By means of an explanatory memo the Spanish Inland Revenue outlined the meaning of the NIE and NIF terminology and the distinction between them. The national police department assigns subjects a unique id number that is utilized as a fiscal identifier.
For people from abroad, the police produces an identity document, that has comparable functionality as the DNI (national identity document) that Spanish nationals hold. One major difference with the DNI is that this document doesn’t constitute a proof of Spanish nationality, which is the reason why foreigners cannot be issued a DNI.
If you hail from a European Union country, the police department will issue you a document confirming your residence on grounds of exercising EU treaty rights, while non-EU nationals need to have been granted a ‘Permiso de Residencia’. Either of those documents has their own identification number, but should not be confused with the NIE which will also be stated in these documents. The NIE will be assigned to you during the process of obtaining these documents if you didn’t have a NIE already.
It is not necessary to become a resident in Spain to have a NIE number, in fact it’s very common to obtain a NIE without any inclination to become a resident. Many people need a NIE because they are buying a second home for to stay here or to pursue business interests.
For foreigners in Spain, the NIF (fiscal identity number) and NIE (identity number for foreigners) are interchangeable, because the numbers will be the same, while for Spanish nationals on the other hand the NIF refers to their DNI.
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