Tax treaty between France and Spain: full guide to the rules and tax implications

France and Spain have jointly decided to sign a tax treaty to avoid double taxation and to facilitate relations between the two States. The most recent France-Spain tax treaty was signed 10 October 1995 and has been in force since 1 July 1997. This tax agreement was negotiated on the basis of the specific features of each the two countries. It is based on the models defined by the Organisation for Economic Co-operation and Development (OECD). For the allocation of tax powers, this bi-national agreement is essentially based on two criteria: the State of of residence of the beneficiary and the state of source of the income. The Immo365 Costa Brava website tells you all you need to know about about the tax treaty between France and Spain.

What is the scope of the tax treaty between France and Spain?

Initially, the French-Spanish tax treaty sets out the concept of residence in order to determine the place of taxation for wealth tax and income tax. Although wealth tax was abolished in France in abolished in France in 2018 (it has been replaced by the real estate wealth tax), it is still in force in Spain with some Spain with certain particularities by region.

If you are considering becoming resident in Spain, the tax treaty between France and Spain applies to anyone resident in one or both states. The law considers you as a resident of a State if you are subject to tax in that country. For certain situations of dual residence, however, the law provides criteria for determining the place of liability:

• the country where the resident has most of his vital interests,
• the country where he spends most of his time,
• the State in which the resident has a permanent home (location of children and spouse)

Failing this, the country from which the resident derives his nationality may also be taken into account. For example, if the resident is Spanish with a valid DNI (national identity document), he will be taxed in Spain. The DNI in Spain is the equivalent of the identity card for French nationals. The tax treaty provides for an arbitration mechanism that allows tax residence to be determined if the conditions for tax liability in both states are met. There is also a treaty between the two countries for inheritance tax.

France-Spain tax treaty: the concept of permanent establishment

The concept of permanent establishment is an important point in international tax treaties. France and Spain appropriate for this purpose the definition of permanent establishment taken from Article 5 of the OECD model. The French-Spanish tax agreement allows a so-called permanent establishment to be taxed in Spain, regardless of its legal status. The company will be taxed according to the same rules as those applied to a local company, with the same tax declarations and accounting obligations. tax returns and accounting obligations.

The article of the Franco-Spanish tax treaty provides that the profits of a French structure are taxable only in France. This is not the case if the company only carries on its business in Spain through a permanent permanent establishment located there. In this case, the company's profits are taxable only in Spain to the extent that they are taxable in France. Spain to the extent that they are taxable at the permanent establishment. This mainly concerns tax on VAT (value added tax) and corporation tax (IS). A permanent establishment is recognised in the following cases following cases:

• the establishment has employees in Spain,
• the company has a permanent location (rented or own premises)
• the structure has a perennial activity.

On the other hand, the establishment will not be considered stable if it only has a warehouse for the storage of goods or the development of preparatory activities.

The rules for buying a boat in Spain

Buying a boat in Spain is subject to numerous legal and tax rules. The law requires people resident in Spain to register under the Spanish flag all boats that are used in the territory. For buy a boat in Spain, you need to bear in mind that different taxes may be applied to the purchase of a pleasure craft. The seller must pass on VAT to the buyer for the purchase of a new boat.

Boats over 2.5 m in length in Spain must be registered with the Directorate General of the Merchant Navy in the Register Register of Ships. This register should be consulted prior to any purchase in order to obtain information on any disputes or the owner. conflicts or the owner. You must request abandonment of your Spanish flag from the Register of Ships Register if you are switching to a foreign flag.

France-Spain tax treaty: provisions on the tax treatment of income

The tax treaty between France and Spain applies to income and wealth tax. Here are the different taxation criteria depending on sources of income.

The tax treatment for private remuneration

As a general rule, private employees are taxed in the country where the income-generating activity is located. You will therefore be subject to income tax in Spain if you are a French national who receives wages in Spain. However, Spanish income may, however, be taxed in France if certain cumulative conditions are met:

• the temporary stay of the person concerned in Spain must not exceed 183 days per year,
• the salary must not be paid by a French employer who is not resident in Spain,
• the French company employing the employee must not have a permanent establishment in Spain.

The salaries are taxed in Spain if these three cumulative conditions are not met.

Tax treatment for public remuneration

Even if you live in Spain all year round, salaries, public pensions and wages are taxed in France. In this case, the matter is handled by the non-resident tax department. However, this rule does not apply to a resident who only has Spanish nationality. Public pensions in this case are taxed in Spain.

Real estate income

Income from property located in France and rights relating to such property (usufruct, bare ownership, undivided rights) are taxed in the property income category. In principle, you are required to declare all of your property, even in the country of residence. Under Article 19 of the tax treaty between France and Spain, capital gains on the sale of property are taxable in the country where the property is located. It may also be taxed in your country of residence.