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VOICE-OVER
This podcast channel is about you. Successful international entrepreneurs, successful expats, successful investors sponsored by HTJ.tax
DERREN JOSEPH
Welcome to HTJ.tax. We do these livestreams every week, but we’ve been a bit delinquent because we’ve been going through tax season like many people, and we’ve had to stagger a bit. So, it’s been a while. I think it’s been a month or so since our last one. So, for those who’ve been asking, I’ve seen all your emails, but unfortunately, I have not been able to respond to everyone and I apologize. For those who need to leave and are not able to stay for the entire thing, yes, this is being recorded. It will be available on our website, Facebook, LinkedIn, twitter, YouTube, probably on about 25 platforms and basically wherever you get your favorite podcast, you can find this.
So, don’t worry about it. you will be able to access this even if you have to leave early. You sent lots of questions. Some of you sent super detailed questions, and they were well-received, but it’s unlikely we’ll be able to get through all of those questions, and for that we do apologize again. So, but we’ll be able to get through as many as we can do.
Keep in mind, that we’re all licensed professionals here. So, of course we need to give the usual disclaimer. Nothing we say here should be construed as advice. We’re having a general conversation about general principles and what we hope to do is equip you guys with the tools that you would need to engage your preferred team of advisors. So always seek professional advice. Okay, I see some of you have just joined. Yes, this is being recorded. If you do not want your video to appear, you just need to switch your camera off, otherwise you’ll be visible on the recording as well. If you’ve asked a question, if you send the email, I have seen your email, so you don’t need to type it again below.
If you did not get a chance to submit your question via email, feel free to type in the box below and time-permitting, we will get to them in the order in which they are received. So, without further ado, I will introduce our two very distinguished guests. I’ll start with my left. Andres,
ANDRES GUTIERREZ
Hi Derren, how are you doing? A pleasure to be here and hi, great to be here. Indeed.
DERREN JOSEPH
Fantastic, Aurelio?
AURELIO GUIRADO
Hi everyone. Happy to be here. Very excited about this opportunity.
DERREN JOSEPH
So, without further ado, let’s jump right in. So, this person, well he has two questions. One is on the migration side and one on the tax side. So, on the migration side, can a US resident and a citizen visit his or her spouse and family in Spain who are Spanish citizens and residents for more than 90 days in the Schengen zone, IN the 90-180 day-rule, but less than 183 days in a calendar year. And he has in brackets that Spanish tax residency rule is around 183 days.
So that, that’s the first question. Aurelio.
AURELIO GUIRADO
Yeah. In, in Spain you become a tax resident of Spain only if you spend more than 183 days during the calendar year, or if the center of all your economic interest is in Spain. Otherwise, you’re not considered to be a resident. There is also an assumption that you are resident in Spain if your spouse and your children under the legal age are resident of Spain. But this assumption can be related. I mean it needs approval from the country. And even if you’re considered to be a resident for tax purposes in Spain because you meet one of these two requirements that I said before, if you are considered to be resident in another country following the internal rules applicable in that country, then this conflict of double-tax residency will be solved based on the double-tax treaty signed between Spain and the other country.
AURELIO GUIRADO
In case it existed, Spain has a very wide treaty network. So, in most of the cases that will exist. So, this will be solved based on the treaty.
DERREN JOSEPH
Right. So basically, you go through the test of the industries and the tax treaty that speak to where’s there is closer connection, whether it be in the US or in Spain?
AURELIO GUIRADO
Exactly. Yeah.
DERREN JOSEPH
But having said that, I’m just adding to this, you know, Spain does have a reputation for being a tad aggressive and of course we all remember what’s going on with Shakira, right. So, in the sense that Spain does play hardball, so you know, generally speaking in a situation like this, what are your thoughts? I mean, without knowing the specifics, is it something to avoid? You know, if it is that you really want to avoid taxation in Spain, probably you want to keep your wife and kids out. What, what are your thoughts?
AURELIO GUIRADO
I would say that it depends. I think that you need to do things right, otherwise tax can be very burdensome. Not only in Spain but also in any other country. In Spain, now we are in a situation where Spain is looking to attract people to become tax residents in Spain. In order to create some growth in the Spanish market because we have seen an opportunity due to the pandemic and in remote working, to attract interesting people into the Spanish territory. So now Spain has created and is implementing new tax rules that are basically aimed at attracting talent into Spain with a good tax system.
AURELIO GUIRADO
So yeah, in Spain, we have the general rules and we have this special tax regime, which is quite attractive. If you become a tax resident of Spain and you apply to this special tax regime, the so-called Beckham regime, you will be in a very good tax position. So, yeah, it depends. You have to do things right.
DERREN JOSEPH
Absolutely. Go ahead, Andres?
ANDRES GUTIERREZ
…and I think to add a really interesting thing, is that with the Beckham law regime, you have to apply to that once you have become tax resident in the country. And at the end of the day, it is part of our work and our expertise here at Henley and partners and as Aurelio has mentioned, Spain is creating the conditions to attract foreign direct investment, and to attract digital nomads. Depending on their work situation, and depending how they’ve moved to Spain, that that Beckham regime can be added.
ANDRES GUTIERREZ
So, I think that there are good opportunities for remote workers to consider the Beckham regime that Aurelio is mentioning. Similarly, individuals who wish to relocate to Spain with a golden visa can also benefit from these opportunities. At the end of the day, obtaining a work permit is necessary to obtain residency in Spain or any other country, which ultimately makes you a tax resident. So, these are excellent conditions this year and an expert in this area can provide valuable insights.
DERREN JOSEPH
I definitely want to echo those sentiments. I mean hands down, especially given the uncertainty in other jurisdictions, I think Spain has emerged as a place where there is clarity and certainty and from a tax point of view it is hard to find something that’s more attractive than the Beckham law which you have mentioned, as well as the nomad visa and so on, which we’ll get into later. Just to go back to questions from Steve. So, he’s asking, and this one might be a bit unfair because it’ll be hard if you’re not looking at the tax treaty every da. But he’s asking, is interest income from a US bank taxed at the fixed rate of 10% in Spain?
DERREN JOSEPH
He’s referencing the double tax treaty. Do you recall or is that something we’d probably have to go away to take a look at?
AURELIO GUIRADO
I have to double check, what is the limit. I mean the state of source that Spain will tax. Assuming that it’s an individual who is collecting those interest in Spain, interest is taxed at the scale from nine 19% to 28% and Spain allows to credit the withholding tax applicable in the US with the limit of the tax that should have a been applicable in Spain. Meaning that if pushed against the treaty, the limit is 10%, which the US will hold in tax. Spain will likely allow you to deduct that tax from your own personal income tax.
DERREN JOSEPH
Okay, understood is, so he has two more questions. One on social security, and this is one that’s quite common as well. I’m sure you get this all the time. US social security benefits, how are they taxed by Spain?
AURELIO GUIRADO
It depends, I mean if you are under the special tax regime, Spain is not going to tax that Social Security benefits because under this, Spanish Beckham regime, Spain only taxes a Spanish-sourced income with the sole exception of salary income, which it also started to tax in Spain. So, if you have, if you have foreign income and irrespective if this is a salary income, if you have a foreign income and this income has been generated in the US in this case, it will not be taxed in Spain.
AURELIO GUIRADO
On top of that, if you are under a regular regime, in principle, this could be decided to be taxed in Spain, but I assume that portion to the treaty where, it will only be the US who will have taxable rights over that kind of income. So, in principle you should be right, but it is something to review depending on the case.
DERREN JOSEPH
Exactly. And, and especially since, according to the definition of retirement funds and pensions in Spain, it really applies to those who worked in public service. Am I correct? So, you work for the government, you work for the state, and therefore the retirement fund as well as the social security would be pursuant to public service and in that case, it wouldn’t be taxable in Spain. Am I correct in briefly summarizing?
AURELIO GUIRADO
That is exactly right. We need to review, which is the nature of pension because it’s not exactly the same in Spain. We have the public system in Spain, we also have the private system in Spain. Contributions to private, let’s say pension schemes as you were saying. Yeah, it needs to be analyzed in detail, absolutely. Depending on the nature.
DERREN JOSEPH
And this is so hotly debated, we, when I look at some of the comments, sometimes it’s such a point of contention, but it’s just from the US psyche, we don’t understand how it is that it can be treated differently, depending on where you worked, but it is a fact and that’s just the way it is. Okay. Alright, thank you. Moving quickly to the next one. So, I hope that answers all your questions. We just need to move on now. What is the difference between the tax regime under the new nomad visa and the tax regime under the Beckham law, generally speaking? I’m sure there’s a lot, but just top line.
AURELIO GUIRADO
No, There’s no difference. I mean now under the Beckham regime, one of the alternatives in order to apply for the Beckham regime is that you qualify as a Nomad Visa. Before you cannot apply for the regime under that circumstance. Now it has created this new visa, which is called the Nomad Visa, and you can apply for the Beckham regime if you have succeeded in applying for this type of Visa. So, basically, as I was telling you before, Spain is looking to attract new talent into Spain, and this is why they are creating new options in order to apply for the Beckham regime.
AURELIO GUIRADO
So, it’s the same, the Nomad visa is a type of visa that allows you to reside in Spain. And then once you reside in Spain, if you become a tax resident of Spain, you can apply for the Beckham regime through that route, if you have that visa, and so long as you comply with the requirements, it is the same.
DERREN JOSEPH
Right? But you know, once you apply in a way you are treated as if you are a tax resident; you treated as if you are not. Therefore, it’s not that your worldwide income would be subject to tax, but very specific sources of income. Yeah, but so I’m, I’m just thinking that from a process point of view, guide me if I’m mistaken, that the nomad visa route is easier? In that with the Beckham law you’d need to have an employer in Spain and you need to go through working with a law firm and accounting firm to perhaps structure a company that then will pay you but you cannot own, of course, but it seems like some sort of arrangements would be needed, whereas with the nomad route, those arrangements don’t necessarily need to be in place. Am I correct in saying that?
AURELIO GUIRADO
Yeah, kind of. There are different alternatives, you know, that apply for the Beckham regime. I mean if you go through the employment route, let’s say you can apply for the Beckham regime if you become an employee of a Spanish company, you can also apply for the Beckham regime, if you are an employee of a foreign entity and you are on an international assignment in Spain. Therefore, it is your company that is assigning you into Spain with a letter of assignment into Spain. And you can also apply for the Beckham regime if you are a Digital Nomad, as you were saying, when you are relocated into Spain, even if your company is not instructing you to do so, but because you want to enjoy our weather or gastronomy etcetera, also you can apply for this These are some roots.
AURELIO GUIRADO
You have also the possibility to apply for the Beckham regime if you are the director, or if you are the administrator of a Spanish company. So long as this company is engaged in a business activity. In case not, I mean if you are the director/administrator of a Spanish company, which is a passive holding entity, you cannot hold more than 25% of that entity. If it is active, irrespective of your percentage of ownership in that entity, you can apply for the regime. Also, you can apply for the regime if you are creating an entrepreneurial activity in Spain.
Also, you can apply for the regime if you are a high-skilled professional who render services to a start-up in Spain. I mean there is a range of different alternatives in order to apply for the Beckham regime. So, the message I would say is that there are different alternatives depending on the profile of the client. We can explore the different alternatives to determine which one fits best because there are certain requirements to apply. But broadly speaking now the regime is much more attractive because there are many more options to apply for the regime. And as you were saying before, once the regime has been granted, it is very efficient. I mean, foreign-sourced income is not subject to tax, irrespective of the taxation rights that can be in the country of source of that income as opposed to, for example, to the tax resident in Spain.
Irrespective of whether there are taxation rights in the country of source of that income, Spain is not going to tax that if that income is of foreign-sourced. Also, irrespective of the type of income that you derive, from capital gains for example, whether, they’re long-term capital gains, short-term capital gains as opposed to Italy for example, Spain is not going to tax them. it’s quite attractive.
DERREN JOSEPH
Okay, fantastic. And segue to that, the follow-up is under the Beckham law, and I think you’ve already answered this in part, but I I’ll still read it. Can you directly own the company that’s employing you in Spain?
AURELIO GUIRADO
No, sorry, this is a tricky one. I mean if you go before this change in the law, you could not be the administrator, or the director of a company in Spain, or if you held more than a 25% of that entity. Now you can be the director of that entity irrespective your percentage of ownership in the company, if that company has a business activity. You cannot be an employee of that company if you hold more than 13 levels of ownership with that company because under Spanish law, it is assumed that you are not an employee of a company if you hold more than 13 level ownership in that company, because you are not going to fire yourself. You are not considered to be a real employee. Yeah. But it’s an alternative to this route, as you were saying before, you can apply under the director or administrator option as an alternative. So, I mean, this is covered now with the new regime.
DERREN JOSEPH
So, it’s way easier now than before, which is good news in a way.
AURELIO GUIRADO
Way, way, way easier.
DERREN JOSEPH
So, in terms of tax returns in Spain, can a team in a tax office in Madrid or Barcelona file tax returns for a resident in any part of Spain? Or do tax returns need to be done by tax teams qualified locally in your semi-autonomous region?
AURELIO GUIRADO
No, it can be submitted by the office in Barcelona, Madrid or Seville or whichever location.
DERREN JOSEPH
Okay. So, there’s, there are no circumstances, for example, if someone from those semi-autonomous regions up north, where they’ll need to have to…
AURELIO GUIRADO
Well, I’m talking about personal income tax.
DERREN JOSEPH
Personal income tax, absolutely….
AURELIO GUIRADO
Okay. I mean, because there are some other local taxes or regional taxes, but here at EY, we can cover the whole Spanish territory.
DERREN JOSEPH
Perfect. That’s wonderful. But how are wealth taxes calculated in the various regions? Because I believe that it varies by region, right? But please summarize
AURELIO GUIRADO
Yeah. A, in a summary, I mean two regimes, if you are under the general regime, you are subject to tax on your worldwide wealth. But then the different regions in Spain, can apply rules. For example, in Madrid or in Andalucía, there is an exemption to net-worth tax–full exemptions. Also, there is a fortune tax that was created to avoid the application of this exemption. But also, there are some exemptions to taxation under the net-worth tax.
For example, there is a minimum exemption that also depends on the region where you are resident of. Also, the house that you are living in is also exempted from the net-worth tax. And also, there is a limitation of the net-worth tax that you have to pay depending on the level of income that you have because Spain doesn’t want that you have to sell your assets in order to pay your net-worth tax. There is also an extension to family businesses. On top of that, if you are under the Beckham regime, you are only taxed on your Spanish wealth.
AURELIO GUIRADO
Foreign wealth is not taxed under the Beckham. So, for this year, 2022 and 2023, those are the regions where the net-worth tax is exempted. Then the central government created this new tax called the fortune tax, which was to avoid the applicability of these exemptions in these regions because the central government is governed by a different political party than those regions which created these exemptions.
AURELIO GUIRADO
So, they wanted to create this central tax, which is quite controversial and we at EY believe to be against the constitutional principle. So, for this year, we have this tax which we believe is temporary. In fact, we recommended our clients to claim against the constitutionality of this tax. But this year, we have general elections in Spain and it is expected that this fortune tax will be eliminated.
DERREN JOSEPH
Understood. So, you mentioned that there are some regions without the wealth tax, right?
AURELIO GUIRADO
Exactly. Yeah.
DERREN JOSEPH
Do you think, I know I’m calling out on you to speculate, but there’s a sentiment that those exclusions may not be long-term. What is your sense? Do you get a sense for Madrid and those areas?
AURELIO GUIRADO
My sense for Madrid and for the regions that are governed by the political party that is expected to win the elections, is that, I don’t know, but I, I believe that they are planning on including more and more exemptions. I mean, Andalucía just incorporated these exemptions this last year in November, but in the case of Madrid, they are making a lot of publicity about the reduction of tax rates and taxes in general to attract investment into Madrid not only from abroad but also
from other regions in Spain.
AURELIO GUIRADO
I mean, there is this tendency to reduce taxes in those regions for sure,
DERREN JOSEPH
Which is good news for us. Thank you. Now and again, I know that I’m calling on you to speculate, but you know, it’s, it’s good to get your perspective at the level of the EU. So, we know that at the EU level, there’s a certain level of discomfort with the Golden Visa, right? Let’s, let’s leave it like that. What about the special tax regimes? Do you get a sense that the EU doesn’t like special tax regimes? And if so, what is your forecast of what will happen with them?
AURELIO GUIRADO
The Beckham regime has been very stable in time. These changes have just been implemented and enacted and implemented. And I know that there are these discussions in the European Union, as you were saying because of the Golden Visa. But I think it is more focused on the inflation that this might create. But these rules apply respective of your level of wealth, irrespective of your level of income, so this risk of inflation does not exist. I will say they are only looking to attract people into Spain because Spain wants to take advantage of its natural conditions, and the quality of life that we have.
AURELIO GUIRADO
As it can be done in other country where they attract other types of investors or other types of sources of income because they have a very powerful farms industry or very powerful CD or whatever. So, I don’t think it’s, an issue. I mean, so long as you comply with 1the requirements to apply for it, I don’t see why this should be challenged in the near future.
DERREN JOSEPH
On the contrary, that’s why I asked because for example, I remember about 10, 15 years ago, there’s a non-dom regime in London, back in the days when the UK was still part of the EU, it was challenged by Brussels and then they had to kind of back-pedal and introduced this deemed domicile rules. And then more recently in Portugal and the NHR, you could have retired into Portugal and have pensions tax-free. But then under pressure from Brussels again, they had to put in the 10% minimum tax on foreign pensions. It’s some challenge. You know, so I’m just seeing a trend and I’m just wondering if you’re seeing that trend or whether I’m just being paranoid.
AURELIO GUIRADO
I don’t see the trend. It can of course happen. But I mean, the Beckham regime only applies for five plus one year. The year that you are coming and five years more. We as tax advisors, we cannot plan for more than two years because rules change. Now, Spain is very attractive, that’s for sure. And we can see what happens in five years. Once you have applied for it, you will have it granted for those five years or five plus one year. That’s for sure. I mean, that is how it goes. Then we will see on top of that, I mean in Spain, we also have this extension to net-worth tax, I expect that it will be expanded in the future depending on the region, but I don’t see that this is going to be more burdensome, regarding wealth taxation.
And also, we also have tax schemes in Spain for income. So, we can work on different solutions. Taxation should not be a stopper, if you want to, to come to Spain, I would say.
DERREN JOSEPH
Absolutely taxation is not going to be a showstopper. Switching a bit from taxation to immigration, the Golden Visa, do you have any updates on what’s going on with the golden visa or is it business as usual? Nothing to worry about?
ANDRES GUTIERREZ
Basically, here in Spain it is going as usual. Basically, there are no further changes. So, there are no further expected changes, I would say. Of course, as we were mentioning before, Golden Visas are scrutinized and there are some impressions from the EU, which is something that we have to face and we have to engage all possible stakeholders to explain the benefits of these kind of programs in order to attract foreign direct investments and in order to attract talent from overseas. And then at the end of the day, the kind of people that we work here with Heian partners, they normally end up moving and then they end up being tax residents here in the country and then they end up paying their taxes here. It is not something, a scheme or an American scheme or anything, the checks are very high as well. In the sense of Spain, there are no further changes.
DERREN JOSEPH
Okay, business as usual. So, staying on the theme of the Golden Visa, the next question e is broken into parts, I’ll start with the first part. I’m a resident of Spain on a work permit that expires in six months. My wife is a Spanish citizen and I (I guess he’s American) have invested in a property and the value of the property is in excess of the 500K euro threshold. If I’m already a resident, am I able to convert to a golden visa before my current work permit expires?
ANDRES GUTIERREZ
Yes, that’s possible. However, we need to check very carefully on how the property purchase has been made. Basically, who has bought the property, the economical regime of the marriage at the time, etc. etc., There are a few things that need to be checked, but that is possible indeed.
DERREN JOSEPH
Okay. This follow up question is, is the requirement of 500,000 euros in cash invested or total property value?
ANDRES GUTIERREZ
So, basically in terms of the investment in real estate, which is what they’re referring, as you know, there are three ways of applying for the golden visa. Three qualifying investments: half a Million euros in real estate; 1 million euros in financial assets, bank deposit, turn deposit, finance investment funds; and two Million on government bonds. But this one, which is the first, the investment needs to be half a Million euros in real estate, that half million euros can be one or more properties. And if, for example, it’s a property of 1 million euros and the applicant basically put half a Million in cash and the rest comes with a mortgage, that’s fine, as long as there is an effective cash injection in the real estate market. Let’s say by buying a property or several properties worth half a million euros, the applicant is fine.
DERREN JOSEPH
Okay, wonderful. Last question. Is an elderly parent considered a dependent with the Golden Visa, and if so, what documentation is required for them to be sponsored?
ANDRES GUTIERREZ
Okay, so basically dependence on the Golden Visa, they are the spouse of the main applicant. and dependent children under 18 years old and over 18 years old with no wage limits, as long as they are financially dependent on the main applicant, and going to this question, parent-dependents which need to be over the age of 65 years old, they need to be retired and all financially dependent. The proof will depend with variance on each particular case and on each particular jurisdiction. So, what we normally say to our clients is yes. Then we qualify. Are they over 65 years old? Yes. Are they retired? Yes. So, okay, let me know, let me check more information from the parent-dependent, let me see how his or her pension looks like. You know, pensions show different questions that go to a particular case, but going to the question itself, yes, they do. Generally speaking, yes, they do qualify.
DERREN JOSEPH
Okay, fantastic. Another immigration type question from Sanjay. So, a member of his family has a Tarjeta Communitaria, but they’ve stayed out of the country for quite a number of years and it has expired, so what’s the process for renewing it in order to return or before returning it?
What’s the process for renewing it, if at all?
ANDRES GUTIERREZ
Okay, so basically, I understand that SanJay had an EU card here in Spain and then went out of Spain for whichever time it was and it had expired. So, he wants to renew it. If he has a qualifying investment here in Spain, then he will be able to renew it. Provided that certain conditions that are met. Again, we need to check the file and see what needs to be done. If he does not have a qualifying investment, he can either look at making a qualifying investment and apply for a golden visa. He can also apply for a Digital Nomad Visa if he’s going to relocate and live here in Spain, under a Digital Nomad or the Golden Visa. We need to look at the tax position and eventually apply to the Beckham Regime and I’m looking at Aurelio basically, because that’s something that we don’t do, but that would be the solution.
DERREN JOSEPH
Okay, wonderful. Thank you for that. Next question from Ryan. So, I’m an American and I have the right to work in Spain, I plan to work as an autonomo here and plan to charge some clients via my Spanish bank account, but may charge other clients via my American bank account. Is it possible to do this and simply claim all income in the Spanish account in Spain and not the ones in the US, Aurelio?
AURELIO GUIRADO
No, no, sorry. Yeah, you can charge whatever you want. I mean the taxation is not connected with the way you charge your fees,
DERREN JOSEPH
Right? So, so generally speaking, and again, you commented a lot on tax status earlier, so if it is that you are a regular tax resident, you’re being taxed on your worldwide income regardless of where you receive it.
AURELIO GUIRADO
Regardless of the way you receive it. The triggering of the income is different from the cash flow.
DERREN JOSEPH
Right. But if you’re under a special tax regime, either as a nomad or Beckham then there could be some bifurcation of the income. So, you report to Spain what is generated in Spain and what is generated outside is not reportable.
AURELIO GUIRADO
Yes. You have to pay attention and determine which is a Spanish-sourced income and which is foreign-sourced income. I’m assuming that he’s a professional as you were saying. because if he is, that kind of income qualifies a salary income rather than professional income, irrespective of the country of region of that income, and that will be subject to tax in Spain under the Beckham Regime. So, it should be analyzed in detail to check whether or not we are compliant with the Beckham Regime. In any case, I’m not sure if he’s qualified to apply for the regime under that scheme, but this is something to analyze in detail.
DERREN JOSEPH
Alright, Ryan, we hope that answers your question. Moving on to Ms. Senka. “I’m in the early stages of researching residency in Spain. One of the areas I’m interested in is whether you can invest and get residency in Spain by investing through my own company?” So, Ms. Senka has their own company. So, Andres, what are the nuances between in investing as an individual as opposed to investing through one’s company?
ANDRES GUTIERREZ
Yeah, so basically that is perfectly possible if the applicant has his company, which is located in any jurisdiction, which is not Tax Haven. Basically, she can make the investment in Spain and apply for Spanish residency by investment, provided that she’s the UBO of the company. So, basically, she should have 51% plus of the shares of the company and has the control of the company. She can appoint and resign directors. These are certain things. So basically, the investment is going to be made by the company and then when the application is submitted to the government, we need to show proof at the end of the day that he’s the UBO of that business/ company/ business structure.
ANDRES GUTIERREZ
Sometimes you have your holding company, or you’ve a trading company that is buying and selling property in the US, that basically buys a property in Spain and we just need to show the connection between the trading co. and the holding co.
DERREN JOSEPH
Mm okay. Fantastic. All right, I hope that answers your question. Moving down to Todd, Todd has four, five questions. Todd has five questions. I don’t know if we can get into all of them. The first one is about regional variation of the wealth tax outside of the new solidarity tax. Seems as though Madrid and Andalucía have none and perhaps Murcia has joined them. What about other regions? Aurelio, I think you’ve commented on this before. Do you want to say a few words?
AURELIO GUIRADO
Yeah, I think the trend is that in those regions where the Partido Popular, which is the political party that is in opposition right now, governs, I think that the trend will be that they will include full or, or partial exemptions to net-worth tax. Also, this party is expected to win the general elections. This is why I’m optimistic in this regard. But let’s see how it goes.
DERREN JOSEPH
Okay, and his second question, do IRA, (this is US individual retirement accounts) count in the wealth tax calculations? It seems that he’s saying that it was counted before, but now it seems to be included in the calculation. Do you have any comments on that?
AURELIO GUIRADO
Yes, it’s included, I mean, again, it depends on the regime that you are subject to. I mean, under the regular regime, you are subject to net worth tax of your worldwide wealth, under the Beckham regime, you are always decided to be taxed on your Spanish wealth. So, in the second case, if you decide to not have it included within your taxable base, it will be accepted. And in the first one, exemptions depending on the region will apply.
DERREN JOSEPH
Next one from Todd, he’s asking about regional variations in inheritance taxes. He says it seems that Madrid has none, but other regions do have inheritance taxes. Do you want to comment on inheritance taxes?
AURELIO GUIRADO
Yes, he knows more taxes than myself. In Spain, inheritance tax also is a tax that is seen on the autonomous region. I mean, the rules depend if you are subject to inheritance or you are subject to gift tax. If you are subject to inheritance, it is the law applicable in the region where the person who passes away, that applies. On the contrary, if we are talking about a gift, it’s where the person receiving the gift, that the rule is applied to that gift or donation unless you are gifting a real estate.
AURELIO GUIRADO
Okay. So, as he was saying, in Madrid you have almost a full exemption to inheritance and gift tax, but it only applies to inheritance between fathers and sons. I mean vertical, it’s also Spanish imagery to collateral. It depends on the region and again, there are exemptions, reductions, different tax rates are applicable depending on the link system between the parties and also the exemption regarding your house and the family distance.
DERREN JOSEPH
Okay. Interesting. And I know even in most jurisdictions the whole idea of inheritance and transfer taxes is a very specialized space as opposed to income taxes.
AURELIO GUIRADO
Yeah, the good thing about Spain regarding inheritance tax is that once you inherited or you receive a gift from any person, then you get a fair market value basis on those assets. So, it’s a good opportunity for tax planning if you want to anticipate an inheritance, yes, you can give part of your wealth to your kids if they’re resident in Spain and they are residing in Madrid because it will be exempted from tax and you will get fair market value basis. So, that’s fantastic planning.
DERREN JOSEPH
Yeah, for this one, we have a similar situation in the US where we get what we call a step-up in-basis. So, kind of familiar. So, he’s asking are there any difference in inheritance tax calculation between what he’s leaving his kids and what his patents leave for him? and he’s making the point that all of his assets are in the US and not in Spain. Any difference in the calculations there?
AURELIO GUIRADO
Yeah, I mean I suppose it’s the same in the US as here in Spain, in case of inheritance. It’s the contributor, not the state. So, but the applicable rules are, I mean, assuming that the person who passes away and the heir are both Spanish. The contributor is the heir, but the rules applicable are the ones that applies in the region where the person that pass passes away lives. For example, if I’m the heir here and I live in Malacca and my father who lives in Madrid, passes away, I’m the taxable person, but the rule applicable is the one applicable to the region where my father lives.
So, I will apply the exemptions applicable in Madrid. On the contrary, if I receive a gift from my father, it will be my rule that applies because the rule applicable is where the donee lives rather than the donor. But again, when you have people residing in different jurisdiction, you may have different rules applicable, it’s a bit tricky, but it’s not difficult I would say.
DERREN JOSEPH
Wonderful. And the last question from Todd, number five, are there any significant differences by region in how IRAs or individual retirement accounts in the US are taxed?
AURELIO GUIRADO
No.
DERREN JOSEPH
No, it’s taxed on a regional basis. Okay. Now, moving down Victor. Okay, so we come to Victor’s question, I have a question. How are rental properties from the US taxed when I’m residing in Spain? So, for example, expenses deductible, for example, property taxes, maintenance or whatever.
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AURELIO GUIRADO
But you have a property in Spain and you are a resident?
DERREN JOSEPH
No. from what I’m gathering, Victor’s a resident in Spain, but he has rental properties in the US. He has a portfolio of rental properties back in the US. So, he’s wondering how is it going to be taxed in Spain? Is it net rental income or gross rental income?
AURELIO GUIRADO
Net rental income
DERREN JOSEPH
Net. So, he gets to deduct expenses. Okay.
AURELIO GUIRADO
I mean again, if you are under the Beckham regime, you are not subject to tax because it is foreign income. If you are under the regular tax regime, you can deduct some expenses. Some of them you also can apply for some reductions depending on the age of your tenant I mean you can reduce a lot from the taxable base.
DERREN JOSEPH
Right? So, this is in fact his follow-up question. Victor went on to ask, and he knows that in Spain there’s some deduction. So, 50%, 70%, or 90%, For example, if it’s rented to young tenants, between 18 and 35 70% of the net rent won’t be taxed. So, you’re saying that this would be applicable to US rental properties as well?
AURELIO GUIRADO
Yes, because when you are Spanish then you are taxed on your worldwide income.
DERREN JOSEPH
Yes. So, the same.
AURELIO GUIRADO
So, I mean the same rules apply irrespective of the location of the asset. It will be a question of proving that you are eligible to apply for those reductions.
DERREN JOSEPH
Okay, great. So, switching again, I’m going through a whole new list of questions. Kiran and Andrew are asking, this is an immigration piece I think, can you explain the whole process and the requirement to get Spanish citizenship as an American? So, I guess they’ve done enough time in Spain and are thinking about Spanish citizenship. Could you talk about the process, Andres?
ANDRES GUTIERREZ
Yeah, it’s basically very simple. So basically, generally speaking, a person effectively lives in Spain for a period of 10 years. There are sections wherein which nationals from Latin American countries, like Mexico, Cuba, Puerto Rico, downwards to the south cone: Equatorial Guinea, Portugal, Andorra and the Philippines. Those nationals after residing effectively in Spain they can apply for Spanish citizenship.
ANDRES GUTIERREZ
However, for a US citizen that person would need to live in Spain for 10 years effectively. And then once they obtained Spanish nationality, they would need to renounce to the US citizenship.
DERREN JOSEPH
They need to renounce.?
ANDRES GUTIERREZ
Yes. Correct.
ANDRES GUTIERREZ
So, technically speaking only those nationals from Latin American nations, Andorra, Equatorial Guinea, or as I mentioned before, Portugal and the Philippines, are allowed to keep their second nationality.
DERREN JOSEPH
Wow. Renunciation. That’s a big step. I hope that answers your question.
Going back to tax. Nia is asking. My sister is interested in moving to Spain, she’s selling some of her assets back in the US. What will be the best investment structure to have for her US assets so that the tax rate or the tax burden in Spain would be lower? So, and I guess in terms of asset classes, should it be invested in an investment like a mutual fund or rental properties because they seem to be quite tax efficient?
What’s the best asset class to hold foreign assets in the US from Spain’s point of view?
AURELIO GUIRADO
It depends on the asset that you want to invest in. It depends on whether you apply for the Beckham Regime or not. It depends on your needs for cash and of the nature of the investment. I mean, I would say it, it depends and it has to be seen from both sides. I mean, the US tax advisor’s eyes, which we have a team over there as well. And also, from our point of view. I mean, in Spain we have different tax referral schemes that apply respective of whether you are not subject to special tax. But I would say, it depends.
DERREN JOSEPH
Okay, so I’m still on the taxes. If we file taxes in the US first because they’re due first obviously, do we have to pay the US first because of currency exchange rates and then pay the balance in Euros? So, and I’m not sure Lisa, I’m not sure what you’re asking, but essentially if I could just pour in some comments. Aurelio, you can chime in. I think that the US team and the team is doing your Spain Spanish returns should be working in concert with each other.
DERREN JOSEPH
And yes, the US returns may be, you can get an extension to file the US returns, but some sort of back of the envelope calculation may be needed because the payment deadline was earlier this week. So, I think, the US team needs to work in tandem with the Spanish team because even if the Spanish returns aren’t due until later. If some sort of estimate can be given, then it could feed into the form 1116 so you’ll get a better sense as to what your US tax bill would be, if any, and get that settled first and then file the return later on once the actual Spanish returns have been filed.
DERREN JOSEPH
Aurelio, do you want to comment on that? The coordinating across jurisdictions and the complaint?
AURELIO GUIRADO
I fully agree with what you are saying. We will need to want to work together with them and see if they have applied for an extension or not. If taxes are effectively being paid or not.
DERREN JOSEPH
Yeah. Okay, gotcha. So, Arthur is asking can income from a UK pension be excluded under the Beckham law?
AURELIO GUIRADO
Yeah, I mean generally probably speaking I would say yes because under the special tax regime, it expressly stated that the income that is generated out of Spain and prior to your change of tax residency is not taxed in Spain. But I would like to check whether this qualifies as a pension scheme for Spain or not because there are different rules here.
AURELIO GUIRADO
Pension industry in the UK is much more developed that in Spain they have like different type of pensions here that do not qualify as a pension.
DERREN JOSEPH
Exactly. And that’s, so Brits have the same challenge as Americans to understand that in Spain, pensions have very specific definition, whereas in, except in the UK and the US it’s all of this could be a pension. In Spain it’s very specific.
AURELIO GUIRADO
No, in Spain it’s not like that. In fact, what we basically do when we are treating like foreign pension schemes, we make this comparability test saying, okay, if you meet this text, you are considered to be a pension for Spanish tax purposes because we assimilate the pension to a Spanish pension scheme. Otherwise, we treat it as a financial investment, which in this case we will be fine under the Beckham Regime because foreign financial investments are generally exempted from taxation under the Beckham regime. But still I want to analyze whether this could be considered as a salary if we are talking about employment pension scheme.
DERREN JOSEPH
Okay. And staying with the theme of the Beckham regime, if someone is an EU citizen, so not an American citizen but an EU citizen and they move to Spain, can they also enjoy the Beckham regime?
AURELIO GUIRADO
Yes, the only thing is that they will generally not need a visa. But yes, they can apply for the Beckham regime. So long as they have not been resident in Spain for tax purposes in the prior five years.
DERREN JOSEPH
Again, sticking with the Beckham regime. So, Maria’s asking, is it sufficient cause to be the director of a company to be eligible for the Beckham regime now or does being a director in itself imply moving to Spain? Couldn’t that position be exercised from outside of Spain? I guess she’s asking for comments, Aurelio?
AURELIO GUIRADO
Well first of all, you need to become a tax resident in Spain in order to apply for the regime. So, you’ll need to meet the criteria to get the Spanish tax residency. Once you are considered to be resident for tax purposes in Spain, either because you spend more than 180 days in Spain or your center of economic interest is in Spain, you can apply for the Beckham regime. And one of the routes to apply for it is that you become the administrator, the director of a company that carries out business activity in Spain. What we need here, and in all cases regarding the Beckham Regime application, is that there should be a link between the change of tax re residency and the compliance with the requirements to apply for the regime.
AURELIO GUIRADO
Meaning becoming the administrator of an operating entity or becoming an employee must be the reason why you are changing tax residency into Spain. There must be this link, this is why you can only apply on the first year that you get tax residency and you have some time limitations in order to be able to apply for it.
DERREN JOSEPH
Okay, well that makes sense. So, Lisa is asking, who determines what exchange rate to use to convert US dollars into Euros?
AURELIO GUIRADO
It depends again, I mean it can sound like an excuse, but it depends on the asset that you are holding. Different rules apply depending on the exchange rate, applicable to the income derived from those assets. For example, if you are transferring collective investment and funds, if you are transferring funds, there are some rules to the calculation of the exchange rate that are specifically applicable to that potential capital gain.
If you are deriving income from a different source, generally, you would apply the exchange rate applicable on the date when you collect that type of income. If you are, for example, applying double deduction, then you will apply the tax rate applicable on the day that you pay your taxes in the US. There are different rules.
DERREN JOSEPH
Okay, understood. Understood. And on that note, we’ve just crossed the one-hour mark. So, thank you very much gentlemen for sharing you time and expertise. Aurelio, if someone wants to reach out to you to engage your firm to get into some of these issues, what’s the best way to reach you
AURELIO GUIRADO
As they prefer? I can share my contact details with you. My, my email, my phone and I will be generally available to respond to any questions they might have.
DERREN JOSEPH
Okay. Do are you okay to call out your email address here so someone can see it?
AURELIO GUIRADO
DERREN JOSEPH
And Andreas, what’s the best ways for someone to reach you to talk about immigration stuff?
ANDRES GUTIERREZ
Brilliant, thank you very much Darren. Let me just put my contact details here. Email or phone. It is more than fine.
DERREN JOSEPH
Okay, fantastic. And again, for those who will be hearing this and they can’t see, so you’d want to reach out to Andres at andres.gutierrez@henleyglobal.com
Gentlemen, thank you very much for your time and we will see you next time. Bye-bye.
ANDRES GUTIERREZ
Thank you everyone. Until next time. Thank you, Aurelio. Thank you, team.
AURELIO GUIRADO
Thank you very much. Bye
ANDRES GUTIERREZ
Bye. Bye.
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