While registering (empadronamiento) is a simple and often necessary process to access certain services in Spain, people who are not tax residents should be cautious before taking this step. For those who own a property in the Canary Islands but are not tax residents in Spain, registering may bring unintended tax and legal consequences. Below, we will explain the main issues non-residents may face when they register in the Canary Islands.

1. Confusion Between Tax Residence and Domicile

The certificate of registration generally indicates that a person lives habitually at the registered address. In the case of non-residents, this procedure can create confusion regarding their tax situation. It’s important to understand that registering in Spain can be interpreted as an implicit declaration that your property in the Canary Islands is your main residence, which is not the case if you are a non-resident for tax purposes.

The problem arises when the Spanish Tax Agency (Hacienda) cross-references data and discovers that you are registered in Spain. To them, this may suggest that you have established tax residency in Spain, which brings tax obligations, including the declaration of all your assets and income, both in Spain and worldwide.

2. Obligation to Declare Taxes in Spain

Registering in Spain as a non-tax resident can lead to Hacienda requiring you to file a tax return in Spain, which is a complex and costly process. This means you would have to declare all your global income, including that generated in your country of origin. At this point, you could find yourself in a situation of double taxation, paying taxes in both Spain and your home country.

Although there are agreements to avoid double taxation, the process of claiming a refund for taxes paid in your country of origin can be long and tedious, and in some cases, refunds may be incomplete or even denied. Ultimately, this could lead to you paying taxes unnecessarily in two jurisdictions.

3. Penalties for Incorrect Declarations

If Hacienda detects that you have not declared your assets and income according to your registration, penalties may be imposed. These fines can be significant and often include not only the payment of the owed taxes but also a financial penalty for omitting or incorrectly filing the declaration.

This creates a financial risk that many people do not anticipate when registering without being tax residents. It is essential to remember that the Tax Agency is continuously improving its systems to cross-check information between countries and detect inconsistencies.

4. Misuse of Benefits

In the Canary Islands, residents are entitled to certain benefits, such as discounts on travel between the islands and the mainland, thanks to the Economic and Fiscal Regime (REF) that applies in the Canary Islands. However, these benefits are exclusively for tax residents.

If it is discovered that you have accessed these benefits without being a true tax resident, you could be required to repay the benefits received and may face additional penalties. Although this situation is not very common, it is a risk that should not be ignored.

5. The Danger of Misinformation

A common problem among those who are not tax residents is misinformation. Many people who own a property in Spain assume that registering is a necessary process for all homeowners, without understanding the tax implications involved. Some even receive incorrect advice encouraging them to register without being aware of the risks.

It is crucial that, before carrying out any procedure, proper tax advice is sought to fully understand the implications of registering in Spain as a non-resident. Good advice can help you avoid legal and tax problems in the future.

Registering in the Canary Islands as a non-tax resident may seem like an innocent process, but it has significant tax and legal implications. From the possible obligation to declare taxes in Spain to penalties for misuse of benefits, the risks are real and can create both economic and bureaucratic complications. If you own a property in the Canary Islands but your tax residence is in another country, it is vital that you inform yourself thoroughly and seek appropriate advice before registering.

Staying informed and acting with caution is the best way to avoid unpleasant surprises in the future.