Foreign funds held in custody in Spain will be subject to Wealth Tax

The location of financial assets is a determining factor for calculating the taxable base for Wealth Tax. Recently, the Directorate General of Taxes (DGT) has clarified the tax treatment of holdings in foreign investment funds when their custody is provided through financial institutions in Spain.

What the DGT has ruled

The binding ruling addresses whether holdings in foreign collective investment institutions are considered assets or rights located in Spanish territory for Wealth Tax purposes. The Administration's criterion establishes that if such holdings are deposited in a securities account opened with a Spanish financial institution, they are considered to be located at the office of said institution.

Since it is determined that the assets are physically located in national territory due to their place of custody, the applicable regulations (Law 19/1991 on Wealth Tax) require their inclusion in the taxable base for those taxpayers taxed by real obligation.

What this means for you

This criterion has a direct impact on two specific profiles:

• Residents in Spain taxed by real obligation: Those subject to the tax who hold assets abroad but use a Spanish entity for the management and custody of their funds.
• Displaced workers (Special Regime): Expatriates covered by the special regime of Article 93 of the Personal Income Tax (IRPF) Law who maintain foreign funds held in securities accounts of Spanish entities.

In both cases, the fact that the fund is of foreign origin does not exempt it from taxation if the securities account where the titles reside is Spanish.

What should be done

It is necessary to conduct a review of the location of the declared financial assets. The location of the securities account and the custodian entity is the key element in determining the territoriality of the assets. It is recommended to evaluate the custody structure of foreign investment portfolios to ensure compliance with tax obligations in Spain and avoid potential contingencies with the Administration.