Interest rates are starting to make themselves felt in bank accounts, although not as universally as they should. Although it is possible to find deposits at 4% interest, it is normal to find them in foreign banks. The reason? The lack of banking competition in Spain due to the integrations that have taken place over the last 15 years.
And when it comes to taking out deposits in foreign banks, many people are put off because it is not so obvious how to declare the profits obtained, even if we are talking about banks in the Euro zone of the European Union, where there is no currency exchange.
Taxation of deposits
Interest earned on deposits is considered as income from movable capital for personal income tax purposes. Their taxation is different from that of earned income; it is lower. And the tax payable is calculated as follows:
- Income up to 6,000 euros is taxed at 19%.
- Income between 6,001 euros and 50,000 euros is taxed at 21%.
- Income over 50,001 euros is taxed at 23%.
For example, if we receive interest of 10,000 euros, the first 6,000 euros are taxed at 19% and the rest at 21%, i.e. 6,000 x 0.19 = 1,140 euros plus 4,000 x 0.21 = 840 euros, in total 1,980 euros (an average rate of 19.8%).
However, declaring these taxes is much easier as it is done automatically by the Tax Agency’s Renta WEB programme. What’s more, if the bank account is held by a Spanish bank or a foreign bank with a branch in Spain, they are obliged to report the data and it will automatically appear in our draft, which will only have to be confirmed.
The problem comes when the foreign bank does not have a branch in Spain and we have to declare the income manually. But it is not very complicated either, as you only have to report the interest as we are going to explain below and Renta WEB takes care of calculating the tax to be paid.
The box on the tax return in which to indicate interest income
The box in which to declare income due to bank interest is 027, on page 5, section B: “income from movable capital”. Clicking on this box allows you to enter the full income, withholdings and expenses. This is normally reported by Spanish banks and banks with a branch in Spain but if we have an account in a foreign bank without a branch in Spain we simply have to register a new income and enter only the income.
The withholding tax box should be left empty because if we have been charged a withholding tax it has not been for the Spanish Government (if they did so then they would already be reporting the data to our Hacienda draft and we would not have to do anything, just confirm the draft). Therefore, if we have been charged a withholding tax it has been by a foreign state and must be declared elsewhere.
These foreign withholdings must be reported in box 588, under the heading “tax paid abroad”. Renta WEB then automatically calculates a double taxation deduction so that you do not pay tax twice for the same thing. Ideally, in any case, we should indicate to the bank where we have the deposit that we are resident in Spain so that no withholding tax is withheld abroad.
Form 720
One last indication if we have important deposits abroad: there is a legal obligation to report any declaration of assets abroad that exceed 50,000 euros. This is the form 720.
In the past, this form was an ordeal and, in addition, failure to do so could result in heavy penalties, but due to a ruling by the CJEU, which indicated that this taxation of assets hindered the free movement of capital within the EU, it is now much simpler. However, it is a procedure that must be carried out if we have, for example, deposits of more than 50,000 euros in a foreign bank.
In any case, we continue to believe that the 720 model should be withdrawn definitively in order to comply not only with the CJEU ruling to the letter but also in spirit. Just as Economía withdrew the D6 because it made no sense, the 720 is also obsolete.