If you’re an American expat living in Spain, you’re probably already aware of many of the often complex US and Spanish tax and reporting requirements. One specific requirement that often causes confusion is Spain’s Modelo 720 form, Spain’s equivalent of the US FBAR form, which is for reporting certain foreign assets to the Spanish tax authorities. In this article, we’ll cover what Americans in Spain need to know about Modelo 720, including its what it is, who needs to file, how to file it, and what happens if you don’t.
What is the Modelo 720 Form?
Modelo 720 is a tax form that required all Spanish tax residents to declare foreign assets if the total value of your non-Spanish assets exceeds €50,000 to the Spanish tax authority (Hacienda). This includes bank accounts, real estate, investments (such as stocks and cryptocurrencies), insurance policies, and annuities held as of December 31st of the previous year. The form must be submitted annually before March 31st.
One rule to keep in mind is that if you hold joint assets and the total amount exceeds €50,000, each owner is responsible for reporting the full value of the joint assets and indicating their share. Furthermore, even if your share is under the €50,000 threshold, the entire value must still be reported if the combined total surpasses this amount.
Also note that if you’ve previously filed the Modelo 720, you don’t need to submit it again unless your foreign asset holdings increase by more than €20,000 from the amount declared the previous year. This is notably different to the US FBAR rules, which require the form to be filed every year.
Who needs to file the Modelo 720 Form?
Any person who qualifies as a tax resident in Spain must file the Modelo 720 if they have qualifying foreign assets. Generally, you are considered a tax resident if you live in Spain for more than 183 days in a calendar year. It’s important to note that American expats who meet these criteria must comply with Spanish and US tax laws, including FBAR (Foreign Bank Account Reporting) and FATCA (Foreign Account Tax Compliance Act). We delve more into this below.
Filing criteria
The following thresholds trigger the filing requirement:
- Bank accounts held abroad with an aggregate balance exceeding €50,000.
- Investments and securities valued above €50,000.
- Real estate properties located abroad, valued at over €50,000.
If any of these thresholds are exceeded at any point during the calendar year, you must file the form. Also, if the value of any asset in a previously declared category increases by more than €20,000 in subsequent years, you are required to update your declaration.
How to file the Modelo 720 Form
Filing the Modelo 720 is a multi-step process that can be a bit cumbersome, especially for those unfamiliar with Spain’s tax system. The form must be submitted electronically through Spain’s tax portal between January 1 and March 31 of the following year. Here’s how:
- Gather necessary documentation: This includes statements from foreign bank accounts, investment reports, and property deeds.
- Register for access to Spain’s electronic tax system (Clave or Certificado Digital).
- Log into the Agencia Tributaria website.
- Complete the Modelo 720 form by declaring the necessary foreign assets for each of the three categories.
- Submit the form electronically: Double-check your details before submitting, as errors can lead to fines.
If you’re uncertain about any part of the process, consulting a reputable Spanish tax advisor with experience working with expats can be very helpful.
How to avoid filing the Modelo 720 Form
Some Americans who have relocated permanently to Spain choose to move their assets to Spain. However, this decision comes with its own set of complexities in terms of US reporting rules and Spanish tax implications.
- Spanish taxes: Moving your assets into Spain may expose you to Spain’s wealth tax or other new taxation. While you may avoid Modelo 720, local tax implications should be carefully evaluated.
- US FBAR and FATCA reporting: Even if you move your assets to Spain, as a US citizen, you’re still required to file the FBAR if the total value of your non-US financial accounts exceeds $10,000 at any point during the year. Under FATCA, expats must report foreign assets if they exceed $200,000 on the last day of the year (or $300,000 at any point) for single filers, with higher thresholds for joint filers. Both are strictly reporting requirements and don’t trigger tax liabilities, but failure to comply can lead to penalties.
Penalties for non-compliance and legal changes
Failure to file or providing inaccurate information on the Modelo 720 can still result in penalties, though they have been significantly reduced following a 2022 ruling by the European Court of Justice (ECJ). Before, non-compliance could lead to fines of €5,000 per unreported asset, with a minimum fine of €10,000. The ECJ ruled these penalties as disproportionate, violating the EU’s principles of free movement of capital.
After the ruling, Spain revised its laws, lowering the fines and removing the perpetual nature of tax debts related to the form. Now, the penalties for non-compliance are lower. If you submit an incomplete or inaccurate declaration, the fine is €1,500 per group of data, rather than the previous €5,000 per unreported asset. Additionally, any tax-related debts will now expire after four years.
Although the fines are less severe, it remains important for American expats in Spain to file the Modelo 720 accurately and on time to avoid penalties and stay compliant with both Spanish and US tax obligations.
Final Thoughts
For American expats living in Spain, understanding the Modelo 720 is an important aspect of staying compliant with Spanish tax law. While the form itself is simply a declaration of foreign assets, the penalties for failing to file are high. By ensuring that you file correctly or exploring strategies to move investments to Spain, you can navigate this requirement smoothly. However, it’s important to remember that relocating your assets may lead to other tax obligations under both US and Spanish law. Seeking cross-border investment and tax advice is strongly recommended to ensure full compliance with both jurisdictions.
If you have any questions about financial planning as an American living in the EU, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.
