What is a Compliant Portfolio Bond?
These bonds qualify as unit-linked life insurance contracts under Spanish law and as such will be treated differently to other investments. Providing the funds held within the bond are Spanish tax compliant, you will not need to pay tax each year on any gains. Instead, you can defer tax liability until you make a withdrawal or cash in the policy. Even then you will only be taxed on the part which relates to investment growth. This will be based on the difference between the value at the time of investing and the value on withdrawal or encashment.
Provided the selected funds are Spanish Compliant you can also make changes to your investment portfolio at any time without incurring any immediate tax liability providing the changes do not involve payments being made out of the policy.
If any of the underlying investments are not Spanish tax compliant, the return is taxed on an annual basis as savings income. The taxable base is calculated as the difference between the exercise value of the assets linked to the policy at the beginning and at the end of each tax year. The amounts taxed on an annual basis would be deducted from the proceeds of the policy. Individual company shares would not be considered as compliant investments.
Investments held within a compliant bond do not need to be included on the Modelo 720 Declaration of Foreign Assets.