RESULTS

One of our previous posts mirrored on the different scenarios related to tax residence and how it affects the taxation of income from a country where the taxpayer is not resident. In the end, the double taxation agreement "breaks the tie" when there are discrepancies between the legislation of two different countries regarding tax residence, (here all the agreements signed by Spain). The established rules can then be followed to see in which territory an income is taxed and under which modality (Personal Income Tax, Non Resident Income Tax, Corporate Tax...). Today we would like to focus on tax residence on inheritance and donations. What happens with tax residence in cases of inheritance and donations? In most double taxation treaties, tax on inheritance and donation is NOT included. Therefore, in principle, it does not apply. Going over the Inheritance and Gift Tax Act (ISD), specifically Articles 6 and 7, Article 6. reads: "Article 6. Personal obligation. 1. Taxpayers who have their usual residence in Spain shall be liable for the tax by personal obligation, regardless of where the assets or rights comprising the taxable increase in wealth are located. 2. The determination of usual residence shall be governed by the norms of the Personal Income Tax regulations. (...)" "Article 7. Real obligation. Those taxpayers who are not included in the immediately preceding Article shall be liable to tax, by real obligation, for the acquisition of assets and rights, whatever their nature, which are located, which may be exercised or which must be fulfilled in Spanish territory, as well as for the receipt of amounts deriving from life insurance contracts, when the contract has been made with Spanish insurance companies, or when it has been concluded in Spain with foreign companies operating in Spain". Identifying the place of usual residence Therefore, establishing the place of habitual residence is essential in order to correctly pay this tax and avoid problems. Here the law refers to the IRPF (Personal Income Tax) rules. However, a dilemma arises if the double taxation treaties do not include ISD (Inheritance and Gift tax) in their scope of application. How about taxpayers who are considered tax resident in Spain under Spanish criteria, but also considered tax resident in another country based on its domestic legislation? Let us recall the Spanish criteria, which are: Spending more than 183 days a year in Spain. Having the base of activities or economic interests in Spain, (taking this for granted if the family lives in Spain). Actual case of tax residency on inheritance and donations The recent binding consultation of July 2021 provides a clear answer to this question. It is related to a controversy raised between Spain and Mexico. It literally states: "In order to determine the usual residence in Spain of ISD taxpayers, governing tax liability due to personal obligation, Article 6(2) of the LISD (Inheritance and Gift tax law) refers to the IRPF (Personal Income Tax) rules. This reference must be understood as applicable to all rules about personal income tax and, therefore, not only to the internal rules, i.e. Law 35/2006 of 28 November on Personal Income Tax (BOE of 29 November) and its implementing regulations, but to all the rules affecting personal income tax. Therefore, if for personal income tax purposes it is determined that the applicant is not a tax resident in Spain during the years 2020 and 2021 as a result of the application of the Agreement between Spain and Mexico to avoid international double taxation and that, therefore, he is not a taxpayer for personal income tax, the applicant will not be resident in Spain for the purposes of ISD, and, therefore, he will not be subject to personal obligation to pay this tax, but rather by real obligation, according to the terms provided in Article 7 of the LISD.” Double taxation agreement and tax residence As a matter of facts, although a double taxation agreement does not include Inheritance and Gift tax law in its direct scope of application, it is considered to determine the tiebreaker in the event of a taxpayer being classified as tax resident in more than one state. In other words, tax residence and particularly, how to establish it correctly, will be compulsory in case there are doubts about the scenarios to be considered between two different states. Our Tax Consultancy Department, as well as our International Tax Department can help you in these cases. Do not hesitate to contact us. Our team at Carrillo Asesores will be more than pleased to support you.

The Constitutional Court declares the unconstitutionality and nullity of the regulatory precepts of IIVTNU (Tax on the Increase in the Value of Urban Land). Today, Tuesday 26th of October 2021, the press office of the Advisory Department of the President of the Constitutional Court (TC= Tribunal Constitucional) published an informative note that is hereafter reproduced. It states that the Plenary of the TC has proceeded to: "declare the unconstitutionality and nullity of articles 107.1 second paragraph, 107.2.a) and 107.4 of the revised text of the Law regulating local finances, approved by Royal Legislative Decree 2/2004, of 5 March, in the terms set out in legal basis 6". Municipal capital gains tax should not be levied in any way This means that, in the opinion of the TC, the levy on municipal capital gains tax is not applicable, in any way, given that the amount to be paid is determined by an objective formula regulated in the TRLHL (Consolidated text of the Law governing the administration of territorial bodies); whereas the result of this law is always to obtain a tax payable, regardless of any increase in the value of the land and the real amount of that increase. In this regard, may we point out that until now and on the basis of the famous STC (judgement of the constitutional court) 59/2017, of 11 May 2017, only those scenarios where there was no increase in value due to a transfer at a loss (delimitation: STS 1163/2018, of 9 July 2018) or, where appropriate, those situations in which the gain could be confiscatory (tax payable is higher than the increase obtained - STC 126/2019, of 31 October 2019) were refutable. Judgment will be published in the coming days The ruling, which has the particular vote of the President and dissenting votes of several judges, will be published in the coming days. From that moment onwards, we will be able to explain and report about the disclosures of the judgement, in detail. However, this "turn of events" is going to move a flood of challenges and proceedings before the local councils against those settlements and self-assessments that were not fixed before the date of approval of the ruling. The consequences will surely have a deep impact in the Courts and Tribunals of our country. In brief -as soon as the ruling is published-, we will be ready to evaluate the different scopes of this scenario. In the meantime, please do not hesitate to visit our office, or contact us with any questions you may have. Our Tax Department will be delighted to assist you.

Today we would like to inform you about a new aid related to SUBSIDIES and RENEWABLE ENERGIES, which will now also be applicable to individuals, that is to say, to each and every citizen who meets the requirements and who wants to benefit from this subsidy. We are talking about the subsidies for self-consumption and renewable energy storage facilities. Here are the details of the subsidy and incentive programme for self-consumption and storage with renewable energy sources. What is the budget credit of the call for these subsidies for self-consumption and storage facilities for renewable energy sources? 17.465.471,04 € Eligibility on types of installations: Incentive programme 1: Implementation of self-consumption installations, with renewable energy sources, in the services sector, with or without storage. Incentive programme 2: Implementation of self-consumption installations, with renewable energy sources, in other productive sectors of the economy, with or without storage. Incentive programme 3: Incorporation of storage in self-consumption installations, with renewable energy sources, already existing in the services sector and other productive sectors. Incentive programme 4: Implementation of self-consumption installations, with renewable energy sources, in the residential sector, public administrations and the third sector, with or without storage. Incentive programme 5: Incorporation of storage in self-consumption installations, with renewable energy sources, already existing in the residential sector, public administrations and the third sector. Incentive programme 6: Implementation of thermal renewable energy installations in the residential sector. Deadline for submission From 3rd of November, 2021 until 31st of December, 2023. Type of Concession Non-repayable grants. The maximum and minimum amount depends on the programme chosen and on the kind of action. The proposals of resolution will be approached by order of entry of the application including a full set of documentation. General requirements to become a beneficiary of any of the subsidy programmes for self-consumption and renewable energy storage installations Individuals, legal entities, local authorities, public sector, communities of owners, renewable energy communities and citizen energy communities. The actions will be executed in the territory of the Region of Murcia. The installations will be performed after the date of registration of the application (programmes 1, 2 and 3) or after 30th of June (programmes 4, 5 and 6). Aid beneficiaries must justify, within a maximum period of eighteen months from the date of notification of the decision of concession, the completion of the investment required, to execute the action that is the object of the aid. If you want to obtain further guidelines and submit your application, please reach out for our Subsidies Department. We will support you in qualifying for these grants. Our commitment to excellent service at Carrillo Asesores, will always offer knowledge and skills to ensure that you get the best outcome possible. Contact us now.

A first attempt was made with those youtubers who started the path of "emigration for tax reasons" to Andorra (here we analyze the taxation as non-residents in Spain). It looks like the small principality has found a certain vain. The next category they are focusing upon are the gamers dedicated to the so-called eSports. As a matter of facts, their Minister of Economy has announced: "We pursue the goal of diversifying the economic model, very dependent on tourism and mature sectors such as trade and construction, and one of the sectors that we believe can help us within this digital economy are the eSports". Tax policy for eSports in Andorra Leaving aside the possible specific tax incentives for the sector that Andorra (or any other country if the case may be) can develop, the fact is that Andorra has a very attractive effective taxation (here below is a summary of the Andorran tax system). However, this case is similar to the one we already outlined, related to youtubers; being a resident in one territory does not exempt you from paying taxes as a non-resident in other countries, if your economic interests are located there. As far as gamers are concerned, if the taxpayers have competitions in other countries for which they receive income, depending on the double taxation agreement between Andorra and that country, then payment of taxes may apply; and there may not be any compensation for the total amount paid in Andorra, due to its low rates. Let's take an example, for easy reference: Example of taxation of a gamer dedicated to eSports in Andorra An Andorran resident gamer receives income in country A of 10,000 euros. The agreement between Andorra and A stipulates that the income generated in A must be taxed at 24% (through withholdings). The personal income tax rate in Andorra is 10%. How much tax will the gamer have to pay? In country A, he will be taxed as a non-resident at 24%, on 10,000 euros, 2,400 euros. When filing his income tax return in Andorra, he will be taxed at 10% of his income generated worldwide. This includes those obtained in country A, total 10,000 euros for 10%, 1,000 euros. On those 1,000 euros, depending on the agreement, the most common scenarios are the following: Compensating the amount paid as non-resident WITH THE LIMIT of what would have had to be paid for that income in Andorra. In this case, only 10% could be compensated, 1,000 euros of the amount that was paid abroad. Total taxation 2,400 euros in A and 0 euros in Andorra. Declare the exempt income in Andorra for being taxed in A. This would make a total taxation of 2,400 euros in A and 0 euros in Andorra. Previous study of tax planning Subsequently, gamer, youtuber, or anyone who wants to change residence to save part of the tax bill, must mirror on the main sources of income they have and where they are located. A "Tax Planning Study" a priori can help to clarify whether the tax savings are worthwhile or not. Certainly, if the sources of income come from other territories than Andorra (or any low tax country where one has decided to reside) there may be savings. But the results may not be as significant as it seems, at a first glance. If you are a gamer related to eSports in Andorra, or in case you need advice about a similar case, just reach out for us. Carrillo Asesores’ Tax Advisory Department will be pleased to support you!

A new value has been established to determine the market value in real estate transactions and/or possession (presumption of market value), as per Law 11/2021 of July 9th. As a matter of facts, this implementation changes tax rates. Even if the transaction is not carried out for that amount, the administration will apply the new rules. This will affect most Spanish real estate. For tax purposes, the taxable base or value of the property, the aforementioned "Cadastral Reference Value" will apply; in short it means that the assets will be subject to paying more taxes. Specifically: Inheritance and Donation Tax. (ISD) Wealth Tax. (IP) Inheritance Transmissions and Documented Legal Acts Tax. (ITPAJD) Nevertheless, the General Directorate of Cadastre uses the authorities’ platform to announce several aspects that must be taken into account, such as: Firstly, What is the reference value of a property? Here the directive states that it is the value determined by the General Directorate of Cadastre, as a result of the analysis of the prices of all real estate sales and purchases made before a notary public, depending on the cadastral characteristics of each property. In principle, the reference value will not exceed the market value. For this purpose, a reduction factor is applied in its determination. How does the reference value affect the cadastral value and the property tax? The land registry states that the reference value does not affect the current cadastral value in any way. Therefore, it has no effect on the Real Estate Tax. Nor does it have any effect on the rest of the taxes that have the cadastral value as a taxable base. What is the function of the reference value and what taxes does it affect? In addition to its descriptive function, the reference value of each property will serve as the taxable base for Inheritance Transmissions and Documented Legal Acts Tax (ITP and AJD) and Inheritance and Donations Tax (ISD). Therefore, when a transfer of a property is subject to one of these taxes, the reference value of the property will be the taxable base for the corresponding tax. However, if the declared value, the price or the consideration paid is higher than the reference value of the property, the higher of these figures will be taken as the taxable base. Thus, the reference value of the property will be the minimum taxable base for these taxes. So, how does it affect Wealth Tax? It clarifies, among other aspects, that the new reference value can only affect Wealth Tax with regard to properties acquired after January 1st, 2022. Under no circumstances will it affect pre-existing assets. It also indicates that the individualised reference values will be available through the platform of electronic services of the Cadastre in 2022, once the procedure for their determination has been processed, in accordance with the statutory law of the third final provision of the revised text of the Law on Real Estate Cadastre. Finally, when the reference value has been the taxable base in the tax levied on the acquisition of a property, the rule for determining the taxable base of the Wealth Tax to which, where applicable, will apply. Therefore, the reference value may only affect Wealth Tax with regard to properties acquired after January 1st, 2022. It will - in no way - affect pre-existing assets. What are the differences between the cadastral value and the reference value of urban properties? The cadastral value of real estate is updated, where applicable, by the General State Budget Laws. This serves as the taxable base for Real Estate Tax. It is protected data and is therefore not published. It is revised, in the case of urban properties, within the framework of collective valuation procedures. The reference value of urban properties will be determined year by year, simultaneously in all districts. This will serve as the taxable base for the taxes on property transfers and documented legal acts, and on inheritance and donations. It will not be protected, and will be permanently published in the Electronic Headquarters of the Cadastre. How is the reference value of real estate determined? The reference value of real estate will be determined, year by year, by the application of average value modules, based on the prices of all real estate sales and purchases actually carried out before a notary or filed in the Land Registry, and obtained in the framework of the annual real estate market reports prepared by the General Directorate of Cadastre. These modules will be assigned to representative real estate products by areas of the territory called homogeneous territorial areas of valuation. These will correspond to the average purchase and sale prices. Urban real estate In the case of urban real estate, the Directorate General of Cadastre will calculate the reference value of a specific real estate on the basis of the average value module applicable in the area in which it is located, taking into account the differences in categories, age and state of conservation between this real estate and the representative real estate product to which the module refers. For this purpose, the cadastral valuation regulations shall be used, on a transitional basis. Rural real estate In the case of rural properties without construction, the reference value will be calculated on the basis of the average value module, depending on their characteristics, and the corrective factors for location, agronomic and socio-economic factors that are determined in the corresponding annual report on the real estate market. In any case, in order to ensure that the reference values do not exceed the market values, the reduction factors determined by Ministerial Order will be applied. Where and how can I find out the reference value of my property on a given date? The individualised reference values will be available in the Electronic Headquarters of the Cadastre in 2022, once the procedure for their determination has been processed, in accordance with the provisions of the third final provision of the revised text of the Law on Real Estate Cadastre. Likewise, from 2022 onwards, reference values will be provided through the Cadastre Hotline (telephone numbers 91 387 45 50 and 902 37 36 35). Also in the Cadastral Management “Gerencias del Catastro”. These may be consulted by prior request for an appointment at the aforementioned telephone numbers. The Electronic Headquarters of the Cadastre will offer the possibility of consulting and certifying the reference value of a property at a given date. In addition, cadastral titleholders will be able to obtain a certificate of motivation of the reference value at a given date. In this way, they will have all the data and technical elements used for its determination. What can I do if I do not agree with the reference value of my property? When the reference value is used as the taxable base for Transfer Tax and Stamp Duty or Inheritance and Gift Tax, you can challenge it before the corresponding Tax Administration, during rectification of your self-assessments or the presentation of appeals against the settlements that may be made, as the case may be. Furthermore, at any time, in the event of disagreement with the descriptive data of the property in the Cadastre, the cadastral procedures for incorporation or revision provided for in the regulations (correction of discrepancies, rectification of errors, etc.) may be initiated before the General Directorate of the Cadastre. In order to ensure that the reference value of real estate does not exceed the market value, Order HFP/1104/2021, of October 7th, established a market reduction factor for assets of the same class. According to the provisions of this Order, it is applicable for the determination of the reference values of real estate, establishing a reduction factor for both urban and rural real estate, which in both cases is 0.9. In other words, the reference value calculated by cadastre will be reduced by 10%, to be understood as market value, in order to minimize the tax impact on property transactions. If you are in the process of buying or selling a property, contact us. Our Tax Advice Department will be pleased to assist you.

Our previous posts mirrored on taxation of incomes of non-residents and who is obliged to filing. We also talked about issues related to different scenarios of tax residency. Today we focus on the differences in the taxation of rental income between residents in Spain, EU and non-EU. The latest Tinsa report for the year 2021, referring to property valuations both nationally and internationally, shows that property prices are changing all along the Spanish coast. Aspects such as the rise of teleworking are driving up property prices in attractive areas outside the cities. This is attracting for both, private individuals looking for just that and investors who identify that there is a growing demand, besides usual transactions during the summer season. Many of these investors are foreigners who are not tax resident in Spain (whether they are companies or individuals) and acquire these properties for rental purposes. This rental income will be taxed differently, depending on the country of residence of the lessor, so in the case of a non-resident investor in particular, it is important to be clear about these aspects before carrying out any transaction. Differences in taxation of income from rental properties Focusing on individuals and referring only to the taxation of rental income: If the lessor is resident in Spain, taxed under IRPF (personal income tax), then he will be enabled to deduct the expenses inherent to the same (consumption if he pays them, community, IBI=property Tax...) In addition, from this income there will be a 60% reduction. If the lessor is resident in another EU country, the income from the rental of the property in Spain will be taxed by IRNR (non-resident income tax) at a fixed rate of 19%. He will be able to deduct the expenses inherent to this rental but this will not imply any reduction on the income. The lessor is resident in a country outside the EU. In this case, the income from the rental of the property in Spain will be taxed by IRNR (non-resident income tax) at a flat rate of 24% and no expenses can be deducted. Example of differences in the taxation of rental income The following example illustrates the huge differences that apply. For instance: Let us assume a rental income of 10,000 euros per year. The costs of the property attributable to the proprietor (the tenant pays for the utilities) are as follows: IBI (Property tax): 500 euros Household insurance: 200 euros Depreciation of the property: 1,000 euros per year. Other expenses related to the lease: 150 euros In each case, the taxation described above (assuming a tax rate of 20% for IRPF= personal income tax. This will vary as it depends on the total income of the taxpayer and not only on the rental income): The example is not a realistic case, but it clearly shows that, in the case of an EU resident, the rental income can rise to more than 130%; if you are resident outside the EU, this percentage increases to 260%. This issue leads to contention; does Spain discriminate fiscally, depending on the place of residence? In fact, this could go against the universal principles of equality. At the moment, the European Commission has not made any declarations related to Spain (unlike what other countries have done). Are you receiving rental incomes? We invite you to contact us. Our Tax Advice Department can help you in clarifying your doubts, whether you are resident in Spain, the EU or outside the EU. We will be pleased to assist you, whatever your doubts may be.

One of the most frequently asked questions faced by our clients in that context are related to the allied parties – and those who will be standing at the other side, depending on the which party to the contract we are... Are we the developer, the private individual, the investor of a large property exchange, the bank, or the public notary? Who we are and the reasons for our activity will make a notorious difference and the point of view for handling the subject will very much vary; but in all cases we will have to be aware about the legal premises that we must ALL comply with as part of the construction business in which all STAKEHOLDERS must participate. Depending on their good faith, the actors will make the business grow or not, so as to avoid further real estate bubbles. The statistics and the market are currently in a growth phase along the Spanish coast and in the major Spanish capitals. The price of housing in our country is still booming, so that investing in property is still a profitable business, in any of its variables (either property or rental), as in the current course and in Spain as a whole it has accounted for 3.64 of the Spanish GDP. Following these data, in the Region of Murcia it is almost 5 points of the total wealth only with this sector. Considering that it demands more qualified labour would mean a drop in unemployment in the real estate sector. Key-points while selling a property off plan? For the last 5 years, the jurisprudence of the Supreme Court has been applied in cases of off-plan sales, in which the property is not delivered due to the lack of professional commitment of the developer. The Supreme Court stipulates: "In the sale and purchase of real estate governed by Law 57/1968, credit institutions that accept deposits from buyers into an account of the developer without requiring the opening of a special account and the corresponding guarantee, will be liable to the buyers for the total of the amounts advanced by the buyers and paid into the account or accounts that the developer has opened with said institution". Therefore the LEGAL TIPS are: Examine the promoter’s know-how and expertise. Verify their solvency and liquidity. Require the bank guarantee. Study the land ownership. Among others that can obviously be determined by a lawyer, before signing the contract. The earnest money (as an example), would also bind us. How about the case of the sale of a property between individuals? What should we keep in mind? Read more and make a note: It will not be necessary to sign before a notary, except in the case of payment by mortgage. The seller must provide documentation accrediting ownership and exemption from debts. The buyer will have to justify his identity and the origin of the money that is to be paid. Regarding taxes, we have already talked about them in another post, Taxes in the purchase and sale of real estate. If you want legal certainty, then we recommend to count on legal professionals, please do not sign just any contract. Abusive clauses most frequently seen in contracts for the purchase of a property Finally yet importantly, a few TIPS about the most frequently seen Abusive Clauses in sale and purchase contracts: Lack of reciprocity of the benefits of considering the withdrawal from the contract. The principle of equivalence of benefits must preside over any contractual link and must not favour one party over the other. In the field of property development, usually the developer unilaterally draws up the contracts and predefines their content without, in most cases, accepting any negotiation on the terms of a given clause. Be careful! Abusive clauses usually deal with penalties or cancellation. Levy of Tax on the Increase in Value of Urban Land “PLUSVALIA” on the buyer. This issue has been the subject of a lot of case law in recent years. Compulsory subrogation in the mortgage requested by the developer. The purchasers are free to subrogate themselves in the mortgage previously constituted by the developer or choose another financial entity. The establishment in the contracts of an indeterminate delivery period. Royal Decree 515/1989, establishes that in contracts for housing under construction, the delivery date should be reflected in the contracts "in full transparency"; so we recommend to reject signing contracts without an explicit and definite date. Assignment of a specific notary by the seller. The developer’s exoneration from his legal responsibilities according to the Building Regulations Law, such as construction faults and defects, etc. The Building specifications, is, in fact, a clause which is the subject of many litigations in terms of price changes. We recommend a specific clause with consensus between both parties. Finally, if you are young and you are looking to buy a property, here we offer you the link of public aids for the acquisition of a property that are currently in force in the Region of Murcia. If you are a foreigner, we have already given you some advice in our post How to buy a property in Spain if I am a foreigner. And for any other decision prior to the purchase of a property, we suggest you to contact our Legal Department, we are committing to assure that you are succeeded in all this process with proper counselling.

Further reports on aspects related to the sale and purchase of companies have already been announced in previous posts. In fact, I outlined several reasons for the significant increase in operations of this type. Today I will focus on those cases where the potential buyer is an INVESTMENT FUND, either national or foreign, or a competing company that uses one of these funds to finance the purchase. Buying and selling a company, tips for selling a company to an investment fund General terms are difficult to fix, but investment funds use to follow certain "tics" or ways of acting of an investment fund. Getting knowledge of those behaviours can be helpful. Our experience in the field of selling and purchasing companies allows us offering you some important hints on that kind of transactions we have recently performed: 1 - Evaluation of the company The investors have the money and they know it; but in addition, they will remind you of this fact during all stages of the negotiation. I mean that too often, the one who has money thinks he is BETTER than the other party. More than this, when there is a big amount involved, then the behaviour frequently turns to be like a sort of GOD..., that is to say, feeling like above good and evil... Facing this requires a mentality standing on the point that you have something that they don't have and they want, say your company. Nobody else knows your company better than you and therefore, it is worth at least as much as their money; in the end the target is to exchange one thing for the other. 2 - Subjectivity Vs. Objectivity Let me mirror on the scenario from your point of view. The sale of your company (which is often almost like a child of ours), is UNIQUE, subjective and sentimental. Viewing from the other side, this operation is one of many and it is only a FINANCING OPERATION, where its purpose (logical, legal and moral, of course), is to have a high profitability after a few years. Therefore do not forget that having a lot of money forces them to "move" it to invest, so you are also doing them a favour. Don't forget that: The investors do have money that you want to obtain, but you have a company that generates more money and that they long for. 3 - Attitude and emotional intelligence These two previous facts explain the way these investment funds act in front of a company sale and purchase: at the beginning these funds will send sympathetic managers, very much in their business line, but then the tough negotiations start. Engaging very well prepared young people, technically skilled, who out of 10 words used, 3 are anglicisms (they love to use technical language, initials of abbreviations, of course in English. Don’t forget that they are very eager for money, striving for achievement of bonuses in a short time, usually characterised by lacking, almost always, a plus of emotional intelligence, of attitude, which will often make you want to, as one businessman told me, "slap them with an open hand" (please don't do it....). . ). This lack of attitude of these "apprentice sharks" requires you to be the one who sets the rules, for example: you are the one who must set the times, i.e. these people are entering your company, your home, and for now and until you get paid, the property is yours and therefore the rules and times are fixed by you. In connection with the above, it is advisable not to "burn yourself" directly in these first negotiations. Someone else in charge should take over this burden, even if it costs you money, because there will already be time for your participation. It is always good to stay one step behind in order to have the last decision. 4 - Negotiation of clauses in the contract for the sale and purchase of companies Buyers have no qualms about making you sign documents where their conditions and clauses favourable to them are repeated as many times as necessary and explained again and again. On the other hand, as they are the ones who usually draw up the documents, it is likely that your rights will either not be well explained or they will give you a "bad face" when you want to change a comma in the agreement. Keep in mind that changing a comma costs them meetings with their lawyers, with their analysts and therefore they lose a lot of time; maybe they "screw up" their bonus. But I repeat, make sure that this is their problem, not yours. 5 – Fixing all details in writing Pursuant to the previous point, finding that these consultants try to convince you not to change a comma in the document they present to you is very typical. Statements such as "I guarantee you that this will not happen... I am here and I am sure we will comply... let's put it in writing and then they will do what they want to do..." are frequently used. If you get that sentence, what I recommend is that you LAUGH OUT LOUD, yes please just laugh.... Keep in mind that if you default, you will always be there (or if you die, your heirs). While on the other hand, the negotiators of an investment fund, the directors and even the CEO use to be changed periodically. So, the new one will not want to know anything about what the previous one said, especially if it is not written down. Sometimes they do not even respect what has been agreed. 6 - Arbitration and lawyer's fees in the sale and purchase of companies Never forget that in the event of litigation or non-compliance, you will always be in a worse position: normally in these operations it is agreed that disputes are submitted to arbitration and arbitration IS VERY, VERY EXPENSIVE. Say, it can happen that in addition to not having been paid a significant amount, you will also have to disburse exorbitant arbitration and legal fees, which you may not be able to bear. On the other hand, the investors don't care: they have money and they are using it to increase their profitability. In another post I will tell you about our experience in a very tough arbitration of this type, which fortunately for us and the client, went very well (it is clear that if it had gone badly I would not have told you about it... or maybe I would have... As the Americans say, you learn more from failures than from successes, although that does not go very well with our Mediterranean culture)... 7 - Letter of Confidentiality, Letter of Intent and Term Sheet Typical of the Anglo-Saxon world, funds are required to sign, in addition to the initial "LETTER OF CONFIDENTIALITY" and "LETTER OF INTENT" (usually called, respectively, NDA (an anachronism of non disclosure agreement) and LOI (Letter of Intent), a contract called TERM SHEET (T.S.), which some confuse with the LOI or letter of intent. Theoretically it should be an initial document, after the letter of intent, where some terms that will be used for the future contract are detailed, non-binding except for certain clauses of the contract. BEWARE, BEWARE of this document, which can sometimes "kill"... We will certainly continue reporting about these issues, but don't forget: you have founded, maintained and developed a company that is now the object of desire of an investment fund that wants to give you a lot of money for it..... So, YOU ARE SMARTER THAN THEM.... use that advantage.... For all the reasons stated above, our Area for Legal Advice can help you. Don't hesitate, reach out for us.

Our foregoing posts mirrored on the relevancy of bilateral Double Taxation Agreements between countries. Determining the tax residence of a natural or legal person and, once this has been defined, establishing in which of the two territories an income should be taxed, depending on its nature, is absolutely compulsory. The present publication focuses on taxation of severance payments for non-residents. Taxation of severance payments due to dismissal for non-residents The conventions submitted to the model established by the OECD follow more or less uniform rules. Different types of income are defined by articles (royalties, dividends, interest received, salaries, business profits, etc.). In fact, there is a "catch-all" article that deals with other income not included in the previous articles. Sometimes it may not be easy to fit an item of income into an article. Among other reasons, there are the so-called commentaries on the articles of the OECD Model Convention (known as the OECD Model Convention, here is the full version updated to 2017), which attempt to develop in depth the particularities of each article. Binding consultation routed to the tax authorities In a binding consultation of June 2021, the Directorate General of Taxes refers to the comments on the article on employment income. It clarifies whether or not a severance payment can be understood as being included in this article; Certain controversies merge at this point; the consultation specifies the following: "... in the Commentary on Article 15 (employment income) of the OECD Model Convention (OECD Model Convention), as updated in 2014, paragraph 2.7 of which states the following: "A different situation is that of a severance payment (also referred to as "severance pay") that the employer is obliged to pay (by law or contract) to an employee for the termination of his or her employment contract. It is common, but not always the case, for such a payment to be calculated on the basis of the length of time worked for that employer. In the absence of facts or circumstances to the contrary, such a severance payment is to be regarded as remuneration falling within the scope of the Article and relating to the last 12 months of employment, proportionately divided between the locations where such employment has been executed in that period. Subsequently, such payment constitutes remuneration derived from employment within the meaning of the last sentence of Article 15(1)." Where are severance payments for dismissal of non-residents taxed? Therefore in the case of non-residents and depending on where the employment has been carried out in the last twelve months, the severance payment will be taxed under the rules of the employment income article of the relevant agreement (and not on that of other income or other income), unless it can be indicated that such payment does not depend on the length of time the worker has been employed. Are you facing this scenario? Our Tax and International Departments can assist you! Just reach out for us, we will be more than pleased to give you a hand, whatever your requirements may be.

I am a foreigner, European, British, or citizen of a third country that is not part of the EU. What are the steps to living and acquiring a real estate in Spain? Today we answer all those frequently asked questions that our clients from abroad issue at their first consultation. Securing that the business of a lifetime, enjoying retirement in Spain, should be done in a safe and legal way. Who can help along the whole pursuit? Your lawyer should speak Spanish and your native language. Carrillo’s multilingual team of experts speak English, German and French, although our experience and that of our professionals takes us to distant countries such as China and Africa. Just reach out for us; we will be right next to you. If you do not want to engage a lawyer, then we recommend approaching a Notary, at least. Here is the link to the official website of notaries in Spain. https://www.notariado.org/portal/elige-a-tu-notario What is the first step? Get your NIE (Foreigner’s ID number). You can either resolve this directly through our website; make your request and our International Department will assist you in this process. The NIE identification is mandatory for compliance of the purchase-sale contract, and for other administrative procedures, such as for paying the corresponding taxes. Another option is applying for the NIE at a police station in Spain or at the Spanish embassy in your country, presenting form EX-15. The ID will be assigned immediately. Download the form: https://extranjeros.inclusion.gob.es/ficheros/Modelos_solicitudes/mod_solicitudes2/15-Formulario_NIE_y_certificados.pdf Once you have chosen the property and agreed the price, then it is time to Open a current bank account in Spain Proving that the money comes from a foreign account is compulsory to comply with the Spanish Law against money laundering. To do this, you will need your personal data and a registered address in Spain. Our proposal: if you already have a deposit contract for the purchase-sale, then you may use that address. If you are unable to travel, a special power of attorney to your lawyer will allow opening the bank account. The activation of the bank account in Spain will enable making transfers from origin, for the payment of the purchase, or the completion of the mortgage, as well as the payment of taxes and utility bills, etc. What is the main legal aspect? The verification of the property in the PROPERTY REGISTRY. The issue of the “SIMPLE NOTE”, grants a legal vision of security, solvency and guarantee of the operation, and the cost will be less than 10 euros. Here’s the digital application in the public body in charge in Spain for that purpose: https://sede.registradores.org/site/invitado/propiedad/busqueda?nr=true#noback The contract We recommend that both, the seller and the buyer, draw up terms for both parties’ intentions in a clear way. Agreements on deposits, rentals with option to buy, mortgages, reciprocal guarantees, conditions of termination, aso. should be fixed in the contract. A lawyer will defend your interests, independently if you are the SELLER or the BUYER. Difficulties in understanding the often-confusing technical language are another reason for hiring a lawyer. Is it compulsory to sign before a NOTARY? The Spanish legislation underlines that Title Deeds of properties must be signed in front of a notary. This is a guarantee against third parties and it is mandatory for payment of the corresponding taxes. In the case of foreigners, the titles shall be arranged by your multi-lingual lawyer so as to allow the notary’s issuance in a two columns format offering both languages (Spanish and your native language). Carrillo will be delighted to help with these arrangements. Another frequent question asked is: who chooses the notary? In cases of purchase and sale, the one who pays most of the fees, in this case the buyer, is the part appointing the notary. This right is important when it comes to agreeing a mortgage, too! The CADASTRAL update Registries related to the ownership of properties may be used for updates of metric information, content, dimensions, new directives applicable on rustic properties, aso. Processing the payment of taxes This part gives many headaches to foreigners who frequently are not familiarized with the tax burden in Spain, both national and local, and the processing. Here we offer some key-takeaways, but remember that our Tax Law Department will be pleased to manage this burden for you: ITP (Impuesto Transmisiones Patrimoniales => Transfer tax on resale property purchase): from 6 to 10%, varies from region to region. It applies when acquiring a second hand property. AJD (Actos Jurídicos Documentados => Legal document tax, stamp duties): between 0.5 and 1.5%. IBI (Impuesto Bienes Inmuebles => Property tax): annual local tax, which depends on the cadastral value, usually about 0.4 and 0.5% of this value. PLUSVALIA (Local property tax, appreciation): each regional council sets an annual percentage increase in the cadastral value up to a maximum of 3.5% per year. FEES and Tariffs, Notary fees: 0.03 to 0.45%. Registration fees: 0.02 to 0.18%. IVA/VAT (Impuesto Valor Añadido => Value Added Tax): 10% of the value of the property. Only applies if you buy a new house. Mandatory requirement: the ENERGETIC CERTIFICATE of the property A certification issued by a qualified authorizing technician for the energy valuation of the property is mandatory since 2013. This form must be attached to the set of documents. Do you need a hand on this? We will be happy to assist you! Other recommendations If a private individual sells the property, then we suggest not cancelling the energy supply contracts; simply ask the seller to provide the most recent invoices and change the ownership. If the property is integrated in a community of several owners, then a certificate showing that the property is up to date with payments is needed; otherwise, the debt will be transferred to the new purchaser. If a promoter sells the property and it is an off-plan purchase, then we recommend you to have a look at the building and construction specifications, delivery dates, penalties, responsibility for defects and visible defects in the finishes. Considering these aspects for the signing at the notary's office may help to avoid headaches, at a later date. Finally yet importantly, all that paperwork can certainly be accomplished by yourself; but if you do not want to waste time waiting at public administrations, long queues and the pursuits related to applications or tax burden seem too complicated, then do not hesitate to reach out for Carrillo Asesores. Our Legal and International Department will be your trusted partners to support you enjoying the well-deserved rest earned throughout your life, and the keys to your dream-home.

Long months of adaptation to the COVID, and set-up of legal proceedings have taken us to the first results of the claims of trade unions and companies, in the sphere of law. Specifically, the Social Chamber of the Spanish National High Court mirrors on teleworking after the lunch break. Teleworking after the lunch break Certain companies are applying telework after lunch as a measure for the prevention and protection of the health of workers. The most representative trade unions in Spain, such as the General Union and the Federation of Workers’ Commissions, are discussing this measure. They have filed lawsuits against this type of corporative actions. Judgment 105/2021 of the Audiencia Nacional (National High Court) Emilia Ruiz-Jarabo Quemada, Rapporteur of the National Court, determines in her judgment 105/2021, that this action will not be considered a substantial modification of working conditions based on the variation of working hours, and the adapted working formulas. The magistrate offers different arguments to understand that this variation is in accordance with the law. Let us have a look at the key points: Regarding the voluntary nature of teleworking, they were supposed to be motivated by the exceptional restrictions of the Royal Decree of 14 March with the state of alarm. These were temporary and transitory measures. Prior negotiations were attempted with both syndicates in order to carry out the informative corporative notes for all the jobs in the specific company. It talks about the workers' right to health and safety at work, rights to life. Also that the measure is more an adaptation of the circumstances to the legislation of the moment. With regard to the recovery of hours within the daily working day itself, the NA argues that it is -in any case- permitted, as the worker would necessarily have to spend time travelling home at the end of the working day. Protection of employers and their work teams The Protection for EMPLOYERS is supposed to be the key-point. The endeavour to protect their professional activities, but particularly their main asset, the PEOPLE in their work teams. This is the basis for admitting modifications; certainly not all alterations to contracts are said to be substantial or essential, but perhaps protected by circumstances. Our Labour Department will assist you in compliance with the law and health and safety measures in your COMPANY. Besides that, we also want to take care of your workers. Contact us freely.

Here we are again, CARRILLO'S CORNER OF BUSINESS LEGAL EXPERIENCES mirrors on practical ideas, or useful hints for your day-to-day business. Today we are talking about participations called in "management circles" as phantom shares. I warn you that I am no friend of what the R.A.E. (Royal Spanish Academy) defines as superfluous Anglicism’s, which are increasingly used in Spanish language; but I am keeping the title of this post as such, for easy identification on the Internet. What are synthetic equities or phantom shares? Phantom shares are nothing but a variable remuneration system or plan for external professionals or managers. This is different but simultaneous with the actual remuneration (commercial or labour, as the case may be), which the professional or labour manager receives for the provision of his or her commercial or labour services. As a matter of facts, this feature is an Anglo-Saxon "invention" that quite interestingly fills a gap that existed in view of the need either to attract talented people to the initial cash-strapped projects, or to increase the loyalty of managers or external people, as the typical bonuses no longer seem to be enough. Key takeaways: imagine a pyramid representing the different possibilities with which a manager relates to his or her company and its compensations, with the base being the lowest and the top the highest. At the top, we would find the condition of PARTNER, in a greater or lesser percentage. At the base (the lowest), the fixed salary for life. Climbing up the pyramid, above the fixed salary, we would have variable remuneration based on objectives, profit sharing, etc. ..... Phantom shares are a way to benefit or retain the best managers or professionals without making affecting the actual ownership or transfer of any shares.. However, in recent years, employers are more and more seeking for new ways to give value or retain their best managers or professionals. As I mentioned before, the typical bonus seems no longer enough... But of course, no businessman wants to go to the extreme of making these workers or professionals partners. The latter is far easier and more frequent in listed companies, but difficult to assume in family businesses, as these structures already do face enough problems with their family-bound partners. So, how to work out a plan for rewards that gives selected employees (senior management) many of the benefits of stock ownership without actually giving them any company stock? Fundamental rights of the partners of a company Being a partner in a company entails (in short) two fundamental rights. Political rights (represented above all by the right to vote). Economic rights (represented by the right to dividends and the right to obtain gains from the sale of shares). Subsequently: If you want to confer your upper management, something that gives the same or similar economic rights as the ones related to a shareholder, but – here’s the key! - without granting any political rights, since they are not a shareholder in any way, then a phantom stock plan is the appropriate formula. Actually, this is the origin of these shares, the so-called phantom shares. This "bonus" or remuneration plan underlies to a contract signed by the parties. Sometimes the incentive is part of the senior management employment contract or of the contract for the leasing of services of the external commercial collaborator. The terms included in this document do not have any inherent requirements or specific restrictions. Here I offer some ideas: Receivers of synthetical equity or phantom holdings, phantom share The following may be recipients of the phantom share plan: Senior managers of the Company, as defined in Royal Decree 1382/1985, of August 1st, which regulates the special employment relationship of senior management personnel; Employees or executives (who are not considered senior executives according to the aforementioned regulation) considered as "key employees or executives" for the Company, either because of the responsibilities attributed to their position or because they carry out their work in an area considered to be of special relevance for the main activity of the Company; and/or. Any other third parties or collaborators. Individuals or legal entities whose contribution to the performance of the Company's main activity is considered to be of special relevance by the Board of Directors. Compliance with Phantom Stock Plan in writing The Plan is formalised in a contract or annex to the contracts. A copy of this plan may also be given to each beneficiary, as well as a letter setting out the specific rights and obligations of each beneficiary. Economic rights of phantom shares or units Beneficiaries may have any or all of the following economic rights: A % of the value of the company, which will be equal to the amount realised from the sale, or, where appropriate, a value as objective as possible accrued at the time the beneficiary's right to receive it is agreed. This is the most common formula that gives selected employees many of the benefits of stock ownership, such as their participation in the value increasing of the company. It keeps them highly motivated towards a diligent performance as a senior manager. That is the ultimate purpose of this plan. An agreement stipulating that the beneficiary will be entitled to an annual remuneration based on the percentage of phantom shares in relation to the results (say dividends) is also feasible, but frankly speaking, less common. Political rights of shares or phantom holdings It is not necessary, but I personally recommend to set-up a written agreement in the aim of clearly establishing that the beneficiary will not acquire any ownership, possession, usufruct, economic or political right over the shares that serve as a reference for the calculation of the corresponding remuneration, nor over any other shares that make up the Company's share capital. Obligations of the beneficiaries It is usually agreed that the beneficiary will be entitled to these phantom shares or units, provided that they meet certain objectives. These are usually temporary (e.g., permanence in the company for x years to guarantee loyalty) or the fulfilment of economic objectives, such as the amount of sales, profits, Ebitda, etc. Consolidation I suggest agreeing that the rights granted to the Beneficiaries will be subject to a vesting period. This will serve to schedule, where appropriate, the rights and the remuneration to be received by each of them. Thus, it is usually agreed that the Beneficiary will accrue periodically (e.g. annually or half-yearly) x % of the attributed rights, the vesting of which will be determined throughout a certain number of months. Assessment of vested rights Here we refer to the date on which the vested rights are collected by the beneficiary, and thus paid by the company. There are many scenarios. The most common ones are: Total or partial sale of the company. Decease. Retirement or disability of the beneficiary. Sometimes it also includes cases of unfair dismissal. I highly do recommend a regulation of the payment method of the amount that the beneficiary is entitled to receive. Commonly, an agreement stipulating that all rights are lost and therefore nothing will be paid in cases of voluntary leave or fair dismissal is fixed. Contact our Legal Advice Department, our experts can help you to set-up this comprehensive instrument, accurately. It is being used more and more as it allows to link professionals or managers to the business project. Furthermore, it does not entail any periodic disbursement or cash flow problems, unless a payment for the above reasons is fulfilled. No doubt, this feature can be very useful for start-up companies which do not have the cash-flow to pay high salaries of qualified people, but aim for attracting talent to these initial projects with other mechanisms that sometimes suppose a higher risk. Interesting... Get more information by listening to our podcast in spanish on the subjects: Shareholders' agreements, phantom shares. In this podcast we also deliberate about the topic of shareholders' agreements. You can find us on all platforms by searching for PodcastbyCarrillo. We are on Ivoox, Amazon Music, iTunes Podcast, Spotify and Google Podcasts, as well as Youtube. Feel free to subscribe to receive our updates, we’ve got you covered!