high penalties that the Spanish sanctions are contested by the European Commission. On this page we will go through the background of the form, how it is implemented today and what might happen to it in the future.

The tax form is informative only and does not lead to any tax that needs to be paid.

The story of the tax form began around the financial crisis that struck Spain heavily in 2011-2013. Usually when a financial crisis occurs, states and regulators will try to find out ways to prevent similar events happening again.

When the crisis hit Spain, a lot of focus was put on avoiding tax evasion and collecting all the taxes that were mandatory in Spain. It was not uncommon to hear stories about people who owned big houses and were living large while having small reported taxable incomes. The Spanish government like many others in the world began a search for taxable assets that were hidden from the state.

This finally led to the implementation of Modelo 720 in 29/10/2012 which requires Spanish residents to inform the state of their foreign bank accounts, properties, shares, funds and other assets. The idea is that if everybody reports their assets, they will also need to report income received from these assets in their yearly income tax declaration.

If an asset is not reported and later found to exist, the state would automatically assume that this is an attempt to hide the asset from the tax agency and that the source of the assets is illegal and thus the whole amount to be taxed as late reported earned income including heavy penalties.

We will get back to the possible sanctions which are so high that the European Commission has decided to take Spain to the European court of justice because the tax form is considered abusive, disproportionate and hinder free movement of capital according to the European treaty.

We will get back to the future of the Modelo later in this article. Let’s check out more about the purpose of the Modelo – why does is exist?

The purpose of the Modelo is as mentioned to declare any foreign bank accounts or assets than Spanish Residents may have abroad. It is only an informative declaration and no tax it collected – so what’s the big deal? The idea is that if a person declares the assets, then it will be very difficult not to declare any income received from the assets which in turn are taxable in Spain. So even if you do not have to pay taxes on the asset itself, you will need to pay income tax later during the normal tax declaration period.

Imagine that you are a Spanish resident and have shares worth of 30 000 GBP in a bank account in England. You earn 1000 GBP a year in interest income every year.

If you have not declared that you have 30 000 GBP in a bank account in the UK, the Spanish tax authority might not be aware this income of 1000 GBP.

So, when you report the 30 000 GBP, it will be more difficult for you not to include the 1000 GBP earned interest when you have to present your yearly tax return “La Renta” in Spain.

The tax for the 1000 GBP might be around 200 GBP that the Spanish tax agency would not receive. This is a small example of how Spain would miss 200 GBP in tax payment, but imagine if it is a house worth 700 000 GBP where you earn 70 000 GBP in rental income a year? The Spanish tax authority would miss almost 15 000 GBP in taxes unpaid from the foreign asset! So, there are good reasons for the Modelo 720 to exist from the perspective of the Spanish state and Spanish taxpayers in general.

You might think, oh, so if I do not declare my assets in the UK, in Netherlands, in Switzerland or Sweden I might be able to avoid paying income tax on these assets – Spain will never find them!

Wrong, the Spanish government has signed information sharing agreements with the European countries and many other countries (which do include tax heavens) to share information about owners of assets who are Spanish nationals or Residents. These days it is not that easy to hide assets and the risks are very high as you will find out later in the article.

If a person would hide assets abroad, not declare Modelo 720 and the Spanish government would find the assets, for example through an information sharing agreement the penalties are high. Spain would consider the assets being “not declared income”, as in earned income. You would risk having to pay full income tax on all of the assets including late paying fees and penalties. This leads to the sanction’s regime being extremely tough!

So, if the sanctions are so high and the European Commission is challenging the Spanish state, what will happen?

The future of the Modelo 720 is uncertain but until now the Spanish tax agency continues to issue sanctions. Read more a bit further down and you will see why we might expect a change in the Spanish tax laws regarding the modelo.

Why we talk about the future of the Modelo is simply because there has been talk about stopping the use of it as well as questions if the Modelo still is valid. Sometimes you can hear people saying that it is no longer needed since the Spanish courts have gone against the tax agency – unfortunately this is not true in the year 2020.

The European Commission has sent Spain a letter in 2017 regarding the tax form where it is stated that the form constitutes a restriction against the freedom of movement and capital in the European treaty. The idea is that the form hinders the movement of people who might choose not to move to Spain because of the risks inherent of not declaring the modelo as well as risk of hindering Spanish residents of having accounts outside of Spain because the increased bureaucracy.

If I wish to invest in shares abroad or with a Dutch broker instead of a Spanish one, why should I need to fill in an extra form? If I wish to buy a holiday home in Biarritz instead of San Sebastian, why I am required to declare this when the Spanish property does not need to be declared in the same way? So, the form might hinder the movement of capital. But does a simple form really do this you might ask yourself?

Well, it is motivated by the complexity of filling in the modelo, which in most cases require a specialized advisor to do it for you. This and the extremely tough sanctions regime which are considered disproportionate by the European Commission, especially compared with other economic crimes. It does also not make sense to sanction wealth created by income abroad which were not declared in Spain if the year of the income tax is far back in time and the tax payment for the income has prescribed.

For example.

If a person earned capital income during 1980-1990 on accounts abroad and did not declare the income in Spain (because it might not have been required to do so), now the account has over 50 000 euros and the person would need to declare the account. Even if the income generated never was taxed, it would be impossible for the tax agency to require a late declaration of income from 1980-1990, but it could in this case regard all the assets as illicit funds and place a sanction even if the income was created over 30 years ago.

After the latest ruling in the EU courts the ability for the tax agency to sanction far back in time has been severely limited and now the limit is usually 4-5 years back in time.

Before going too much down to details, let’s start with – do I have to care about this?

As we mentioned earlier, the tax form is valid for Spanish Tax Residents, meaning you are considered by the Spanish state to be a Tax Resident in Spain. To be regarded as a Spanish Tax Resident there are a few different criteria but the most common is that you have decided to reside in Spain more than 183 days a calendar year.

If you want to read more about the criteria to be regarded as a Spanish Tax Resident, please do read our article about Taxes for Spanish Residents which goes through the topic in detail.

Now, let’s assume that you are considered a Spanish Tax Resident.

Do I have to declare?

Well, it depends. There are various thresholds for the tax, but in general if you do have assets valued at more than €50 000 the last day of the year you will need to declare Modelo 720 the following year.

Who else needs to present it? Here is a short list

• Physical persons in Spain who are residents
• Businesses registered in Spain
• Business establishments in Spain who are non-residents
• Heritance estates which are not yet disbursed
• Other entities that form an economic entity.
• Everybody who has a power of attorney of the entity, its representative or beneficiary and who can act on behalf of the entity.

Among the assets that need to be declared are deposits in other countries, investment funds which are deposited abroad, properties outside of Spain and brokerage account which are registered outside of Spain without a branch in Spain, for example the online broker, Degiro.

If you have already presented Modelo 720 in the previous year or earlier, you only have to do it if the value of your assets outside of Spain have increased more than 20 000 euros.

Who needs to present it?

If you have more than 50 000 euros of assets outside of Spain in total, including accounts shares, funds and properties per the last day of the previous year.

We will talk more about the controversy around the Modelo but so far Spain has not followed the demands from the EU and still requires the form to be filled.

So, to sum up:

If you have;

• bank accounts,
• shares,
• investment funds
• insurances (for example unit linked accounts)
• other assets or right
• or property

 for example, in the UK, in Netherlands, Switzerland or Sweden, you have to present the form. Remember, this does not mean that there will be a direct tax for the declared assets.

This also includes if you control assets through a power or attorney for example or you are beneficiary of a trust which you can control.

There is no obligation to inform any of the assets in these groups if the sum of the assets does not reach 50 000 euros. In the groups where the sum is higher than 50 000 euros, there is an obligation to report all the assets in the group.

In the following years it will be sufficient to declare if any of the groups have had an increase of more than 20 000 euros in relation to the last reported declaration.

Even if you are not a direct owner of an asset you will have to declare if you are the beneficial owner of the asset. For example, if you own a unit linked insurance account which holds assets, the strict owner of the assets might be the insurance company, but you are the beneficiary and control the assets – so you need to declare them.

This does include if you hold a power of attorney on behalf of other owner and you control the assets through the power.

One example is if a woman is owner of assets on a bank account outside of Spain and her husband holds a power of attorney and right to use the funds, both persons need to make a declaration.

The deadline for the declaration is 31^st March each year, a year after taxable year. You can start to declare 1^st of January every year.

Let’s take a look at an example.

“I have lived in Spain entire 2021 and on the 31/12/2021 my bank account in England has 60 000 EUR. “

You would have to declare the tax before end of March 2022.

What happens if you moved to Spain in October 2021?

Well, as we have mentioned earlier, the basic requirement for becoming a Spanish Tax Resident is living more than 183 days in the calendar year in Spain. So, if you moved in October 2021, you would not be considered a Tax Resident in Spain for 2021. This means that you would not have to declare the Modelo 720 during the year 2022. But, if you continue living in Spain during 2022 and you have a bank account or other asset outside of Spain by 31/12/2022, you will need to declare Modelo 720 in 31/3/2023.

All this talk about Modelo 720, so why are you mentioning a form D6?

Well, they are somewhat related and might be equally important! The form D6 is also an informative form, not from the tax agency, but from the statistics agency in Spain who are responsible for collecting information about foreign trade flows.

Why does this concern me?

Well, because if your foreign assets, which you have to declare in Modelo 720 contain shares or funds which are held are foreign custodians and that are not registered at the Spanish financial regulator, you will also need to present a form D6. The form is similar to Modelo 720 and does have potentially the same strict sanctions regime but until now the sanctions seem not to be applied in the same strict manner. We can only speculate why, probably because the intent of the form is not to find tax evasion but to collect statistics for making better decisions on a macroeconomic level. 

Since December 2021 you no longer have to file the D6 form if you do not hold more than 10 % of capital or voting rights of the entity abroad. This effectively abolishes the D6 form for most private investors.

So, what should I do – I do own shares and funds outside of Spain with more than 10 % of the voting rights or capital of the company?

Easy, present the Modelo D6 or let us help you. The Modelo D6 can be submitted at a Spanish government delegation or through a government website using a special program to submit it. It’s not very much fun to do it if you have plenty of shares or funds, so it might be a good idea to get help.

Now you might think, OK, I’ll get some help with that, I guess it’s the same deadline as Modelo 720, so I have until March?

Unfortunately, no. The deadline to submit D6 is already in January of the year following the taxable year.

The possible fines are not that high if you do report late but only if you do it before you “get caught”. Fines from late reporting range around 150-300 euro if you report late before receiving a letter from the government. If you have not done this and you do receive a letter, the sanctions regime is on pair with the Modelo 720 – in other words, very strict!

If you are worried about D6, please do get in touch and we will help you out, info@taxadora.com.

Now let’s get back to Modelo 720.

If you have previously presented the Modelo 720, you do not need to present it again, unless there has been a change of 20 000 euros or more in any of the assets reported in the earlier Modelo.

Assets that are held outside of Spain for the taxable person.

The assets that need to be declared are divided in three groups.

• Accounts in banks and financial institutions abroad (the average amount for the last trimester and the amount per 31/12).
• Values, rights, investment funds, insurances, trusts, unit-linked schemes and incomes deposited abroad or managed by a person or where the person is the beneficiary.
• Property and rights over property abroad.

The obligation to declare is for any person who have been the title owner, representative, authorized or the beneficiary, who have had a power of attorney or been the beneficial owner any period during the taxable year. This means for example that if a married couple has a bank account which is owned by of the persons, both need to declare if both have access to the account.