Anyone who relocates their main residence to Spain and becomes a tax resident here enjoys many benefits. On the other hand, obtaining the residencia often raises a number of questions. A common topic is the Modelo 720 form.
This informative declaration about assets held abroad is a must for many residents. We explain what you need to know about it and how you can prevent potential issues, such as failing to declare a property abroad.
CONTENT
- What exactly is the Modelo 720?
- Who has to submit Modelo 720/721?
- Which assets must be declared in the Modelo 720?
- Deadlines and subsequent years: When is the Modelo 720 due?
- What penalties apply for non-compliance?
- Submitting the Modelo 720 correctly
What exactly is the Modelo 720?
Think of the Modelo 720 as a kind of inventory list that you submit to the Spanish tax authorities. The Spanish tax office wants to know which significant assets its tax residents hold outside of Spain.
This obligation was introduced back in 2012 to increase transparency and make tax evasion more difficult.
Who has to submit Modelo 720/721?
The good news first: not every euro held abroad has to be reported. The obligation to submit Modelo 720 only applies if the total value of all assets within one of three clearly defined categories exceeds the threshold of €50,000. If this threshold is reached in one category, then only that specific category needs to be declared.
In general, you are required to submit Modelo 720 if you are an individual with tax residency in Spain. The same applies to companies that are based in Spain. Trustees and authorised representatives who manage foreign assets on behalf of others may also be obliged to declare.
Just as a reminder: you are considered tax resident in Spain if you spend more than 183 days in the calendar year in the country, or if the centre of your economic interests is in Spain. If you have a spouse and underage children living in Spain, the tax office will often also assume you are a resident.
Modelo 721: The form for cryptocurrencies
Digitalisation has not stopped at tax law. For cryptocurrencies such as Bitcoin, Ethereum and the like, which are held with foreign service providers or in wallets outside of Spain, the Modelo 721 has existed since 2023.
Here too, assets exceeding €50,000 must be declared.
Which assets must be declared in the Modelo 720?
The three categories of assets for which amounts exceeding €50,000 must be reported are:
Category 1: Bank accounts abroad (Clave C on the form)
This includes all types of accounts held with financial institutions abroad: current accounts, savings accounts, fixed-term deposit accounts, and similar products. Even balances on credit cards, if they are managed like accounts with positive balances abroad, may be relevant.
- Threshold: The obligation to report arises if either the balance as of 31 December of the previous year or the average balance of the last quarter of the previous year (sometimes also of the entire year, depending on interpretation) exceeds the €50,000 threshold. It is sufficient if either one of these values is above the limit.
- Who must report? Not only the account holder themselves, but also authorised signatories or beneficial owners.
Accounts that were opened during a tax year and closed again before 31 December of the same year generally do not need to be included in this category of the Modelo 720, as they no longer exist on the reporting date.
Category 2: Financial investments, shareholdings and insurance policies (Clave V, I, S)
This category is a catch-all for various financial products:
- Securities: Shares, bonds, fund units.
- Shareholdings: Interests in foreign companies or partnerships.
- Insurance policies and pension entitlements: Life insurance policies with surrender value, private pension insurance policies or other forms of investment held abroad that represent a certain value.
- Threshold: The total value of all items in this category is what counts. For example, if you hold shares worth €30,000 and a life insurance policy worth €15,000 (a total of €45,000), you do not need to declare anything for this category. It only becomes relevant when the total exceeds €50,000.
- Update since 2023: Certain insurance policies without a direct surrender value, meaning they cannot be terminated early by the policyholder, are now also subject to declaration. In such cases, the value of the so-called mathematical reserve must be reported.
Category 3: Real estate and property rights abroad (Clave B)
Failure to declare foreign property can lead to problems. The property in question might be a holiday home, an inherited flat, or a rented-out property.
The key factor is the purchase value. In the case of later changes in value, or if you become a resident while already owning the property, the value as of 31 December may also be relevant.
What does not need to be declared in the Modelo 720?
Fortunately, not every minor asset needs to be reported. Items such as cash, jewellery, cars, boats, or works of art held abroad are generally not subject to the declaration requirement of the Modelo 720.
Deadlines and subsequent years: When is the Modelo 720 due?
The declaration must always be submitted for the previous calendar year, and the deadline is 31 March. Submission to the tax office is carried out electronically.
Once you have correctly submitted the Modelo 720, you are not necessarily required to file it again every year. A new declaration is only necessary if:
- the value of the assets in an already reported category has increased by more than €20,000 compared to the last declaration.
- a category that previously did not require reporting now exceeds the €50,000 threshold.
- an already reported asset no longer exists (e.g. due to the sale of a property, closure of an account, or expiry of an insurance policy).
What penalties apply for non-compliance?
Before 2022, the penalties for errors or failure to submit the Modelo 720 were draconian. The disproportionate sanctions prompted the European Court of Justice (ECJ) to intervene. In its ruling of 27 January 2022, the ECJ declared the old penalty regime to be in violation of EU law and therefore invalid. Spain was required to amend its laws, which has since been done.
The current situation: caution still advised
Even though the penalties are now milder, the obligation to submit the Modelo 720 still applies. Those who voluntarily correct their declaration or submit it late before the tax office takes action usually get off more lightly.
If, for example, a foreign property is not declared, or if incorrect or omitted information is discovered, it can still become expensive. In certain circumstances, taxation as an “unjustified increase in wealth” remains possible.
Submitting the Modelo 720 correctly
The Modelo 720 remains an important obligation for many residents of Spain with assets held abroad.
At Global Tax Saving, we support you in correctly fulfilling your declaration duties. From assessing whether you are affected at all, to compiling the necessary information, through to timely electronic submission—we are here to assist you every step of the way.
Do you have questions about the Modelo 720 or need support?
Get in touch with us and let our experts in Spanish tax law take the worry off your hands.
