[ HTJ Podcast ] U.S. AND SPAIN TAXES FOR EXPATS – 4th March 2021
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Okay, good evening to most of you and good morning to those of you and other times zones and jurisdictions. Good to see you. Welcome to our webinar on US/ Spain TAXES so just a bit of housekeeping, please could you keep the volume? The volume is off. I have it on mute. Everyone is mute. So please don't unmute. And please keep in mind that we are recording this. So, if it is that you do not wish to be recorded. You, feel free to turn off your camera. We will proceed as we have done this. I think some of you who have joined us before from the names that I can see, I'm seeing some familiar names. So, what we do is we have 20 minutes. I'm going to talk for like 15, 20 minutes on US tax. My colleague Ricky is going to speak for 15, 20 minutes on taxes in Spain. And that frees us for the remainder of the time to do a Q and A. Thank you for those of you that is for those of you who submitted your questions in advance. We have them and we will get to them during the Q and A. If you yourself have any questions right now, feel free to type in the box below the chat box here or in zoom, just to type your question. And we will input time permitting, we will get around to your question. So, without further ado, do you let me start sharing my screen?
All right, wonderful. So, I'm going to talk about the US side for international entrepreneurs and expats who may or may not be based on Spain. Alright, so just in terms of a bit of background about myself, my name is Darren Joseph and I run a semi-autonomous tax team within Moores Rowland. So, more's role in Asia Pacific is a medium sized tax practice, accounting practice. We, most of offices are in Asia, where we have 30 offices in 12 countries as far north, Tokyo and Beijing, all the way down to Australia. I actually sit in Singapore. This October I would be eight years in Singapore. Because I am US qualified, I am required to say that nothing that we discuss here this evening should be construed as advice for those who may be self-filers. And you can with pen and paper and your thinking, and a lot at the end of this, I'm going to be able to complete tax returns on my own. Definitely, definitely, definitely not. We consider this an education piece or what we hope you'll walk away with are some key concepts and principles that you need to keep in mind as you engage in advisor who knows your situation inside out. Again, this is not advice. We are having a general conversation about general principles, nothing we say here should be construed as encouraging you to pay a less than your fair share of taxes in any jurisdiction of which you are exposed in. And of course, we have to say that to stay out of the jail, thank you.
So, when we say that the IRS has a long arm in the region are overseas. These are the two examples of gentlemen that I like to use, who have been caught by a long arm, of the United States, even though they're outside. If it comes up in the Q and A I'll circle back and reference them, but in the meantime, I'll proceed with all that.
So, the takeaways would be, I want to talk about citizenship-based taxation. I want to talk about the mechanism that the US government uses to figure out what you're doing overseas. Even though you may not report what you're doing overseas, and as US exposed persons reside outside of the US, I'm going to talk about basic principles and we distill them into four keywords that I think, and acronyms that we call the BEST, do your best. So, I'm going to talk about bank accounts, estimated tax, state tax, and transfer taxes. I want to touch on stimulus payments because we've been getting quite a few questions on that and President Biden's tax plan and what we can, the changes of we may expect to see. So that will assist you guys in terms of your follow-up planning, because we like to look at plan, taxes from a strategic perspective.
Alright. And citizenship-based taxation. I think it's pretty clear that the US does practice it in such a big tax Asian. Now that may seem obvious to you guys, but believe me, there are still people out there who believe that they are not outside of the US, and therefore they are not required to file and pay taxes. That can be cannot be further from the truth. Regardless of where you reside, you’re required to file and pay taxes. It's just the way it is. And yes, citizenship-based taxation is typically attached to the two jurisdictions. Well, so from the US, in Eritrea, a country in the horn of Africa, but you know, many other countries practice a wide taxation. And depending on the situation that existed, when you leave your country of origin, many European countries, they have a fallback rule. So even though you reside outside of Europe or outside of your European country of origin, you're still required to file and pay taxes back in Europe. So, the whole idea of being bound by citizenship is not new and it's not really restricted to the US. I mean, the US is extremely sticky that you cannot get rid of it, but there are other jurisdictions where you are still required to file and pay even though your outside. And then the way these fallback rules are becoming more and more aggressive. So, we think this is a trend that is happening, you know, across the developed world, to be honest with you.
Now people ask, okay yeah yeah, yeah. You know, whatever I'm required to file and pay taxes back in to the U S, how are they going to figure me out? I'm all the way in Spain. I'm all the way in wherever. Who's going to know? How are they going to know? That's the answer right there is called FATCA. The Financial Account Tax Compliance Act. So that was passed, I think, in around 2010 or so. And empowered in the US government to go around the world, signing bilateral agreements. So, for example, Spain has signed an agreement with the United States and they have basically set aside the domestic bank secrecy laws, and they require all financial institutions to go through their books and ask the team who may be US exposed and report them to the US government. So that's the check and balance even do you may not see the banks and financial institutions are legally required to say, and not just balance, but we are not just talking about brokerage, brokerage houses or cryptocurrency exchanges. It’s quite popular these days, but so any financial type institution is required to observe certain protocols and report you US exposed persons to the US government. Now like me, I'm sure many of you have more than one passport. So, you go to sign up for whatever it is and you pull out your other passport. Now, keep in mind that even though you may deny or avoid the topic of being US exposed, financial institutions are required to look for certain indicia or indicators that even if you deny it, without you knowing they are legally required to report you to the IRS. So that is how the system of check and balance that exists. What did we mean by US exposed persons? So obviously if you have a us passport or a green card, otherwise known as the lawful permanent residence or a resident of the US, but there are other circumstances that may trigger that US tax status. One of which happened I mean, it's been quite popular within the last year or so, given the travel disruptions, it's substantial presence. So quite a number of people have been disrupted. There are unable to leave. So, there were trapped in the US and unable to return to their jurisdiction of origin and unintentionally they may have become US tax residence and not just within a US, but other jurisdictions. People will trap for a while and unable to travel.
There's also the issue of what we call accidental American. So, if you’re born outside of the US, you may be born in Spain, but at least one of your parents was a US exposed. And there are deemed to have been domiciled in the US, whether you registered a birth at the embassy or not, you are a US person, and we help clients catch up once they realize that they are US exposed later on, but accidental Americans is a very, very real.
And then not very well known, there is this non-resident alien spouses. So, a non-American spouse married to non- US spouse who would decide to make what we call the Section 6113 G election, where they elect to be treated as US person, even though they are not required to. Now that could be part of your strategy because again, taxes are not just about filling out forms, it’s about thinking strategically. If this is an interest, we can handle this in the Q and A later.
So, what are the responsibilities of US persons? Well, obviously you need to file and pay taxes of the amount that is pretty clear, right? But here’s a trick, right, when it comes to international tax, the IRS is a bit counterintuitive. What do we mean by that? So, when it's domestic tax, they want to make sure you pay. When it comes to international taxes, when you look at the schedule of penalties and charges for non-compliance, it's pretty clear that the emphasis is on information, not on filing and pay in taxes. If you don't file and pay, okay, fine, you do get interest or whatever, but if you don't report a bank account, or if you don't report your investment in a company in Spain or whatever the case may be. If you don't report mutual funds or whatever, accounts outside of the US that is not just the civil penalties, but it also may be criminal. You can go to jail and the penalties are pretty draconian, even in a civil penalty have a really aggressive. So, it tells us if that's what the IRS wants, and they become aggressive in post 9/11, the Patriot Act going forward. It's all about information there. Implicit assumption in the side of the U S government, if you do not report what you're doing overseas, it has assumed that you and engaged in some sort of nefarious activity and the treat you as such. So, report, report, report, if you are reporting bank account and stuff like that, it doesn't necessarily need to lead to the tax liability. It's simply reporting requirement.
Okay. So, you know, this, we are almost done with this side, and this is just I think it was a cool acronym, just a reminder of what your responsibilities are. So, you need to do your best. We don't mean by do your best. So be your report, all your bank accounts, as I mentioned. Not just your bank account, sometimes you would invest in a certain insurance products or certain pension structures outside of the US but when you look at it, it's really a wrapper and inside it’s some sort of a mutual fund or ETF or whatever. These are, tends to be a highly nuanced, if you should get advice, but they may be treated in a special way of what we can get into something called ppix, but just keep in mind that you have a responsibility to report financial investments or financial holdings outside of the US.
Estimated taxes. Obviously when you’re back in the U S you get paid on a W2, and yeah, there is withholding there's nothing much to do, when you are outside of the US so there is no withholding. So, part of the responsibility of yourself working with the tax team is to work on what your income as expected to be and make estimated tax payments to prevent those underpayment penalties.
State tax issues, most states in a union are a domicile state. What that means is that you need to be particularly careful about the rules about tax residency. So, in some states, even though you do not reside there, and you'd been living in Spain for a while, you may be deemed to still be resident in that state. So, pay attention to where the rules are to make sure that you've properly sever state of residency before you move on. And what we tend to coach our clients to do is just shift your domicile to one of those nine states without any taxes, particularly, you know, everyone likes Texas and Florida, or one of the, any of the states that are zero personal income tax states. So, make sure that that's where your deemed to be domiciled so, you don't have any surprises when you ran to the US.
Last but not least is transfer taxes. And these tend to get ignored and overlooked why? Because they're not really mentioned in great detail in the tax code. I mean, in terms of the other, being a resident for income tax purposes, you have Section 701, but we don't have much that speaks to domicile issues. So, what we need to do is understand domicile issues. Domicile issue, domicile drives with your exposure to gift and estate taxes. And the concept of domicile is understood through case law, not through the tax code. But basically that's where it, you know, that's where having an advisor comes in to make sure, especially as your living outside of the state, you maybe into a relationship with someone who's not American and you receive a gift from him or her, or you may gift to him or her, even if it's a spouse, a non-resident alien spouse, the gifting back and forth may be reportable, not taxable, but definitely reportable and in a certain threshold when certain thresholds are past. And then of course there is a state planning, and I know it's a bit morbid, but, you know, Hey, it's about taking care of loved ones after you, you, you pass on. So, estate planning is, is something that you should not overlook, especially when you're dealing with assets across a, in multiple jurisdictions. So, yeah, please do your best. I'm going to touch on the stimulus payments because we'd been getting lots of questions course had been to rounds. There was a first-round last summer, and then the second round there was approved in this late December. And there's a third round, which is of course being negotiated right now, as we, as we speak, if you did not get it and you qualify and you see the qualifications, they're, if you didn't get, it's not too late, you can file for a recovery-based credit. So, on the new forms. And one of the reasons why the tax season opened late this year is because the IRS had to revise the tax forms to include extra lines for the recovery credit. So, if you did not get it, just let your tax advisor Know. And if you are expecting to refund, the refund will be higher. If you have a tax liability, it will be reduced by the amount of that recovery bit credit. And if you have questions or on this, please check the website. The website is a really comprehensive of lots and lots of Q and a. The IRS has put, I've put a lot of effort into keeping it up with a website. Up-to-date check it up in terms of following the requirements.
This is often confusion around a foreign earned income exclusion. Some people are confused of the threshold for the foreign earned income exclusion, which is around a hundred and some thousand dollars where the threshold for filing is actually quite low. So, if you filing separately, married, filing separately, if their threshold for filing a US tax return in this year is actually $5. So, if you make more than $5, a tax rate is expected. Do they found an income exclusion, which is something else that's a benefit that comes to US persons that work overseas, and as a benefit afforded by a Section 911 of the tax code, which relieves, which provides an umbrella, a protection of the first seven to 107,000 or so, it moves it inflation of your income protected from a US tax liability? That's something quite different, which we can discuss later on if there's any misunderstanding on that. And most of our clients are higher income earners. So, some of the questions that we field, you know, from time to time is, Hey, where's my free money. Why didn't I get my money? We need to explain that the phase outs. So, when you earn more than a certain amount, the amount, so on the screen, the amount of, of the, of the stimulus payment would have been reduced or completely eliminated. So, for those of you who also have an income earner, that this could be one of the reasons why you didn't get it, if you were expecting it.
So now we're getting to President Biden's tax plan. Now it was pretty for those of you who looked at it. It was really a lot when, when he was campaigning last year, it was, you know, the document was circulated as a pretty comprehensive, obviously can be covered in its entirety right now. So, what I did is I just kind of pulled out some of the key points that might impact those of you who are abroad in within the demographics are the people that we normally interact with. So, for those who are higher income earners, there is proposals. These are all proposals and who knows what's going to happen once there is a negotiation with Congress, it may be completely different, but at least this is a starting point as we understand it. So, for high income earners, those are running over $400,000, expect at a tax increase for those who run their own companies. There is corporate income tax rate is expected to raise from 21 to 28%, which also has an impact on guilty for those who have structures in offshore jurisdictions like BVI, Caymans, Singapore, there’s Hong Kong, Malaysia. So, the mountain of the Gilty Tax, which is attached to the earnings that are returned within the company, that sets increase. There are also some changes around the lifetime exclusion for a gift in a state tax. So that may have implications for you as you plan you, you know, you, do you engage in estate planning or your succession planning with your companies for those who are on their own company. So those are some of the key points that I want to pull out in terms of what you expect to see as the negotiations continue on. So, again, it's not too late to speak to your advisors and get some strategic planning done. So, with that, what I will do is hand it over to Ricky, who will talk about Spain.
Hi, good afternoon to everyone, good morning for some of you. So well, my name is Ricky Gutierrez. I am from Barcelona Spain I'm from Gutierrez, Pujadas and Partners. It’s an international accounting tax and a law firm in Barcelona, Spain. We mainly, well, we are, we do both International and Spanish taxes, but we are currently for the past few years, we've been currently focused on international tax and the international client. We deal with many jurisdictions, not only a Spain, in the U S also a jurisdiction such as in Ireland, in the Netherlands or the UK, Germany, and even some East countries. First of all, I'm going to speak about the, this Spanish tax. Nowadays, well, and also in the past, the Spanish taxes have been pretty complex because you have to differentiate between the state tax and because here in Spain the percentage of taxes, it depends, or it may differ depending on the state or the region that you’re in, for example, there are three communities In in Spain, <inaudible> and the Basque country, they have their own tax system, and it's different from the other part of Spain. If you have, of course, if you review or you don't file your taxes, you can get severe fines and penalties this Spanish tax year. It runs from January to December, unlike other countries, for example, the UK, it runs from, from July to June. One of the big benefits that we have here in Spain is that we have many, many tax treaties, as you will see, we have over a hundred, a double taxation treaty, and there are two main, or are the two most important taxes for the individuals are the income tax return and on the wealth tax.
So, first thing, and a very important thing. How do we know if we, our tax rate and in Spain? Well, you have to, to see if you meet one of those three rules. The first one is if you spend more than a 182 and 83 days in Spain within a single calendar year, you will be a Spanish secretary. If you don't meet this for a role, then we would go to the second one, which is your primary professional activities, or if they're conducted in Spain and the third one would be your main Interest. For example, if your spouse or your children, which are still depending on you, if they, if they live in the space, The, the Spanish, the Spanish income tax, spanning six residents, they, they all, they pay income tax on their worldwide income while non-residents only pay tax on the income generated in Spain. As, as I saw some of my questions, some of the questions I received from, from Derren a, if you are generating incomes, if you are not tax rate and standing, you are generating incomes outside of the Spain you won't be paying for those incomes on your taxes. You will only be paying on the income you generate in Spain of course, and you can have a deduction with The with the expenses. The, there is a 19% tax rate for the EU non-residents, it's a flat rate and a 24% tax rate for the rest of the world. Non-residents the Spanish income tax is divided into categories. You have the general activities in the savings. And of course, as I mentioned before, the Spanish income taxes, it can be it's different depending on the, on the region that you're living that, for example, in Catalonia, normally it, it, it should go up to 45, 47%, but it's, for example, in Catalonia, it can go up to 54%, which is a pretty high, a, a pretty high rate. The, the non-residents in the form for to file the, the income tax for a non-residence is the form to 10. Now will go into the different to, to configure it from there, from the income tax. The first category is income from savings. These incomes are basically Interest from the savings. You have a dividend payments income from the life insurance policies, income from annuities and gains made from the disposal or a transfer of assets since 20, since 2016, the tax rate on, on savings. These are the following incomes up to 6019% from 6,000 to 50,000, go to a 21% an income, over 50,000, It goes to 23%. As I was speaking earlier with, with Derren with the current government that we have, they been trying to implement new taxes or implement higher taxes. That seems there since the government is not as strong as it's supposed to be, or if they would like to be, they were, they were enabled to pass on. There is new tax system. So, so we are still stayed with, with the tax system we had before with a few changes, but that not many, the general income taxes, an it's income from employment, it's a salary. You have some Pension and rent this Spanish income tax rate unemployment it's in comes from eight to 12,000. It's 19%, 12,000 to 20,000, 24%, 20,000 to 35, 30%. Well, and of course you can see that the percentages,
For the income tax day is whenever you have to file your income taxes, the time for you to file the income tax, it goes from April to June. So, in less than a month, the income tax campaign starts for an individual, the individual income tax, you have the personnel allowances and deductions, of course, at least six residents to have personal allowances while not residents don't have any deductions in allowances, which is unfortunate. Of course, a Spanish tax resident should have some, some benefits. Some of the allowances that you can have its If you have people over 65 years of age, living with you, if you have children that are under 25 and they're still living with you, and they're depending on you. And these are some, some allowances that you can have. For example, if you have a person living with you, which is disabled He with some disabilities that you can have allowances to, for example, you can have allowances in deductions, four, some of the pensions, you might have a job, or if you pay like the social security system, you can have some deductions in that. Now we get to two, one of the most important taxes for individuals, which is wealth tax. With wealth tax there have been this, this tax has been reinstated and introduced, removed and reintroduced again, because let's say the, if you could bring here in Spain to the US the democratic party, there are always trying to implement this kind of taxes while the Republicans we would like to avoid this tax because they say it's better for wealthy people. These people are basically, this tax is designated for people who are all significant worldwide wealth, the declare assets after tax allowance of 700,000. For example, in Catalunia, the tax allowance, it's up to 500,000. We did is less than the normal. You can also have a 300,000 tax allowances. If you are more for your primary residence in Spain, if you are a tax resident Spain and the tax rate goes from 0.2% to 2.5% imagery, there's no wealth tax, but the current government, they are wanting to implement work tax in Madrid. So currently most of the wealthiest people, which hold a lot of a wealth, they are leaving in Madrid because of this study. So, for individuals AND, this is very important. We have formed seven 20 from seven to 20. It's a, an overview of demean individuals, world-wide assets it's for the individuals that they come to live in Spain, and they become tax residents. And they have to declare all their assets that are abroad. And these assets have to be worth more than 50,000 euros. What happens is that a lot of people do come and live in Spain and become a tax resident. They, they don't know about this form and they forget to file this form. And then couple of years later, when they declared the income tax, since in your income taxes, you have to, to declare some of your assets, or what are your possessions, they'd get, they get fines and penalties for not presenting the, the stacks. Some of the fines can go from 30,000 euros to higher amounts. This form, you have to file it. Once you become tax resident, you have to file it the following year in between the 1st of January until the 31st of March. So, if you become a tax resident in Spain the past few, the past year, and you'll have to file the form, and you still have time to do it property, tax owning a property. And in Spain and, and living in there from 1st of January, your subject to, to do some taxes one of the taxes, it's called AB it seems implicit. So, they'd be in the same level. This text, it applies to both residents and non-residents, there are also some other types of property tax payers, status, rubbish collection tasks. And also, you have transferred Tax. For example, when selling a property, you, you will be taxed for that, depending on the amount that you, that you sell your property. Now, a copy, the gains capital gains, or taxes on profits from selling our property or, or the other investments tax residents in Spain pay capital gains on their worldwide assets while not residents, they only pay capital gains on their tax gains that they have made, or on a scale of a Spanish property capital gains tax that it is easier for non-residents because they are subject to a flat rate of 19% while for a Spanish tax residence you can go up to 23% sometimes more
The corporate tax nowadays corporate tax in Spain, it's 25%, a for newly formed companies. They pay 15% of the first two years, the tax here, as well as the as the individual tax, here it goes from January to December, and you have to declare the corporate income tax. It has to be paid before the 25th of July of the following year.
And of course, also with, with the current government, they are willing to increase their corporate tax to, to 30% a year. They haven't been able to do it yet. From my point of view, I don't think they will be able to do to increase the tax rate. Well, let's hope they, don't another tax that we have here. It's inheritance and give tax deeds. This tax is a little bit tricky, and it's not easy to calculate because well, individuals, they are starting to tax when they are transmitting or gifting assets and tax residents in Spain. As I mentioned before, there will be taxed based on their worldwide assets while non-residents only on their Spanish assets. There are a lot of reductions in the suit taxes based on the degree of kinship. For example, it will be less expensive if you give something, or if your let's say your daughter or your son, they may inherit something a rather than given it to someone, you know, you don't know to a third person, the last thing that we are going to be, I'm going to be talking about this, a special tax regime. There are a lot of people Know that is for a new York's come to work here. Spain we are talking about the backend Law. It enables foreign people to do, to move to Spain. And instead of going from the percentages that we spoke about when presenting the income tax, they have to pay only a flat fee of 24% on the income they obtained in Spain the flat rate of 24%. It's up to an amount of 600,000. Once you are above the 600,000, you will be, your percentage will be increasing on there in the progressive Tax. So, you will be paying 45% or more over the 600,000. This, this Law. I mean, the person, the people that this is going to be moved into the Spanish territory is going to be paying this 24% only the first six years that you are in the country, after that you become Spanish sexual accident. And it works, as I explained before. So, the main requirements for to apply to this Law the expert can have been a Spanish residence in the past 10 years, the foreigner must have a job contract and signed by a Spanish company. So, if you are coming here, but your job, it’s with a company that exists outside of Spain, you can apply to these Law. It has to be with a Spanish company and with the Spanish contract and the directors that come here and they can purchase more than 24% of the company. And the core of the workers professional activities must be in Spain if you have any questions.
All right. So now we get to the fun part, which will be the Q and A. So, let's get to the list of questions. I'm just going to read them for us because for people who may be watching the recording afterwards, they won't see the questions are written as you can see it in the chat box. So, okay. I keep getting different answers to this one questions. Maybe you can clarify. I have a rule of an IRA and a Roth IRA in the US.
I was told by a Hacienda in Madrid, back in 2012, when I physically went to inquire that the IRS did not have to be put it on form 720. Now I'm hearing from various persons that this is not so, and that they need to be disclosed. What is a correct answer? Ricky?
So, what I mentioned before, when I was talking about the form of 720, when we speak about the form 720, we declared the assets. We have, we don't consider the pension an asset. So, in this case you wouldn't even if the Pension needs higher than the 50 or 50,000 a year, you didn't have to declare the Pension in the form of seven 20. You will declare the Pension in the income tax.
Okay. Gotcha. Next question. A couple questions. Number one, I'm a registered freelancer in Spain. I'm going to be releasing an e-book by my own website soon this month, and I'll be using a third-party platform to facilitate payment. I will have to add an additional economic activity to my list of activities, but which one would be recommended from my specific situation and also which tax rate will be associated with purchasing an e-book. Ricky?
Yeah. So of course, if you’re doing another activity that is not your main activity or it's not the similar as your previous activity, you would have to go into the thing that we called EIA and you would have to check with a paragraph that matches your activity in this case I check before and it should, when we are talking about online selling, we recommend doing the six, six, five, which is basically a direct selling regarding the percentage of vat that it is, you should apply to the e-book, it's a 4% a at the beginning, we didn't know If for e-books you'd have to increase it since you are using a platform and all that stuff. But I checked and it's only 4% for this second question. Yeah. I don't know if you read that out loud.
No, not yet. I'll just read it on quickly. It's from the same person. So, if I had been offered freelance teaching position or three hours per week, but the company only issues contracts to all of its employees, do I still invoice them or a as I would an invoice them as they would have another client is taken to account retentions or what do you suggest that I do?
Okay. So here you can do two things. If you were saying that the company or the school or whatever, they, they only the only issue contracts, you can be both a freelance and you can also be in the, in the general regime. So, you can be contracted well. And if you don't want to be contracted, you can also invoice them as a, as a freelance. You can do both things. So that shouldn't be a problem. Of course, if you invoice them, you would have to, to take into account a, the retention would be probably a 15%.
Okay. Gotcha. Moving on to the next question. I've contacted a few companies now are all focus on the US side or do you guys help in filing both countries? They answer is a definite. Yes. And you're right. Whoever wrote that to insist, because if you just doing the US side and being completely blind to Spain, you might put yourself in trouble with Spain and vice versa. You needed to work with a team that understands on both sides. Next question. I'm living in Spain, but getting paid to a us bank account by a US company, is this an okay arrangement? And how does this affect my taxes, Ricky you want to talk to the Spain side?
I mean, it is okay. First of all, though, we will need to know. I mean, you are living in Spain, but we will need to know where your resident is you a raise in SPAIN or in another country, if your resident SPAIN and you are receiving income from outside Spain to a us bank account. I mean, you wouldn't have to declare that on your income tax because, well, sorry, if you are, if you are a non-resident in SPAIN, you wouldn't have to, to declare these in your income tax, because you only have to declare the income generating Spain. If you are in case you are tax the Spain of course you would have to declare these. This is income in your income taxed and regarding the, the bank account. And if you haven't filed a form seven 20 and your bank account is over 50,000 Europe, you would have to file the form 720 and declared it. You have this, this amount or this income,
Right? I'm from the US will you go? This is pretty simple, worldwide income doesn't matter what it needs to be reported. Pretty simple. Next question does real estate owned overseas need to be reported? I'll answer from the US side. If it's an income producing asset, the answer's yes. For you to clear the income on your tax return, if it's not income producing, but you hold a real estate through a structure, it may have to be reported. And for me, the 938, which has the new FATCA a relatively new FATCA form. Ricky from Spain.
Yeah. What is that?
This is another question someone sent it to me directly does, or overseas need to be reported.
Well, of course it depends on whether you’re a resident in SPAIN or not or if you are already in the Spain of course you'd have to declare all your world-wide income. And in case if you have some something outside of the same, you will have to report it as well. Yeah.
Okay. Next question. I'm considering purchasing a property in Spain with my partner. How could the purchase impact me when I found my US taxes, is it advisable to leave my name off agreements? Well, again, that's kind of connected to the previous one in that it depends. If it is an income producing assets, it, you are going to Airbnb as you want to rent it out or whatever, then that is going to be reported on your tax return. As that would be regardless of where the real estate is, is located. But if it’s going to be occupied or are you just want to have it at a holiday home, where are you going to do it or whatever, then it doesn't produce income. So that doesn't need to be reported. Except if you hold it through a structure is if you're going to hold it through some sort of corporate structure, then it needs to be reported potentially on form in 1988. Moving on to the next question. How did the taxes apply to someone with a Spanish, non-lucrative visa? Ricky?
I'm with an onlooker at the visa, I guess he will still be considered non-resident. So you would only, you would only be paying here for your income generated in Spain and you will still be paying for all your taxes in other countries that you are a resident here in order to become a tax resident. We have to meet the three rules that I mentioned before, or if you could always buy a golden visa, which is pretty expensive.
Okay. All right. Next question. How are IRAs individual retirement account SEPs, which are a simplified employee pension plans? I think AND deferred investment accounts are taxed here, here being in Spain, Ricky?
As, as I mentioned, we would have to do regarding Pension. We would have to, to take a look at the, the Spanish tax Treaty with the, with the U S and see whether they are taxed in the U S or not. And probably regarding the pensions that we are talking about. Some of them you might get, if you, for example, if you have, if you're paying for those pensions in the U S probably you would get a, a refund here, here in Spain.
Well, you will pay in both in, in one country, you would get refund a bit. Of course, we would have to take a look at which kind of PR with which kind of pension are we talking about, and if they are taxed or they are not in, in the other countries, that's why. Yeah. But you also, of course, you wish you would have to declare them in the, in your income taxes.
Right. And just a, just to add to a Ricky you said when it comes to a pension, that's a pretty involved on my website on HTJ dot TAX. We have like a block section. We have over 1000 articles free on various tax issues. So as a result of a back and forth email conversation that I had with Ricky, I actually was able to draft like a, sort of a primer on how Spain deals with US pensions, for those who our tax resident in Spain it's might be some pretty heavy bedtime reading, but it, it does provide some sort of insight.
And again, this speaks to the point that we raised earlier, where you have a US person doing US Taxes with someone who's resident in Spain and they don't understand both sides is going to get messy. So it's really important to understand both sides because when it comes to pension, that's a, a real use case as to how both sides and to play. And the treaty comes into a treaty, his needs to be referred to, to prevent double taxation, because nobody wants double tax. And this is, this is an example, what really comes into force a next question.
How is Ricky this one's for your hierarchy? If I were to inherit a property and a US pending, sail, how would this be treated?
So if you inherit a property in the U S of course, we would have to, to get advice regarding the inheritance in the, in the us, see if you would have to pay taxes there and probably leave you pay there. Maybe you would get a, a, an exemption here, but of course, we would still need to know if you wear your resident, because if you are not spreading sexual ideas, and then you don't have to pay any taxes here in SPAIN for, for the, in, for the property that you inherited regarding the pending, depending on, I mean, we will still need to know a, of course, the amount of the sale, because it is different.
If we, if we are talking about a really high, a value or a lower value. But as I mentioned before, we would need to probably seek advice on there, on the US side regarding the inheritance. Because from what I know, it's kind of a different, like the Taxes regarding the inheritance or the difference from, from Spain. Yeah. I don’t know if you can add something to that.
Yeah. Right now, so the tax cut and jobs act the estate tax threshold, where Tax might actually be triggered, assuming someone is US domicile. This is why the concept of domiciles comes in. Right. Because it's, if it is. So again, we can't rely on the us tax code because it doesn't get into domicile when it comes to estate and gift taxes. So, we need to look at case law. So, the case law tells us that a, the courts in the U S look at intent plus deliberate action. So, if it is, and I'm just being completely extreme. Now, if it is, when you are leaving the US, you did you stream yourself in a Facebook live, you got all your friends over to your apartment and said, I am gone goodbye. I'm never going to see you guys again; I've saw and everything. The U S is no longer my home. I am out. Then you can make the case that you are domiciled in Spain and no longer domicile in the us. And therefore, the threshold may be lower or from a us tax is a state tax or a gift in a state tax perspective, as, as opposed to it is that you, we're still domicile in the, in, in the U S you know, rights and what state will be higher. So, it really depends on a lot of moving pieces is the answer from the, from the U S and Spain side. So again, you to sit with the team that understands it and we need to work it out.
Yeah, and of course, in this case, we will also have to take a look at, which was the value of the, of the property at the beginning, and which is the value that we are selling because we can have a capital gains and of course, you'd have to pay capital gains for that in your income tax, in Spain,
For those. So, in the US, in a state taxes have been levied on the estate to the person who has passed away. The, that, that they have that estate would be a burden on another person who is receiving, but, and just having, having said that historically, we've had what we call a step-up in basis, because you, again, to the point with capital gains, right? Cause when you sell you inheritance, you're going to pay a tax on, on the, on the difference, right? Well, you know, what you get up until this point is the basis or the, the, the cost price or determining where the capital gains or amount would be.
Would it be the, the value at a point where you inherited it? So you get this a step-up in basis and that's particularly, so for those who have used a trust as part of the planning structure, now, again, this is for those who are thinking strategically under a president, by the way, I want to do away with that step up in basis, a potentially. So again, this is an opportunity to think strategically about how about your situation moving on? Sorry.
We hear well, a bad thing here in Spain. We don't, we don't recognize the bigger of the trust that it's. Okay.
Okay, cool. Next someone is writing. If I didn't file a form seven to zero last year Ricky will I be penalized for filing this year?
I mean, if you didn't finally this year, I mean, there's some certain ways that we can, of course, we would have to take a look at the time and see what are the things we didn't file. But of course, I guess we could, we could try to find a solution to see, so you don't have to do to get any penalties.
If you take at the, let's say the law of a thing. Of course, if you didn't file it last year, and then you evaluate this year, probably you can get a small fine, but probably with our help. I mean, we'll help you out to see the will help you out. So you don't have to, to get any fines and we will try to find some solutions for you. So if you don't get any, any penalties for that.
Okay. That was great. Someone is asking me, can you put your email address in a box down below? There are asking for three minutes with, you know, I know you, I know it's somewhere up, but I think it had got pushed up with all the messages. And while you're typing that someone is asking, if you purchased a home in the U S for less than 50, 50,000 euros many years ago, do you have to declare that on the form seven to zero? And if the value now is more than 50,000 euros, do you still have to declare it?
Yeah. If you purchased a home a well or a property in its over a 50 or 50,000 euros, yeah. You have to, to declare that, but the form of seven 20, you just file it once. I mean, you file at once and then it's okay. Because if you, if the value of that home increases, I mean, nobody's going to know until you sell it once you sell it, then you probably, if the value is higher, you're going to have a capital gain.
And we would have to declare that a file the form of a seven 20, you only file at once.
Okay. That's great. Next question. The non-lucrative visa requires more than six months in Spain. So, you you'd be a tax resident and would have to file even though the visa itself does not allow income generation. And Spain, I guess someone is making a comment. I don't think that's a question. Okay. Next question. I think income is entirely from the U S social security and from dividends from US companies. How much are we protected from the Spanish taxation, since we already paying taxes on this income? Well, again, typically you won't be taxed twice. Once we get to invoke the, the treat you, and even if Spain does insist on taxing it, which many times they, they would, then we can use a certain form to recapture, to raise the income and therefore get your credit for the Taxes you have already paid to Spain. So, the bottom line is at once the team that you're working with knows how to leverage the double tax treaty between Spain in the United States. You won't pay tax twice. Ricky you want to add to that?
Yeah. I mean, it's, as we, as I mentioned before, if you are, if you pay taxes, I mean, the double taxation treaties are made, so you don't, you don't pay taxes twice. So, if you pay taxes in one place, probably a, they can require you to pay taxes in other countries as well. The, with the help of people like us, such as tax advisors and all the stuff we can help you out. So, you can ask for refunds. So, you can double tap.
Okay. If we are a Spanish resident who moved here at the end of July, 2020, do we need to fill out the form seven two zero this year or next year also have heard that you need to make payments throughout the year. Is this true? Ricky
So, if you came to Spain at the end of July, it means that you were in a tax resident this past year, because you were more than 183 days. So, you will need to, to file the form of seven 20 in between January 1st, 2020 to and the 31st of March, 2022. So, for this year, you are okay, you're going to be calm Spanish tax resident in 2021 you're going to have to file the form of a 720 in, in the days that I mentioned in 2020 to, and you're going to have to file Spanish income tax in, in 2020 to a, regarding the debt payments throughout the year. Yeah, that is correct. You have to make a quarterly payment, but these payments, once it gets to your income taxes, for example, in a, when you present your income taxes, you deduct those payments that you made before.
So you are not paying more. For example, if during the year you reached, you paid more than the, what you want your income tax safe, then you're going to get that money back.
Okay. So we can go with the top of the Our. Do you have time to go through some more questions? Do you need to go
A year? You'd have 10 more minutes. You have no problem.
Okay. Let's do it. And we can get three in 10 more minutes. You have a question. So after five years of non-operative visa, I'm not getting my residency. Can I take advantage of backends? Law are now starting in year zero, or because I've been here five years or ready? Will I only have one year Ricky? Okay.
The thing is that we would, I mean, if you have the non-locality visa, we are, now we are saying that you were in touch with me in the state. So when we talk about the back-end Law, the first requirement is that you can be sex-related in Spain for the past 10 years, but we would have to take a look, because maybe since you been living here for, or already five years, maybe they would consider that The then you are, of course the resident here, we would have to take a look at this situation, but yeah, we will have to take a look.
I cannot not give you like a certain answer now because I'm not sure.
Speaker 6 (1h 2m 47s): Okay. Right now, the next question on gains and tax deferred investment accounts in the U S considered income. And Spain, this was part of what we answered in that back and forth on email. So I think I mentioned that before, if you go to my website, HTJ our tax. And you look on blogs. We have have written over a thousand articles on international tax related issues. And we did a algebra compensation Ricky and I, we were having, we came to a primary. It's not a how to guide.
So don't use it in go file a tax return and point fingers. And what it does is it pulls out that the key concept, and I'm going to get into this idea of a tax credit investment ACCOUNT and it's triggered a SPAIN. So I'm just want to go with you quickly. Cause Rick, you only have 10 more minutes. Someone, a foreign tax credits. We have been filing your best Taxes. We don't have to understand how to win this credit applies. This is one of our foreign tax credits. Again, it's how you do nuanced. And, and it, you know, to make sure you don't pay tax twice, we leverage the Treaty and some unique aspects of the us tax code to make sure you don't pay tax twice.
And using the prime tax credits, using the form 1116, we can't go into right now in terms of a how to guide, but we are seeing that it does exist. It can happen when you speak with your tax team, this should be able to walk you through that process. Okay. That has an actual question. What if I sell my Spanish property for $1? That's an unusual one. Ricky, what do you think on that? I mean, when you sell something U you have to sell it by a somewhat like a real value you can say, okay, I'm going to sell this by one is the tax authorities. They do investigate this kind of a sale.
We are to sell a property for $1. I mean, the point when, when, whenever we take care of the sales of properties and all of that stuff you have to, to do like a big study, you have to, to take into account the real value of the, of the property. And then from that real value, or maybe you can play a little bit with, with the value of that, that not to say, okay, I'm going to sell my property for $1 because probably the tax authorities won't believe it is,
Seems a bit suspicious. Kristin, your question, we answered that yours was the first question we answered with a P courting. Again, you'll be, you'll be able to see it. We will have the recording at each of you in our tax once it's posted, like someone else has seen, I have a double citizen ship. So, I guess maybe it's just a comment on next. What services does he do? Your firm's offer? Do you do it together to complete US and Spanish taxes for you as citizens, Spanish residents, the answer's yes. We offer dual, well, both sides across the board of tax planning, as well as compliance, as Ricky mentioned earlier, he does more than Spain US he does Spain and many of the jurisdictions at all, a team we do more than US Spain we do US and many other jurisdictions as well. I have three more questions. Two more questions on another platform. Someone is asking you, if you become a legal Spanish tax resident in 2021, would you have to file 20, 20 or 2021 for the Spanish tax year? A thing that's kind of obvious, but Ricky?
Yeah. I mean, if you become Tax roasted in, in 2021, you will be filing income tax in 2022.
Okay. And then what I think is the last question. Not sure if you can have a look, I'm an American living in Spain, I will move back to the States for two years for work and then come back to live in Spain and hopefully forever from a strategy perspective, when it comes to investing for retirement, would your recommendation be to invest in Spain or to invest in the U S Know in the long-term? I will leave the money back in SPAIN. I believe they'll be a tax in the patients in both situations. That's a, a, a different type of question. Ricky you have to take a stab.
I mean, it, it depends on whether you, I mean, I cannot, it depends on the person if you really like Spain, I mean, of course there are many, many places here in SPAIN there really beautiful, like in depends on whether you want to invest in it, up to you. I mean, if we invest, if you, if you invest here or there are many opportunities, they're a, for example, now with copied and unfortunately, a lot of people is telling many properties and wealthy people. It's taking advantage of that because some prices have gone lower. Then of course, the, there are many opportunities here and of course as well, there will be many opportunities in the us and it’s up to the person. A but if you had mentioned that you would want to be leaving in Spain in the future. Maybe it’s good to have a homie in Spain Admiral if you buy a property here and he used it at your primary residence, you can get some deduction from that. So maybe that can be a good reason.
Okay. Sort of know about you. So, like an investment and retirement planning and stuff like that is more than just a tax. You really can just sit down with an advisor who understands, who has a conversation with you and is able to advise based on a knowledge of both jurisdictions. So, we want to speak with an advisor and with that, thank you Ricky thank you everyone for joining us. Thank you everyone, it was a pleasure. Everything will be available live on HTJ.TAX and we'll see you next time, bye
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