Reciprocity between UK and SP relating to The Refund of Spanish VAT for UK Companies

Article 119 bis of Spanish Law 37/1992 establishes that professionals or businesses not established in Spain can apply for the refund of Spanish VAT as long as they are located in a estate in which Spanish professionals or business are entitled to obtain the refund of VAT paid in the said estate (reciprocity of treatment).

In this regard, in order to deal with the new legal landscape created as a result of Brexit, on 4th January 2021 the Spanish General Directorate of Taxes has issued a resolution to clarify some aspects related to the VAT refund to companies established in the UK and in Northern Ireland.

The said resolution includes the following:

• SP recognizes the existence of reciprocity with UK for the purposes of Article 119 bis of the Spanish VAT Law and accordingly, UK companies are entitled to claim the refund of the Spanish VAT incurred.
• UK companies must appoint a tax representative resident in Spain so to apply for the reimbursement of VAT quotas.₅
• In the UK the following transactions are excluded from the mentioned reciprocity agreement:
1. 50% of the VAT paid for the rental or financial lease of an automobile vehicle.
2. For the acquisition of goods and services that are not used in the business activity.
3. For the acquisition of automobile vehicles.
4. For goods and services to be resold.
5. For goods and services that relate to entertainments or recreational services.

Accordingly, on a reciprocity basis, UK companies are not entitled to obtain Spanish VAT refund for the transactions mentioned above.

Further information can be found in the following links:

Withdrawal Agreement.

Guidance on claiming VAT refunds in Northern Ireland or EU (Northern Ireland ‘Protocol’).

Written by Laura Gallego Herráez.

₁ https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32008L0009

₂ Northern Ireland remains to be part of the EU for purposes of the supply of intra-Community acquisitions but not in case of services.

₃ https://www.boe.es/buscar/act.php?id=BOE-A-1992-28740

₄ https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A31986L0560

₅ The application shall be done through the filing of Form 361.

Read more about Taxation Law.

In view of this change, it should be borne in mind that the assessment and interpretation of this connection may vary from country to country and that although many understand domicile as the point of closest connection, not all countries interpret the legal concept of domicile in the same way.

In this respect, both the EU and the UK will respect the choice of court made by couples by means of a prenuptial agreement dated prior to 31 December 2020. However, at this stage, this is not guaranteed for agreements entered into after that date.

Finally, as regards to the recognition of divorce decrees in countries other than the country of origin, those issued in proceedings initiated before 31 December 2020 will continue to be recognised. However, with the end of the transitional period and the Withdrawal Agreement that establishes that the UK is no longer part of the Brussels II bis Regulation, it will be necessary to take into account the rest of the conventions that remain in force in this regard and the bilateral agreements and different national rules of the countries in which recognition is sought.

For instance, the UK and 12 members of the EU, which include Italy, Poland and Portugal, are parties of the Convention on the Recognition of Divorces and Legal Separations of 1 June 1970. However, this is not the case of countries like Spain, France or Greece where in order to seek recognition of a divorce decree issued in the UK, it will be necessary to resort to their existing bilateral agreements or to their national regulations. Thus, in the case of Spain, as there is no agreement on this matter, it will be necessary to resort to the application of its Law 29/2015 on International Legal Cooperation in Civil Matters and initiate a procedure known as exequatur.

Although this is the current scenario, as we find ourselves in a globalized world in which these situations are occurring more often than ever, it would not be surprising to see more changes and an increase in the number of agreements between EU countries and UK.

Written by Eugenia Pagán Sánchez.

Read more about Family Law.

For all those European citizens who had their residence in the UK before January 1st, 2021, they have the option of applying for pre-settle status under the EU Settlement Scheme (EUSS) until June 30rd, 2021, to get the same rights that British nationals have, including the situation discussed here about marrying or registering as civil partners.

Visa for marriage

On the contrary, for those other Europeans who wish to visit the UK for the purposes of getting married or registering as civil partners after December 31st, 2020, they must apply for a marriage visa or the "marriage visitor visa"₂ provided that the following requirements are met:

1. Have reached the age of majority of 18 years,
2. Have sufficient financial availability to meet the expenses of stay and departure from the UK - avoiding the start of any work activity in the country,
3. Demonstrate it is a genuine relationship, that is, true, to avoid possible fraudulent marriages or civil unions within the British territory.

This visa only allows to the parties to obtain a short period of legal stay to get married and take place the ceremony on British territory. Therefore, it does not allow obtaining residence after being married, much less extending it, changing it to a different visa while the party is in the UK, living for a long period through frequent visits or carrying out prohibited activities such as studying or working (except for activities related to the work or business abroad, such as attending meetings, which are allowed).

However, there is the option of applying for other types of visas when the interested parties are outside the UK after having contracted marriage or registered a civil partners, such as the “family visas”₃. For applying, both members of the marriage or couple must be of legal age. In addition, the partner of the member who requests the visa must either: obtain British or Irish nationality, or be already established in the UK, or be from the European Union and have been granted "pre-settle status", or other circumstances such as having a Turkish business visa or having a refugee or humanitarian protection status in the UK.

One of the situations that occurs in a ceremony is the invitation of family and friends. In this sense, the "marriage visitor visa" does not allow any guest or family member to be added in the same visa, even those family members considered dependents; accordingly, all of them must apply another visa individually.

Finally, due to the special regime of Gibraltar after the agreement between Spain and the UK on this British colony, it is not necessary for Spanish nationals - as well as any European national - to apply a visa to marry or register as civil partners₄. The parties will only have to attend to the requirements and provide the required documents necessary of the corresponding body in all the phases to carry out the procedures and formalization of the marriage or as civil partners as well as the measures established for reasons of Covid-19.

Written by Paloma Gómez Pachón.

₁ https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/929512/CCS001_CCS1020373376-001_Statement_of_changes_in_Immigration_Rules__HC_813_Web_Accessible__1_.pdf

₂ https://www.gov.uk/marriage-visa/eligibility

₃ https://www.gov.uk/uk-family-visa/partner-spouse

₄ https://www.gibraltar.gov.gi/uploads/files/marriages-civil-partnerships/MARRIAGE-GUIDANCE-NOTES-APRIL-2021.pdf

Read more about Family Law.

I own a property in Spain: Has Brexit affected my ownership rights?

Property rights are not linked to residency status and accordingly, all owners of property in Spain have the same rights.

Will my Foreigners' Identity Number (NIE) change as a result of Brexit?

In accordance with the Real Decreto 338/1990, the obtaining of a Fiscal Identification Number for all non-residents (NIE), Companies or Individuals is necessary when dealing with bank accounts, effecting monetary transactions and forwarding declarations for Wealth Tax and Income Tax.

If you had a NIE before Brexit, it is still valid after 1st of January 2021.

Will I pay more tax when selling or buying my property in Spain after Brexit?

No, the same taxes involved in a transfer of property at the same ratios operate after Brexit.

How about renting out my Spanish property?

As from 1 January 2021 (Brexit), British tax residents have become liable for higher rate of non-resident income tax of 24% as opposed to the previous lower rate of 19% which applies to European tax residents.

In addition, Britons owning property in Spain can no longer offset expenses incurred in the management of the property rented out such as community fees, repairs or IBI tax (Impuesto sobre Bienes Inmuebles) tax, which is the equivalent to the UK council tax.

Example

Samantha has rented out her property during 6 months, receiving a monthly. 1.600 x 6 = 9.600 Euros as a rental income.

During these 6 months of rental period, Samantha incurred in expenses (repairs, IBI and community fees) which reached the total amount of: 1.400 Euros.

1.400 Euros as expenses.

How much tax will Samantha pay?

It is important to note that United Kingdom and Spain has a double tax treaty in place, which prevents paying twice for the same income in both countries.

What is required to purchase a property in Spain?

You can find the information in the following link: Conveyancing.

Escrito por Laura Gallego Herráez.

₁BOE.es - BOE-A-1975-5292 Ley 8/1975, de 12 de marzo, de zonas e instalaciones de interés para la Defensa Nacional.

Read more about Real Estate.

Tax Residency & COVID-19 Travel Restrictions

The main and first criteria when establishing someone’s tax residency is the 183 days rule, under which an individual would be deemed to be Spanish tax resident if spends in Spain more than 183 days in a calendar year.

Albeit travel restrictions imposed as a result of the ongoing pandemic have questioned such criteria in some jurisdictions (where days spent under lockdown do not count towards tax residency) the Spanish Tax Authorities have confirmed that individuals who spend more than 183 days in Spain can become Spanish tax-residents, even if such time residing in Spain was against the individual’s will i.e. forced by travel restrictions.

Spain-UK Double Tax Treaty

As a general rule, an individual can only be considered tax resident in one country. However, if a person is resident in a country which taxes his worldwide income, and he has gains from another country, that person may be asked to pay tax in both countries on the same income. To prevent that situation, many countries have in place Double Tax Treaties (DTT) as it is the case between Spain and UK.

Therefore, if a person is working remotely from Spain for a UK company, even though he could fall within both domestic criteria to be deemed tax resident in both countries, by virtue of the regulations of the double tax treaty, that person will be only liable to pay tax to one country.

In the example above, if the individual has spent more than 183 days in Spain, he must submit his income tax return and pay his taxes to the Spanish tax authorities.

Permanent Establishment

The employer must ensure that the activity of the employee is not going to create a permanent establishment in the employee’s host country (in Spain following the example provided) in order to avoid any gains derived by the activity generated by such PE to be taxed in Spain.

For instance, if the worker has the authority to represent the UK company, continuously over time, leading business and management activities, it could be deemed that the UK company has a permanent establishment (PE) in Spain, making the UK company liable for paying corporation tax in Spain.

Brexit: Immigration Rules

As to the immigration status of the employee, if it was the case of a non UK citizen / resident but who would had attained pre-settled status in the UK, he can spend up to 2 years in a row outside the UK without losing his pre-settled status already attained in the UK.

Written by Laura Gallego Herráez.

Read more about Employment Law.

Scheduled Treatments

In respect of scheduled treatments, they will not be affected and will continue as established in the Community Regulations₂.

Temporary Stays

For temporary stays such as tourist or work trips, health provisions similar to those provided previously will be guaranteed, so it will continue to be covered for those British nationals who need to travel to Spain if they have the European Health Insurance Card (if it is still in force) or the Global Health Insurance Card. In addition to those mentioned, it has been recommended obtaining travel or health insurance, since health care could excluded on certain services or treatments such as medical repatriation or mountain rescue, to put some examples₃. If a UK national does not have any of them, he would need to apply for a Provisional Replacement Certificate (PRC) or face the possibility of being asked for payment of the health care services received or, in some cases, the Spanish administration could claim such costs to the British administration₄.

Permanent Residents

Spanish health care is guaranteed to UK citizens who already reside or will reside in Spain for more than three months. All residents in Spain need to be registered to access free basic services using the health insurance card provided but there are some services that patients need to pay for, such as prescriptions₅. Before their registration, UK citizens must show proof of healthcare cover as social security contribution if they are working. If they are not working but have been residing for five years or more, they can apply for permanent residency which will provide them access to Spanish healthcare. If they are not working and have no permanent visa but are registered at the local town hall for at least one-year, they can apply for “Convenio Especial” paying a monthly fee₆.

Cross-Border Workers

Finally, for UK cross-border workers₇, as in the case of Spain and Gibraltar, they will continue to access to health care within the scope of the Community Regulations, meanwhile the negotiation about post Brexit rights continues. Generally, UK cross-border workers will obtain healthcare in the country where they are insured. In the case of UK cross-border workers willing to export their right of healthcare to the country of residence at Gibraltar, they can submit the S1 form at the office of the health insurance body in Gibraltar₈.

Written by Paloma Gómez Pachón.

₁Acuerdo de Comercio y Cooperación entre la Unión Europea y la Comunidad Europea de la Energía Atómica, por una parte, y el Reino Unido de Gran Bretaña e Irlanda del Norte, por otra, de 29 de diciembre de 2020, DOUE, 31. Además, ya se recogían medidas provisionales de adaptación en el Real Decreto-ley 38/2020, de 29 de diciembre en su artículo 11 en materia de asistencia sanitaria que solo mantendría su aplicación hasta la entrada en vigor del Acuerdo entre la Unión Europea que recoge dicha materia.

₂https://europa.eu/youreurope/citizens/health/when-living-abroad/health-insurance-cover/index_es.htm

₃Puede obtener más información sobre las coberturas que ofrecen y cómo aplicar: https://www.nhs.uk/using-the-nhs/healthcare-abroad/apply-for-a-free-uk-global-health-insurance-card-ghic/

₄https://www.gov.uk/guidance/healthcare-for-uk-nationals-visiting-spain

₅https://www.gov.uk/guidance/healthcare-in-spain-including-the-balearic-and-canary-islands

₆https://www.gov.uk/guidance/healthcare-in-spain-including-the-balearic-and-canary-islands#posted-worker

₇https://europa.eu/youreurope/citizens/work/unemployment-and-benefits/country-coverage/faq/index_es.htm#:~:text=Los%20trabajadores%20transfronterizos%20suelen%20estar,asegurador%20del%20pa%C3%ADs%20donde%20trabajas

₈https://europa.eu/youreurope/citizens/work/social-security-forms/index_es.htm https://www.gov.uk/guidance/healthcare-in-spain-including-the-balearic-and-canary-islands#posted-worker

Read more about Personal Injury Law.

The Recast Insolvency Regulation (EU) 2015/848 allocates jurisdiction to hearing Insolvency Proceedings where a debtor's centre of main interests is, as the appropriate forum to open main Insolvency proceedings within an EU Member State, and once concluded, provides for its automatic recognition and subsequently displays its full effect before the courts of any other EU Member State where the debtor may have it assets located.

Proceedings started before 31 December 2020

Pursuant to the Insolvency Amendment Regulations 2019, the EIR continues to apply to insolvency proceedings opened before 31 December 2020. This means that the UK will continue to recognise insolvency proceedings commenced in any EU Member State before that date, and it will receive reciprocal recognition in UK soil as above explained.

Proceedings started after 1 January 2021

The recognition process of insolvency proceedings opened after 1 January 2021 will depend on the national law of such EU Member State where recognition is sought. This represents accordingly a significant change in the way that proceedings with cross border interests are governed since there would be no automatic recognition for UK Insolvency Proceedings in EU countries and vice versa.

UK Insolvency Proceedings: Recognition and Enforcement in Spain after 1 January 2021

In order to obtain the recognition of UK insolvency proceeding started after 31.12.2020 in Spain (SP), an application to the Spanish courts must be made in the appropriate local jurisdiction within SP.

Certain rules to bear in mind are set down in Section 742 of the Recast Spanish Insolvency act.

Most notably:

1. The jurisdiction of the court or authority that has opened the foreign Insolvency proceedings must be based on Centre of Main Interests (COMI) criteria.
2. The judgment opening the foreign insolvency proceedings must not be contrary to Spanish public policy.

Once the UK insolvency proceeding is recognised by the Spanish Court, the insolvency officeholder can apply for measures to preserve assets located within SP.

If you require further guidance please contact our Insolvency Department.

Written by Laura Gallego Herráez.

Read more about Insolvency Law.

What are the main requirements for opening a branch office or a subsidiary in SP?

The procedure to open a subsidiary or a branch in SP is similar. The common requirements include the following:

1. Opening a bank account in the company’s name, which will be used for depositing the share capital.
2. A copy of the certificate of incorporation of the parent company.
3. Obtain (the provisional) and then keep (the definitive) tax identification NIF (número de identificación fiscal) at the Spanish Tax Agency.

The decision of setting up a subsidiary or a branch has to be taken by a general meeting of the shareholders of the parent company and the resolution must be legally translated into Spanish.

A public deed of incorporation must be granted before a Notary Public and then submitted at the Spanish Commercial Registry.

Must I travel to Spain to set up a subsidiary or a branch?

Not necessarily, our team of Spanish speaking lawyers can set up for you a subsidiary or a branch in Spain on behalf of the parent company, through a Power of Attorney.

Written by Laura Gallego Herráez.

Read more about Corporate & Commercial.

The main one consists of the creation of a comparable UK trade mark for each international registration that has obtained protection in the European Union before 1 January 2021.

This comparable national trade mark will be registered and administered by the UK Intellectual Property Office (UKIPO) and, therefore, will be independent of the international registration. It will be ruled by the UK law, will retain the original filing date of the EU trade mark and will be fully independent of the original European trade mark.

Where the trade mark owner has obtained its protection in the EU as a result of several designations (e.g. through a designation in the original application and a designation filed subsequently), a comparable national trade mark will be created for each designation. This means that it is possible to hold different comparable UK trade marks in respect of a single international registration, but the rights of each of them are independent.

Additionally, if the application for an EU trade mark registration is pending on 1 January 2021, the intellectual property rights’ owner may apply for registration of a comparable UK trade mark within the nine months after the end of the transitional period, i.e. up to and including 30 September 2021.

This will also apply to those whose application for international registration or subsequent designation was filed with a national office before 1 January 2021 but whose confirmation of such registration or subsequent designation is dated after that day. The difference is that the nine-month period will start to run from the date on which the international registration was recorded by the World Intellectual Property Organization (WIPO) or, for subsequent designations, from the date on which the application for EU protection was recorded in the International Register.

If you require further guidance please contact our Intellectual Property department lead by our Rocio Escámez

e-mail: rocio.escamez@scornik.com

direct dial: +44 2039629927

Read more about Intellectual property.

Proceedings started up to 31 December 2020

When proceedings started before 31/12/2020, within the European Union (EU), the rules on which country's courts have jurisdiction over a dispute and the enforcement of judgments will continue to be determined by the Brussels I Regulation and the Lugano Convention, which provides for the parties' contractual choice of jurisdiction and judgments from the courts of member states are recognised and enforceable across the EU.

Proceedings started after 1 January 2021

Post Brexit, the Brussels I Regulation and the Lugano Convention will no longer rule the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters when one of the parties is domiciled in the United Kingdom (UK).

In order to address this issue, the UK has taken some actions which include applying to join the Lugano Convention in its own right. Although the Lugano Convention would offer a similar framework to the Brussels Regulation, the process to its approval will take months and a decision from the EU on the UK’s accession is still pending, in other words, it is not guaranteed.

In the meantime, jurisdiction and enforcement of judgments for matters issued in the UK will be determined by common law, supplemented by the Hague Convention 2005 (the HC2005), which UK has acceded in its own right with effect as from 1 January 2021. The HC2005, to which all EU member states are party, requires the court of choice in an exclusive choice of court clause to hear the case and prevents the courts of the other countries from hearing proceedings when they are not the chosen court. Therefore, parties may now consider adding exclusive jurisdiction clauses in their contracts to avoid future disputes on this matter.

In addition, the HC2005 requires any judgment rendered by the chosen court to be recognised and enforced in the courts of all other contracting parties. Moreover, many EU member states enforce foreign judgments under their national laws, regardless of international arrangements. This is the case in the UK and Spain; among others. However, there may be additional requirements, and thus more time and cost involved.

Written by Eugenia Pagán Sánchez.

Read more about Litigation Law.