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DERREN JOSEPH:
And just turned it on live. Let me just make sure that it’s live on all platforms. Waiting on YouTube to go live and YouTube is now alive as well. So, let me show a slide on yes. So uncovered a link, so, okay, wonderful.So, now I’ll admit everyone and I will disable the waiting rooms. Everyone else can just come in easily, but I’m hoping yes, everyone is going to be muted on entry. That’s wonderful.
Hello. Good evening, everybody and good morning to a good day. To those of you who are joining us from the US I got your emails and I got your messages. I know some of you are joining us from the US, welcome. Please keep your mic. So I’m going to mute you again. So please keep right. Thank you. So please stay on mute if that’s okay. If you do have questions, feel free to, I got those of you who did send your questions in advance. I got it. I, sorry. I didn’t reply to every email. We’ve got quite a few. So we did receive your emails. Thanks for sending those. If you still have questions, feel free to type in the box below. If you’re on zoom, or if you’re on Facebook, you can type in the comment box below and we will pick it up in the order it was received. My name is Derren Joseph, and welcome to htj.tax. We’re doing a weekly live stream, and today we’re doing U.S/Spain and we have the pleasure of, right, yes, welcome. Welcome Mr. Ricky Gutierrez Becker joining us from Barcelona. And just for those of you for whom it’s your first time, I do recognize a few names. So we’ve seen you before, but for those, for whom it is your first time, remember that this is not meant to be tax advice, right? If you need advice that is legally binding upon which you can take definitive action, you will need to engage a professional tax team who will know your situation inside out. We are both licensed in respective jurisdictions, and we must be careful. So this is not meant to be advice. We’re having a general conversation about general principles. You consider it, you can consider it educational. You can even consider an entertainment, but this is definitely not advice. This is being recorded. If you do not want your image to be recorded, feel free to keep your cameras switched off. Otherwise it will be recorded and it will be made available for those who did ask. I responded to as many emails as I got a yes and will be available on our website. She did attacks as well as on Facebook, LinkedIn, SoundCloud, Spotify, iTunes, SoundCloud, wherever you get your favorite podcasts, Amazon, wherever it is, you get your favorite podcast. This podcast will be made available to you. So thanks again for joining and without further ado, Ricky, all yours.
RICKY GUTIERREZ BECKER:
Good. Well, my name is Ricky. It’s nice to meet you all. Well, basically, I’m going to be talking about, okay, let me share screen. Okay. So basically I’m going to be talking about Spanish taxes for expats. Well, as mentioned, my name is Ricky, I’m from Barcelona, Spain. I work at a tax firm, which is called Pujada Partners, and we are basically focused on the international matters that we also do Spanish. We were with Spanish clients as well. So we do a little bit of everything. We do accounting tax and legal. So basically that’s the within we do here at our firm. So to start, well, basically the Spanish tax year, how does it go?
Spain is quite complex regarding Texas because he has the state tax and also the region. It depends on the, where you’re living at the tax can be higher or lower. If you, of course, if you file, if you fail to file your taxes, there are severe fines and penalties. Normally then the Spanish stacks here, it runs from January to December. A good thing that Spain has is that we have many, many treaties with, with a lot of countries, we have over a hundred double taxation treaties, which make Spanish, makes Spain a good country to come.
That’s a good thing. And the other thing is that the two most important taxes for individuals are the income tax. And of course the wealth tax. One of the most important question we have nowadays is how do I know we find Spanish site 30 then or, well, where do am I, where am I tax rested?
Well, then we have three rules. The first world is a substantial presence test, which is bird symbol. It’s where you have spent more than 183 days. If you spend more than 183 days in Spain will be within a single calendar year. You will be Spanish sex residents. Then the second rule used the center of economic interest. It’s a where you have your primary and professional activities that you have.
If they are all done in Spain and all your income and all the assets are based in Spain, then that would mean that you are a Spanish sexuality. And the last is the presumption test. Basically they present some tests. It’s where you have your family. If the tax authorities see that your family and your children are all located in Spain, they might say, okay, your main interests are in the strain.
You are spending sex with one important thing that, that people need to know. It’s the, the quantum book, the quieter role. It’s when people are doctorates in Spain and they want to move to a tax even country. Well, whenever you move to a taxi main country, Spain has the right or to tax you a structured student for the year that you move to the tax Haven and the following four years.
So of course we normally, before moving somewhere else, we, we normally ask to do some tax planning because a lot of people, they just move somewhere else. They don’t know what are the taxes in that country. And then suddenly they find out some, some surprises. Well, now we come to one of the, or the most important tax for individuals, which is the, the income tax, basically the income tax it’s for Spanish sex residents.
And they pay on the, on their worldwide taxes on their worldwide income, sorry, non-residents they only have to pay taxes on the income that they have generated in Spain. And of course, Spanish sexualities, they can deduct all the expenses while non tax residents can and non tax residents from the U. They, they pay a flat fee of 19% and the rest of the world, they bake 24%.
The income is split in two categories, you have general activities. And then the savings part, there are some regions in Spain that they have their own special receipts like Navara. And on the last country, they are called the here in Spain. And as I mentioned before, depending on the region that you live in here in Spain, taxes can go up until two 54%, like in, in Catalonia, which is the highest or in some other, you can be in 50 or 45%.
It depends on the region. Then one of the parts of the, of the income tax is the income from savings. Basically when we meant what we mean by income from savings are the interest from the savings to dividend payments, income from life insurance policies in confirm annuities and also gains made by the disposal or transfer of assets. Basically here, you have the, the rates this year, they added a new rate that incomes over 200,000, they are taxed at 26%.
This was added recently in 2021. Then the general part of the income, our income from employment. So let’s say salaries and wages, pensions, and rent. Of course, you also have the, some of the rates in going to 12,000 are 90%, 12 to 20, 24, and all the way down personnel, allowances and deductions, as mentioned before Spanish tax residents, they do have allowances and end deductions while non residents, they are not able to deduct anything on their income tax.
Some of the allowances to view that you have are, if you have children that are under 25, that are living with you, if you are also taking care of older people older than 65, there are many allowances and deductions that you can apply on your, on your income tax. Another big tax in Spain as well. I mean, basically this tax it’s designed for people that they, that they own, or that they are very wealthy and they, they hold many properties around the world.
Basically they are declared assets in, in, in Catalonia. You can have some tax allowances up to 700,000. Well, sorry, in Spain, it’s up to 700,000, but in Catalonia, which is kind of unfortunate, it’s only until 500,000, then you have some, some regions like in Madrid or there’s no, no wealth tax in Spain, you have a 300,000 tax allowances for the primary residence.
He in KC or your expense tax resident. And of course the tax rate more or less called from 0.2 to 2.5%. It might be fair during, during the year, a really important form that not many people know, but it is very important because if you fail to, to file these, these form, you can have a really high penalties, basically the form seven 20, it’s an overview of the individuals, worldwide assets.
So it’s basically all the individuals that want to come leaving Spain, and they want to become Spanish tax residents. They have to file this form with this form. You don’t have to pay anything, but it’s just a declaration of all the, of all the assets that an individual holds that are worth more than 50,000 euros. So let’s say you have, if you’re living in the U S and you want to come to Spain and you hold a bank account with over 50,000 euros, then you would have to declare that whenever you come to Spain in, in this form, basically this form it’s, you have to file it the first quarter, the year after you’ve, you’ve come, you become tax ready.
And so let’s say that you come, you become tax resident in 2021, we would have to file this form. The first quarter of 2022, another tax is the property tax, basically owning a property and living in, in Spain from, from January 1st, you’re subject to two attacks, which is called AB. If they implicitly be interesting, weblinks this tax applies to both residents and non-residents, then there are some other taxes sets of rubbish collection tax, and also the transfer tax.
Whenever you want to want to sell a property capital gains, basically capital gains are tax on profits from selling a property or other investments, tax residents. They, they pay capital gains on the disposal of any of their worldwide assets. The rates are fairly simple. Of course, this year there was added on a new step that gains from 200,000 and upwards our tax at 26%, which is fairly high.
And non-toxic, they of course only pay gains on the sale of the properties that they sold here in Spain. And the tax rate is 19% for EU residents and 24% for non-insurance inheritance and gift tax. This is a quite complex tax because sometimes it’s hard to, to get to the, to the right percentage, but basically individuals are subject to tax when transporting or gifting assets tax residence can be taxed on the worldwide assets as mentioned before.
And non-residents only to the Spanish assets. Of course, there are some deductions and some reductions based on the degree of kinship. So the, the protected, what won’t be the same if you transmit or give something to your children or to your cousin. Well, basically depending on the degree of friendship, the percentage will, will change.
Another very important tax is the corporate tax. Generally the, the tax rate in Spain, it’s 25%, but you have to know that newly formed companies pay only 15% for the first few years. Then the third year they will, they will automatically go to the 25%. The tax goes from January to December, but of course this can be changed.
And the corporate tax is paid in until July 25th of the following year. So in 2021, you’ll pay the corporate tax in July 25th, 2022, some of the special regime for, for holding companies here that have changed. Now this 2021, well, basically in 2020 regarding dividends, there was a hundred percent exemption.
So there was no withholding, but this year there’s a withholding of 5%. So only 95% of the dividends are exempt. We have, well, the typical holding structures here are barely gold structure, horizontals structures, and hybrid structures. Normally what people used to do before 2020, where vertical structures, but once they applied, the, the 5% of withholding people started switching to more horizontal structures.
This case you won’t be losing 5%. Each time you go, you go up to the, to the parent company, the ETVs, these are the Spanish holding companies that not many people know of. Well, basically these are meant for, for foreign companies or also for, for him tax residence, basically dividends received from a non-tech for the company. They have a 95% exemption, no withholding or dessert holders.
They have to be non tax resident. As you can see in the diagram, basically this is the main structure for, for ATV. And of course, they’re this, these kind of companies they can apply to all the double taxation previous to all the benefits from, from those treaties and to the, to finalize them all the explanation here, we have the, the Beckham law, the Beckham law.
It’s a really important regime, which was applied many years ago when David Beckham, the famous footballer was playing here for, for real Madrid. Basically this law, it enables foreigners that they one, they want to move to the, to Spain, but instead of becoming tax residents, they just pay a flat fee of 24% on all the income they obtain in Spain, instead of them going to a progressive tax on their wedding, basically it’s a flat rate, 24% up to 600,000 euros.
If you go over the limit, then it will go into the progressive tax. Again, basically you can apply for, for this regime for only the first, the first six years that during the country. And of course there are some requirements, the expect it can have been Spanish resident during the past 10 years, did the expert NASA have a job contract and signed by a Spanish company.
Of course, directors can present more than 24% of the company. And finally, the core of the workers professional activities must be in Spain. Well, if you have any questions, I will be glad to, to answer them.
DERREN JOSEPH:
All right. Wonderful. Thank you for that. Very comprehensive as always. So I’m US qualified. So historically I would give, I run through some slides from a US perspective, but what we realized is that it’s more efficient. If we just go straight to the Q and A, and I’ll jump in and handle the US side as an when needs be. So on that note, in the order in which we received it yet, George, I’ve seen your question. So that’s at the bottom of the list, but starting from the top.
I’m American, I have been in Spain as a student for all of 2021. Will I need to file any tax paperwork, Ricky, I know you kind of answered that in your deck already, but yeah.
RICKY GUTIERREZ BECKER:
Where’s the question because I cannot see that
DERREN JOSEPH:
Oh, this is one of the questions that was submitted by email.
RICKY GUTIERREZ BECKER:
So can you repeat the question
DERREN JOSEPH:
Sure no problem. I’m American. I have been in Spain as a student for all of 2021. Will. I need to file any type of paper. I read it in its entirety. It’s a bit long. I, I was gonna break it up. What I need to file any tax paperwork. I’m now a trainee as part of a student program, and I’ll be earning less than the minimum wage in Spain. Well, I need to pay anything to the US so I, I can respond. I just wanted to the US side first, probably because that’s super easy. So of course, as someone who’s US exposed, you’re a US citizen. So you need to declare and pay taxes and you were lighting can, regardless of where you go, we don’t know how much you’ve earned. And we don’t know your status from a US tax perspective in terms of filing thresholds, if you’re married and let’s say you’re married to someone who is Spanish and not American. So you would typically file as married, filing separately. The threshold for filing is $5.
So if you made more than five us dollars for the year, then yes, a tax return would be due if it is that you are filing separately. So you’re not married, then it would, the, the threshold would be the standard deduction, which should be around 12 grand. So if you made more than 12,000, a US tax return is due. So even though taxes may not be payable, because of course the tax rate in Spain, a much higher tax return is still due. And just like how Ricky got into the form seven tool, which is like an acid declaration, the US has a kind of rough equivalent call an FBAR or a Foreign Bank Account Report, FinCEN 114 is the name of the form.
So if it is that you had banked balances in Spain or elsewhere outside of the US above a certain threshold, all of your bank accounts need to be declared as well. So there’s an asset declaration part, as well as an income tax filing pot. So that’s it from the US side Ricky?
RICKY GUTIERREZ BECKER:
So, I mean, basically for, from the Spanish side, well, of course, if we become sandwell, for sure you’ll be Spanish versus in 2021, we would have to check if you would have to file the form 720 for becoming Spanish tax resident. And in 2021, I mean, from what he’s mentioning, I don’t think we will have to file the 720. I mean, we would just need to know whether he has any assets above 50,000 euros, and also regarding the income tax, it would depend based on the incomes that he received, because if he receives really low income, maybe he, he doesn’t really need to file income tax here in Spain.
But of course we would need to know like the exact incomes and, and the exact numbers that would be perfect.
DERREN JOSEPH:
Great. So again, the takeaway is you really need to speak to a tax team that knows what the US and Spain, and you can give all your details, whether you’re married, how much money you earned elsewhere, did your parents give you money? You know, just like your entire situation before anyone can answer your question. So just reach out to us if you want to follow that up.
Next question, this one is on inheritance taxes question as a tax resident in Spain, would my kids be subject to inheritance taxes and assets that I leave to them if they’re American citizens living in the US and the assets are all US-based?
RICKY GUTIERREZ BECKER:
Well, I think in that case, that would go to the US situs instead, the people that is in everything, everything from the US.
DERREN JOSEPH:
Right, from a US perspective, we were getting to the issue of taxes almost from a US perspective, and it’s not captured in tax code. You know, like whether you’re a tax resident or a US tax person is, you know, by the green card test a substantial presence. So being a citizen, that’s in the code section 7701 but with the domicile rules, we really looking at case law. And so we need to look at the, you know, the case law and your situation, essentially, we need to look at your intent plus deliberate action to establish whether you are actually domiciled in Spain from a tax perspective, from a US tax perspective, are you not US tax domicile, are you a US tax domicile?
The advantage to being US tax domiciled, at least for the purposes of, well, we don’t have inheritance taxes, but we have a state taxes. So for the purpose of estate and gift taxes that, you know, the, the advantage would be the higher lifetime exclusion. So right now you probably have bought 11 million that can be excluded by the lifetime. If it is you deemed to be US tax domiciled for the purpose of transfer taxes, if you’re not, then the threshold on the US situs assets, it’s actually about $60,000, which is pretty low.
And then above that, it gets pretty aggressive in terms of the tax regime. So again, it’s good that you, you thinking ahead, these are great questions to ask, and you’d want to get some sort of consult on us on estate and gift taxes, to see how best to manage the situation and create the scenario that you want, where you may wish to, for the purposes of the internal revenue service established that you are us tax domicile for transfer taxes.
So you can enjoy that 11 million exclusion. So again, con consult needed, I would recommend there’s a part B to that question. Would my wife be subject to Spain taxes on us assets that I leave to her as a tax resident in Spain, I’ll just touch on the us side before I handle it to Ricky, same principle as what your kids, it depends in the US,the person receiving does not pay.
So whether the person receiving the gift or receiving the inheritance, they don’t pay it is the estate, or the person that’s passed away, or the person that’s giving or the estate of the person who’s passed away. That is the, the tax burden falls on them. So to answer your question from a us perspective, your wife would not have anything to worry about, but the estate may and whether or not, you know, the threshold would apply depends on as previously discussed, whether you qualify as us tax domicile for transfer tax purposes or not, Ricky?
RICKY GUTIERREZ BECKER:
Yeah. So in this case,if the wife has become Spanish tax residents, and she’s the one receiving the inheritance, of course she will be subject to inheritance tax here in Spain, because she will be taxed for the worldwide assets that she has been received, even though the assets are in the US, she will be taxed on that. Yeah, that is unfortunate. That’s how it works.
DERREN JOSEPH:
So tax planning, tax planning will be helpful. Next question from somebody else now, if I’m taxed, if I’m a tax resident of Spain and I take a distribution from my 401k account, which is a US qualified retirement plan, would it be taxed as an income from employment income from savings or capital gains? I think that question is definitely from a Spain perspective because from a US perspective, we know it will be just be taxes as income as ordinary income, but from a Spain perspective, Ricky?
RICKY GUTIERREZ BECKER:
Yeah. Basically we’ll be tax as kind of like as employment income. I mean, the thing is that we have many questions or like so many people coming from the US that comes here because they have these kinds of plans like 401ks or IRAs, basically for pension plans. People needs to know that, or they have to differentiate between two types. If it’s a public pension or a private pension, when we mean by public pension, we mean somebody that has been working for the government. So kind of like a state of bishop, everything that you put into that plan, if it’s not a public pension, it will be taxed in Spain. So yeah, the 401k, if it doesn’t come from a public pension, it will be taxed in Spain as employment income.
DERREN JOSEPH:
Okay. So a follow-up. So I hope that definitely a response to your question whoever asks this. The follow-up question from that to like a pod beat to that question is in Spain, would they, the funds be taxed only upon distribution, like in the U S or while it’s building within an item, I’m not going to touch it. It’s just building within the retirement fund. Is it going to be taxable?
RICKY GUTIERREZ BECKER:
So, this kind of pension, it will be tax, of course, in your income tax, once it is distributed, but it may be subject to wealth tax. So yeah, it will be taxed either way, once you distribute it or it’s building up. I mean, well, in fact it shouldn’t be the tax shouldn’t be really high, but of course, you will pay for that.
DERREN JOSEPH:
Okay. Understood. Next to point, because there’s a pot to the question as a tax resident of Spain, would I have a Spanish inheritance tax liability? If I were to receive an inheritance of US-based assets, cash stocks and bonds from an American citizen domicile in the US?
RICKY GUTIERREZ BECKER:
Well, that’s kind of like the same thing as the other person mean, once you become taxed, Spanish tax resident, then you’re taxed on your worldwide income. Any view received something from a birth. And that it’s brought it as a matter, I mean, you are the tax resident and you are the one receiving those assets. So yes, you will be taxed on that.
DERREN JOSEPH:
Okay. Is the 50,000 Euro threshold for reporting on form 720 based on cumulative assets on the amount held in a single account? For example, if I held two accounts with 40,000 euros each, would they both be subject to reporting?
RICKY GUTIERREZ BECKER:
No, no. It was just based on one account, one account holds over 50,000 euros. Then you have to report that. I mean, it’s basically on the value of the assets, not the aggregate.
DERREN JOSEPH:
Yeah and that’s quite interesting because that’s different from the US FBAR reporting because in the US is based on the maximum aggregate balance. So like, if the threshold is $10,000, so if you had $9,999 in one account, and you had, let’s say 2 or $3 in another account together, it passes 10,000 and both need to be declared. So it’s a bit different. So that’s interesting.
Next part to that question. If I sell my primary residence in the US in the year and the year prior to obtaining tax residency in Spain, would there be any capital gains tax liability during my first year of residency in Spain? For example, if I sell my home next year, moved to Spain late next year and established tax residency in 2023, would there be any capital gains implication for 2023 tests being taxes due to the sale of my home in 2022?
RICKY GUTIERREZ BECKER:
So let’s say, so whenever you sell the company on the house, sorry, that’s the moment when you make the gain is after that you become Spanish tax resident, then the gain will be in the US not in Spain. I don’t know if I explained that, right?
DERREN JOSEPH:
Yeah. I think that’s pretty clear. So in other words, gain is not retroactive. So whatever happened, before you trigger tax residency, won’t be searching the tax, the tax authorities, or, you know, Spain taxes. What happened before happened before? What happened after you became a tax resident of Spain? Well, it’s all Spain.
RICKY GUTIERREZ BECKER:
Yeah. That’s why we were also, you mentioned that while we always recommend doing some tax planning before moving somewhere else, because maybe you can do or take some steps. People are moving to another country that can be helpful for you. So let’s say maybe in Spain, capital gains, the percentage is higher than in the US then of course she would rather sell it. So your house will be in a us tax resident. And after when you become Spanish tax resident, that’s why we recommend
DERREN JOSEPH:
Absolutely. And just to kind of echo what Ricky says, that is so true. We, in terms of people moving to Spain and Portugal, we spend more time doing tax planning. So, you know, in advance as opposed to doing it after you land, and there’s a limit to what can be done, which is a great segue into the next question. This is from someone else. Now I’m a person who has both us and European citizenship. So they’re also citizen of Portugal and okay.
So apparently they want to move to Spain. Are there, are you already in Spain, would income taxes be owed to all three countries and income from working in Spain? So us citizen, Portugal’s citizen living in Spain, I’ll comment on the US and Portugal. So from a US perspective, of course, you’re subject to taxes and you will to income, regardless of where you reside Spain, being a higher tax jurisdiction, it is very likely that you won’t owe any taxes to the US because once you have a tax team that knows what they’re doing and are going to be double taxed, so you will get a credit for taxes due to Spain.
And Spain gets first bite of the cherry since you working in Spain, as you’re telling us, so you’ll need to report to the us, but it’s very unlikely that you owe anything to the US in terms of Portugal, Portugal, like Spain, there’s a, like a center of life test. And if you’re living and working in Spain, it is unlikely that you’ll be subject to taxes in Portugal, except for your Portugal source income. So whether maybe you have a rental property in Portugal, or you have some sort of investment account in Portugal that will be subject to taxes in Portugal since it’s Portugal source Ricky?
RICKY GUTIERREZ BECKER:
Well, I say that very well. I mean, yeah, of course, if you are spending sex residence and you are actually work in Spain, you’ll be taxed on your worldwide income regarding the other countries, of course, in the US based on your citizenship, you will be taxed. Well, you will need to file your US tax return and whatever you pay in the US, it will be deducted. It will be deducted after on your Spanish tax return. So this way you will avoid the double taxation, so should be fairly simple.
DERREN JOSEPH:
Okay. There’s a part B to that. As a retiree, so I guess this is a scenario where this person is not working. So I’m retiring, been living on US social security IRA. So retirement account and stock investments, would it be taxed by all three countries? And at what rate? So the same principle, a comment on a US. So from a US and Portugal perspective, same answer would apply the US will tax any worldwide income.
But given that Spain, as they hire of the tax jurisdictions, it’s unlikely that you would own anything because of a mutual recognition. The taxes paid in Spain and for Portugal, you’ll only be taxed when you put your source of income. I don’t know whether any of these, the stock investments that you refer to up, what you go source. If so, yes. If you have no Portugal source income, then you won’t be taxed in Portugal. It’ll really be a toss up between the US and Spain, Ricky?
RICKY GUTIERREZ BECKER:
So, yeah, if you mentioned, if you’re Spanish tax resident, you’ll be taxed on your worldwide income, whether it’s income from the US or from another jurisdiction, I mean, you will be, you will pay taxes in both countries, but then you will be able to deduct with your state in one country on the income tax and the other one. So you shouldn’t have any problems with that.
DERREN JOSEPH:
And the final part of his three-part question is, and this is interesting because this is a really popular question that I get asked anyway, would I owe less in taxes by retiring in Portugal versus Spain? And what we’ve found is that it really depends on the nature of your income. And what we recommend is that we run a scenario so we can run mock tax returns. Ricky will run a mock tax return for Spain based on your exact portfolio of income, as well as well.
Because of course, there’s a wealth tax and we do the same for Portugal. My colleague Augusto who is a Portugal qualified tax attorney, and he runs scenarios for moving to Portugal. And you can see side-by-side what, which works best in your particular situation, because one size definitely doesn’t fit everybody.
RICKY GUTIERREZ BECKER:
Yeah, yeah, totally, totally agree with that.
DERREN JOSEPH:
Next question from somebody else, blah, blah, blah, blah, blah. It would be great if you can address, okay. This is another three-part question from someone part one, how, and when to file taxes in both places and how to file the form that allows not to be double taxed. Well, they, they I’ll start from the US side. I’m assuming you’re talking about both US and Spain. So both tax returns are kind of do around the same time.
So probably Q1 Q2 of the year of 2022, we started looking at 2021 returns and we tend to w we’d work on them together. We tend to work on them together. Of course, if it’s a us, us source income, the United States will take first bite of whatever it is and vice versa for Spain. And we work together in terms of the form that allows you not to be double taxed. It’s not one form in particular that magically makes it disappear.
We are able to use forms that allow for foreign tax credits. So you get tax credits against the US liability for taxes already paid in Spain, for example. And they’re also forms that from a us perspective would allow you to invoke the double tax treaty that, that has been signed between the US and Spain. So there’s no one form there’s a variety of forms, which would allow us to ensure that any particular category of income won’t be subject to tax and on both sides retain anything to add.
RICKY GUTIERREZ BECKER:
Yeah, basically in Spain, I mean, basically the time to the timeframe to file the income tax, it’s opens in April, and it ends up in June and regarding the double taxation on your Spanish income tax, there’s actually a box where you, and you can like click it, and then you can say that I’ve paid tax in this other country, and this is what I’m going to deduct in my actual income tax. I mean, it’s pretty simple.
DERREN JOSEPH:
Yeah. And just to add to that from a us perspective, because this is a common misconception, regardless of where you reside the deadline for paying any taxes that may be due to the US remains April. Now, if you reside in Spain, you get a two month extension to June to file the returns, not to pay any taxes that are due any taxes that may be due. And that seems a bit counter-intuitive right, because, hey, I need to pay the IRS by April, but I can file the returns by June. How does that work? Well, you know, the IRS, right? So we’ve had quite a few situations where people mistakenly believed that both the payment and the tax filing and due in June, because they’re because they reside outside of the US and that’s a little bit of an hour, so taxes are due in April, but you can file in June. If you request an extension, then you haven’t until mid October to file, but payment, even with an extension payments are still due in April.
So just throw that in there. So the person’s asking for recommendation, who can do both, and of course our Ricky and I are quite happy to, to work with you to do both Spain and the US. And the third part of the question. Are there any investment opportunities for American expats in Spain? I’d be curious to know how they affect taxes. I don’t think Ricky, are you familiar with any investments?
RICKY GUTIERREZ BECKER:
I mean, we can find some investments here in Spain, if the client at first, I mean, of course investing in, in real estate, I would really recommend that here in Spain, which I would say the values, the are kind of stable and sometimes they go up, so I will recommend real estate from my point of view.
DERREN JOSEPH:
Okay. So if it is that you in, you know, exploring Spain, you find any investment opportunities that you want to, you want to consider seriously, you feel free to reach out to Ricky and he can help you understand the tax implications of that, making that investment. We’re not investment advisors with tax professionals, but we can help you understand the tax implications of whatever investments that you would like to make. Moving on to the, I hope we’d be able to answer your questions. We’ll definitely try because we have quite a few to go for rule number two.
So I’m down to the questions number two. What if you’re self employed living in Spain, but working for clients that are in North America? I think it’s pretty clear that from a US tax perspective, you will be taxed in Spain.
RICKY GUTIERREZ BECKER:
So, I mean, if you’re, self-employed that living in Spain, you are living in Spain, probably spending more than 183 days, you will be red in Spain, and then you pay taxes on your worldwide income. That’s a, a thing that, that happened. Or many cases. We have many cases here in Spain, which were Spanish nationals that were working abroad. And because of COVID, they decided, okay, we can work from home and they decided to come back to Spain, but they were actually working for foreign companies.
Well, the thing is that when they came here, they spent over a year in Spain and then suddenly they became without them knowing that India, a lot of people had to pay some fines because they filed to, they failed to file their taxes here because they were actually spending. So you spend more than 183 days. Yeah, you are, for sure. You will be Spanish tax resident
DERREN JOSEPH:
Understood. Next question for Form 720. Does it only apply to individual assets of business assets that you own? So would a business that someone owns in the US like that I guess is valued at over 50,000 Euro? Would that be included?
RICKY GUTIERREZ BECKER:
Well, I would say the beast, but maybe the shares, the value of the shares is over 50,000 euros then, of course you would have to declare the value of the shares.
DERREN JOSEPH:
Okay, great. Moving on the Form 720 is mandatory only when you set up your new tax residency in Spain, or even when you come to a few days to visit?
RICKY GUTIERREZ BECKER:
No, it’s only when you, when you beat, once you become a Spanish sex resident that you will have to, to file the Form 720 just for vacation or something until you have to file that.
DERREN JOSEPH:
All right. Great. I’m a US citizen legally. That’s interesting. Legally residing in Spain since 2000 I’m self-employed and pay taxes only in Spain. Should I file taxes in the US what information do you think is relevant for me to know from a us perspective? Absolutely. Even though you live in Spain or wherever in the world, you are still required to file and pay taxes back into US, if it is as well as declare your assets. So, you know, if it is that you have bank accounts, it may trigger FBAR reporting, Foreign Bank Account Reports, which are not new. They’ve been around since the Bank Secrecy Act of 1970. So it’s been around for a while. And if it is that you have like an investment portfolio. So you have, you know, you’ve been investing in shares in companies, or maybe you have a bar restaurant, whatever fine businesses would also need to be declared. And they, the penalties for not declaring those assets or those investments can be pretty draconian. So for example, if you have a business in Spain speed and declare that that’d be $10,000 per year, if it is your bank accounts and speed and declare that it can be up to 50% of the bank balance per year plus jail time.
So it gets pretty aggressive because as you would imagine, the internal revenue service, they place a lot of emphasis on information. Information is gold, right? So if you didn’t pay taxes, well, you know, interest in penalties, but if you don’t declare foreign investments and final holdings, civil and criminal penalties, fortunately, if it is that your non-compliance is deemed to be what is called non willful, there’s a scheme or an opportunity called the streamline compliance procedure, which allows you to just backfile for three years.
So the last three years, which the due date has already passed, which in this case will be 2019 and 18. And that’s because of the statute of limitations. The look back period is three years for returns and six years for FBATS, which will be the foreign bank account reports. And again, that’s driven by this statute of limitations. So you file you three and year six, and you include a statement, which explains that the, you know, the reason for your non-compliance and the IRS would agree. And this is that’s what makes us such an interesting and an attractive deal.
The IRS would agree to waive the penalties. You pay interest on any taxes that are due, which is unlikely because you’re living in Spain, pretty high tax, but the penalties for non-filing will be waived. And that, that this is a great deal. If it is, you want to talk to us about this in a bit more detail, please reach out to me directly. You can email help@htj.tax. That’s help@htj.tax, and we’d be pleased to walk you through the process and get you cleaned up and ready to go.
Next question. I understand that you have six months to apply for the under the Beckham Law. Is it six months from your arrival in Spain or from when you registered for social security Ricky?
RICKY GUTIERREZ BECKER:
So it’s basically before. I mean, you can apply to, to the Beckham law before you become Spanish tax resident. So let’s say, so it’d be around the six month, 183 days. Because otherwise you become a Spanish resident, then you’re not able to apply to these facts region.
DERREN JOSEPH:
Right. So just to be clear, you apply for the under the Beckham Law before you trigger tax residency. Okay.
RICKY GUTIERREZ BECKER:
That’s correct. Because one of the requirements that you can have been Spanish tax resident in the previous 10 years. So once you become, no chance you can apply to that.
DERREN JOSEPH:
Great.
RICKY GUTIERREZ BECKER:
Normally people does it before moving. They apply and then move to Spain.
DERREN JOSEPH:
Which kind of ties back to the point about tax planning, get that plan before you move, right? And next question. Hi, I’m an American with a visa in Barcelona. I work with a US company and NGO, nonprofit, and I’m paid through my permanent resident in New York to my US bank account in US dollars as a remote employee, do I need to pay tax?
RICKY GUTIERREZ BECKER:
I mean, you’re living in Spain and you’re also report employee. You will be Spanish tax resident. You have to pay taxes on your worldwide income and yield. Of course, these should be, they should be taxing in Spain, but of course we would have to study the type of incomes to deal receiving the, the amount of the incomes that you’re receiving. And we would be able to see your actually, if you actually have to pay tax in Spain or not, but from what you’ve mentioned. I mean into salary and the salary shouldn’t be taxed in Spain.
DERREN JOSEPH:
Hmm. Okay. Next question. Well, the person saying you answered my question partially already, I should have filed taxes in the US even if I didn’t know anything. So my main concern is how do I begin filing 20 years later without penalties? And that goes back to the streamlined compliance procedure, which I mentioned earlier again, fantastic deal where you get to come follow it and come clean to the IRS and legally avoid penalties. So it is a great deal. Please reach out to me at htj.tax, that’s help@htj.tax.
Next question. Am I tax resident if I’ve spent 185 days in Spain, but I have my job and all my income from another country, I’m not yet registered in social security. Is there a possibility to defend that I’m not based on the second criteria? Ricky, I think you’ve answered it already, but yeah.
RICKY GUTIERREZ BECKER:
I mean, yeah, basically, you have to follow the three worlds. If you spend more than 183 days, you’re Spanish tax resident. The thing is that you can, you can discuss with the Spanish tax authorities and go stay here. I am also texted in, in this other country. And if you are able to present a certificate stating that your tax resident in this other country, then you will be, you will be able to avoid getting the tax resident seen in Spain.
But of course you will need to show the Spanish ductile qualities whenever they come to you, because maybe they never come to you. And they, and they asked for the certificate, you have to be able to provide a certificate. And also the income tax, if you are presented in these two other, in this other country,
DERREN JOSEPH:
Right. And to add to what you’ve said, Ricky would the US under the double tax agreement, of course, there’s an opportunity under what they call a closer connection test to say, well, you know, I’m living in Spain. I’ve kind of crossed the number of days, but I’m actually still based in the US. And you know, you prove that you still have those social ties. Maybe you have a membership of clubs, you set up a home that’s available for you. You use et cetera, et cetera. It’s not being rented out. It’s there for your use. And then the IRS will give you the certificate.
Now we’ve had people approach us, approach me and ask whether I can help them get the certificate. And when I inquire and we have that interview on zoom, then they tell me, well, you know, I really don’t have my own home back in the US I can use my sister. I can use my cousin. You know, so, of course that will be unethical and there’ll be dishonest. And then they say, well, you know, the other tax professionals that will do it. And and and here’s why we don’t do that.
Aside from the fact that it puts our license in Japanese. Let me explain to you how the internal revenue service works in the US if they ever catch you out doing something wrong, it’s just like in the movies I told just like in the movies, the first thing that asks is who helped you, that’s it? Who helped you? They want you to rule up on the, what they call the enabler, because you know, the IRS has a manual. That agent is speaking to, they have guidelines and their agenda is to catch the person that helped you. Not really you, because you’re a small fish.
And when, if you were to say, well, you know, I’d spoke to this tax advisor called Derren, and he helped me do this, this dishonesty. Then the next step is to start auditing all of Derren’s clients. So if it is, you do find a tax professional who will help you dishonestly get that certificate. If you are any, one of the other hundreds of thousands of clients ever get caught, all their clients will be subject to scrutiny, including you. So they’ll come back to you. So, you know, these things, it’s really not worth it. We always advise clients to do the, do the right thing.
So yeah, just leave it there. Yeah. Yeah. Okay. Blah, blah, blah. I am a US citizen living in Spain and October, 2019. I’m married a Spanish citizen in May, 2020. I became Spanish tax resident by filing the necessary form in June 2021. I have found my first declaration, dela renta in Spain by when do I need to file the Form 720, Ricky?
RICKY GUTIERREZ BECKER:
Well, I mean, basically you became tax in Spain in 2020, and this year you filed your taxes for, for the year 2020. You should have filed a farmer seven 20 in the first quarter of 2021. So we are on late banning right now. But of course you can always, it is always better to buy late than never five. Because the thing with this form, it’s, let’s say you don’t declare the assets that you have abroad, and suddenly you sell one of those assets and you have a game.
If the Spanish stax authorities don’t know what was the value of that asset, they can say, no, no, the value was zero. And then they contact you for the whole game. And of course you don’t want that. So it’s always better to file it. If it’s, of course you are, you’ll have a small penalty, but, or a small fee, but it’s better to file it or never file it.
DERREN JOSEPH:
And Ricky, I think you answered Robert’s question as well. Robert is asking, I’ve filed a separate Form 720 for 2019, but I have not yet filed for 2020. Is it too late?
RICKY GUTIERREZ BECKER:
Well, it depends, if the assets that you have to pay have changed, because normally you normally file it once. But if you have other assets abroad that you want to incorporate, then you have to file it again. That a lot of people they just filed once and that’s it.
DERREN JOSEPH:
Okay. Gotcha. We have a question from Ben, tax resident in Spain, US citizen, income is being earned through a US entities in this case, LLCs or S CORPS, but US entities that are 100% owned by him. And he’s taxed resident in Spain. So that creates an additional layer of complexity because these companies, or this entity is being run from Spain. So what are the tax implications from a Spain perspective?
RICKY GUTIERREZ BECKER:
Well, basically one of the implications can be the, well, first of all, you as an individual will not be taxed in Spain, unless you recieved dividends. You recieved duvidends from those companies, but where, what can apply you being the one running your business from Spain and your business has been in, in, in the us, the Spanish techs are for instance saying, I mean, no, this businesses are Spanish, not US businesses. So you should be careful with that.
DERREN JOSEPH:
Yeah, absolutely. Absolutely. It’s it creates what we call permanent establishment.
RICKY GUTIERREZ BECKER:
Correct.
DERREN JOSEPH:
Another question on the quarantine rule that you mentioned. So if it is someone is tax resident has been meaning that they’re not necessarily a Spanish citizen, but they may be a US citizen living in, working in Spain, became tax resident, and then they leave and they go to let’s say Dubai. So, for the four years after moving, they’ll still be subject to taxes in Spain. That is correct?
RICKY GUTIERREZ BECKER:
Just because Dubai, I, from what I know, there are some regions with our tax savings and some other regions are not well depends. Right. But of course, if you move, if you’re Spain resident t and you move to a tax haven country, you will be tucked up to a Spanish taxes the first year and the following four years. So five years ago.
DERREN JOSEPH:
Five years ago and there’s a list of that’s published regularly of these tax havens.
RICKY GUTIERREZ BECKER:
Yeah. There’s a list in the Spanish government website.
DERREN JOSEPH:
And someone can check it on. Okay, great. Someone is asking, what is the exchange rate we need to use when dealing with euros and US dollars. From an IRS perspective, the address you’re not obligated. According to IRS rules, you can use any published exchange rate, but the IRS publishes the exchange rates as well as treasury. The treasury department has treasury rates that we use for AF bonds and a form 89, 38. And we use the IRS rates for the IRS, the actual federal returns. What about Ricky? What about on the Spain side? Is there like official exchange rates?
RICKY GUTIERREZ BECKER:
Not that I know of. I mean, basically whenever we have people coming from, from the us and they just give us their information and we have to put that in, in the, in the tax return and needs in, in us dollars, we try to use the daily change rate. So basically we work with that,
DERREN JOSEPH:
Right. So I know we pressed for time and we, we really kept Ricky a bit longer than we normally do. So I will skip one. We asked, we asked that that question was asked already, please look at the recording and you get the answer. And jumping to Isabelle, is there a process from led to the similar to the streamlined US tax compliance procedure on Spain’s. If it is that someone has missed a filing taxes, is there a way of catching up without paying too much penalties?
RICKY GUTIERREZ BECKER:
There’s not a process that is similar to that. You just present the last three taxes and then you’re all good. No, we don’t have that in Spain.
DERREN JOSEPH:
Great. And last, sorry, I need to draw a line there, sorry that we can’t get all the questions. The last questions from Theresa. Similar to the question before. If you’re in Spain, but stay less than 183 days, would you still be considered tax resident and pay tax when you were letting come to Spain?
RICKY GUTIERREZ BECKER:
No. Basically if you don’t spend 183 days and not been a tax resident, then you won’t be taxed, no deal. The only thing that can happen is that if you earn income or you earn incomes here in Spain, maybe you have to file a form, which is the Form 720, which is for non tax residence for the income that you’re earning in Spain. But that’s it.
DERREN JOSEPH:
Okay, great. Ricky, thank you very much for sharing your time and your expertise. I’m really sorry that we didn’t get to answer all the questions that were posed, but we’re pressed for time. We’re going to do this again sometime next year. So please stay tuned and thank you for joining us. Thanks for sharing your time. This is being recorded to wherever it is. You get your podcasts. You can feel free to access it and catch a recording, and we will see you again next time.
RICKY GUTIERREZ BECKER:
Bye-bye. Thank you. Bye bye.
Don’t let tax worries hold you back as a US expat in Spain. For assistance with US tax Spain reach out to us today.
