Iberia Unlocked: Pre-immigration tax considerations

VOICE-OVER 

This podcast channel is about you, successful international entrepreneurs, successful expats, successful investors sponsored by HTJ.tax. 

DERREN JOSEPH  

All right, so fantastic. Good afternoon, good morning, or good evening, depending on your time zone. Welcome. My name is Derren Joseph of HTJ.tax. We do these live streams. I used to do these live streams every week, but now that we’re in the tax season, we’ve had to put them on the back burner for a bit. So, for those who haven’t seen us in a while, it’s great to see you again. And for first-timers, we do these live streams fairly regularly. You can see what’s coming up next on our website, HTJ.tax. On our YouTube channel, we have over a thousand videos. Our main website has over 2000 articles that will be of great key value regarding international tax in general and US International tax in particular. 

DERREN JOSEPH  

So today, we’re going to look at Iberia. We’re going to talk about its attraction. Obviously, there’s a lot of interest in what’s going on both in Spain (Americans living in Spain, secure your financial future with our specialized US tax Spain services) and Portugal. Still, we have the expertise of Andres and Todd to keep us focused in the right direction and answer all those really complicated questions. We get a lot of questions. I need to apologize in advance as we only have an hour, so we may not be able to get to your question in particular, although we’d probably be able to deal with it at a later date.  

DERREN JOSEPH 

So, without further ado, let me introduce you to Todd and Andres. Gentlemen, would you like to introduce yourselves? 

TODD COWAN  

I’ll go first, Todd. All right, thanks, Andres. Hi everyone. My name’s Todd Cowan. I’m an Executive Director and Certified Financial Planner at London and Capital. We are an independent wealth advisory firm based in London. We have a unique regulatory approval pattern, which allows us to advise individuals in a number of jurisdictions. We are regulated in the US by the SEC. We’re regulated in the UK and the Channel Islands through the FCA, and we’re regulated in Europe through the CNMV. As I was explaining earlier, we actually have custody arrangements in the United States, the UK, Germany, Luxembourg, and Switzerland, allowing London and Capital to provide a borderless wealth management approach to our clients. So that’s us in a nutshell. We work with ultra-high-net-worth clients on all matters of wealth management and provide a solution that is truly cross-border. That’s where things get a little bit complicated, but the complication is where we thrive on.  

DERREN JOSEPH  

Wonderful. Thanks for that, Todd. Andres? Welcome back. 

ANDRES GUTIERREZ 

Thank you. Thank you very much for having me again. My name is Andres Gutierrez. I am a senior consultant, lawyer, and head of the Spanish office here at Henley & Partners. At Henley & Partners, we have two main lines of business. On one side, we advise clients—private clients, high-net-worth individuals, and successful business people—in their citizenship and residency planning in over 35 different jurisdictions across 40 offices around the globe. On the other hand, we have a thriving government advisory practice where we advise governments from all over the world on everything related to the creation, setup, and improvement of regulations and programs that attract investments and grant applicants residency or citizenship rights.

DERREN JOSEPH 

Wonderful, thank you very much for that. And just to create context, we are all licensed, accredited professionals, meaning nothing we say here should be construed as advice. We are having a general conversation about general principles. If you are looking for actionable intelligence and want to take the next steps, you probably need to seek out and retain an advisor who will know your needs inside out and can advise you accordingly. In the end, we will provide the contact details of Andres and Todd, and you can reach out to them directly for your specific situation.  

DERREN JOSEPH  

But at this point, we’ll have a general conversation on general principles, which is how we stay on the right side of the law. So, okay, without further ado, let’s jump in.

Someone is asking: Are there updates on the golden visas for both Spain and Portugal? 

ANDRES GUTIERREZ 

As many of you may know, investment migration has been quite a hectic time over the past couple of months. So, there may be some changes to the Portuguese Golden Visa. At some point, it will be closed and be replaced by the D2 Entrepreneur Visa once the bill is passed through parliament and the new law is promulgated. However, it is important to note that the Portuguese Golden Visa will remain open for new applications submitted until the new legislation is published. This means that there will be no retroactivity or any similar implications.

So, my recommendation is that for advisors or clients interested in applying for the Portuguese Golden Visa, this is your time to get things going because the program will change. It’s not going to look like we know it today. 

In terms of Spain, there has also been on the news for the past week that the ministries are looking to revise or update almost everything related to the real estate route. However, it is something that remains a very low priority for the Spanish government. 

And in terms of everything related to real estate and the rising prices, etc., you have to consider that these factors only contribute to a fraction of the applications for Golden visas. In 2022, only 0.14% of the global total of Golden visa applications were supported by real estate properties.  

Therefore, this can have minimal impact on the Spanish real estate market. As we all know, the Spanish real estate market primarily operates at a local level; it is not necessarily an international market. And then, obviously, you have some investors from abroad. So, if they happen, we have to wait and see for these changes to go through the parliamentary route, which will take months. So, we are monitoring the grounds very close. There are no changes in Spain. If there are, they are not going to be applied retroactively. And basically, it is not going to touch the other investment route, which is the 1 million euros in funds or term deposits, or the 2 million euros in Spanish government bonds., To be honest with you, almost no one does that because of obvious financial reasons and minimum investment threshold. 

DERREN JOSEPH 

Okay. Thanks for that. So, I guess, probably the takeaway is that if someone is thinking about it, you should move quickly,  

ANDRES GUTIERREZ  

Correct. It is what I say to all my clients to take constant action in the case of Portugal, constant and massive action, just basically go for it! In the case of Spain, it is to start getting things going because I don’t know; perhaps next year, we will have a minimum threshold of 1 million; who knows? And if you want to get in, just get in now; that is the best advice we can give in the current situation.  

DERREN JOSEPH 

Okay, thanks a lot for that. So, the next question is, well, actually, I’m going to rephrase it a bit anecdotally. But in terms of inquiries and interests, how do Spain and Portugal compare? Is there one that is perhaps more popular than the other, or are they just targeting completely different demographics that comparing them doesn’t really make sense? What is your insight?  

ANDRES GUTIERREZ 

Well, my insight is basically that over the past few years, it is true that Portugal has been more successful. That is coupled with two things, of course. I mean, you have the five years route to citizenship, and then you have the possibility to obtain the NHR. So that is quite interesting for certain jurisdictions. However, Spain has always remained very interesting, especially for those from Latin America. So basically, Mexico, Costa Rico down to the south cone: Philippines, Equatorial Guinea, and then the citizens of Portugal Andorra, and the Sephardic Jews, can apply for citizenship only after two years of effective residence in Spain.  

So, coupled with the changes in Portugal, we have seen a significant impact over the past month. I mean, we’re witnessing an increase in the number of people looking into Portugal, and they’re saying, ‘Well, this means that if I apply now, I will face a bottleneck and will have to wait for a year and a half or two years for the biometrics appointment.’ In contrast, Spain only takes 20 days for approval, you know. So, I might be better off there, especially since I already have a passport or I’m from the Philippines.

It’s just basically this sort of thing. We’re seeing that a lot of clients are basically changing programs. Clients are comparing more than ever and looking for more optionality as well. So, indeed there is a high cap on interest in Spain.  

DERREN JOSEPH 

Hmm, gotcha. And what about you, Todd? What is your sense of what’s happening in the marketplace now? 

TODD COWAN 

Yeah, I would; I would echo what Andres said. Over the last several years, it’s been my experience that the velocity of interest and conversations has been quite high in Portugal for all the reasons that Andres mentioned, the shorter route to settlement and the very attractive nature of the NHR regime. But what I’ve seen is that people that are interested in Spain. You know, sometimes if people are going with their heart, then more times than not, they’re going to Spain, and they will look past the additional taxation burden that they might be imposed with, relative to what they might, if they’re going to Portugal. 

TODD COWAN 

But as Andres very accurately pointed out, when it comes to the root of origin, For South Americans, clearly Brazilians are going to favor Portugal from a settlement perspective, but when it comes to other South American countries, Spain seems to be a favored destination. Clearly, Madrid is a very attractive location in Spain. 

DERREN JOSEPH 

I think that’s a really important point that you mentioned, albeit just in passing. But I think it’s super critical, as per our experience as well, that there is a narrative on certain plus on the internet that it’s all about zero tax and finding some way to pay no tax. But no, when we deal with clients who are higher income earners, they’re looking for a lifestyle; they understand that since they are business people, they’re successful; they know that everything comes at a price. So, if I want to enjoy a sitting lifestyle, I don’t want to overpay for it, but I know I need to pay. So, yeah, you know, despite noises to the contrary, I think Europe as a whole, but Spain and Portugal in particular, are doing exceptionally well vis-a-vis all the other alternatives out there. 

Moving on to the next one: I’d be interested in getting your perspective on this: What is the advantage, if any, of the Beckham law, plus the non-lucrative Visa over the new nomad visa that’s available in Spain right now?  

TODD COWAN  

I think that’s a good question, and I’m going to pull out 

Andres, for some clarity on this, but it’s my impression that the Beckham regime only applies to context. It’s one; if you’ve been relocated for a Spanish-based business, you can apply for the Beckham regime and two on the new digital nomad visa. And again, I don’t want to put out wrong information, Andres, so you can correct me if I’m wrong, but I’m not entirely sure that the Beckham regime would apply to the non-lucrative Visa. And it’s primarily because you’re not working within the context of the non-lucrative Visa.  

So, there are two different pathways clearly. But the Beckham regime obviously offers a very favorable tax position for individuals who are seeking to relocate to Spain in one of those two routes, either through relocation or being hired by a Spanish-based company or the new digital nomad visa, effectively allowing you to earn up to 600,000 euros at a flat rate of 24% and without having to have the burdensome tax reporting requirements for those five years plus settlement year. So effectively, it could be upwards of six years, depending on when you arrive. But not having that foreign tax reporting requirement, whether it be Modelo 720 reporting or any foreign transaction reporting, can be a very attractive piece of the Beckham regime.  

TODD COWAN  

And so, clearly, you know, it’s something that if you’re eligible to take advantage of, you will want to apply for. But then, taking this question in its second part, the immigration route is all about personal preference and what works for you. So, the non-lucrative visa route will be a great option for people who might want to be in Spain but don’t necessarily need to have any employment earnings from Spain. 

They’re not expecting to rely on social benefits such as healthcare or state assistance. It’s literally about your pathway to Spain and potentially other parts of Europe for travel purposes. The digital nomad visa is obviously in its infancy, and again, I’ll rely on Andres to provide more information. It can appear to be a very attractive visa pathway. It’s still being flushed out in terms of the specifics since it’s very new. People are already applying for it, and I know that it seems to interest many individuals, especially in my line of work, coming from the US and looking to establish residency in Spain in a manner that wasn’t possible previously. 

So, obviously, it involves not working for a Spanish-based company but working for a foreign company while enjoying preferential tax rates and not having the burdensome reporting requirements that Spanish tax residents have. Andres, would you like to add anything to that? 

ANDRES GUTIERREZ  

Just two things to add to that, as Todd mentioned correctly. First, you have to think that the non-lucrative Visa is often referred to as the retirement visa. It allows you to live in Spain and is granted by the Spanish consulate (USA taxation Spain) in your place of residence. Basically, you just need to show proof that you have a certain amount of income and won’t need to work in Spain, and that’s it! 

Regarding the conditions of the Beckham regime, as Todd correctly pointed out, it basically involves relocating to Spain due to a work contract.

ANDRES GUTIERREZ  

So, in those cases, they’re not compatible. I mean, the Beckham regime will eventually be coupled with a golden visa that is to be looked into with a tax advisor and eventually with a Digital Nomad Visa, which is also to be looked into with a tax advisor. And, of course, when a person relocates to Spain due to a job offer, for example, the non-lucrative Visa is certainly not a platform because there is work.  

DERREN JOSEPH  

Right? Thanks for that. I completely agree with that. With the non-lucrative Visa, you’re not supposed to be working anyway, but at the same time, if you’re that successful entrepreneur who’s just had a successful exit, and you’re sitting on a nice flat retirement fund, and you think, Spain is definitely an option that you want to explore. There might be some sticker shock from a tax point of view because after 183 days or whether the center of vital interest test is triggered, by virtue of having Spain as a place of your habitual abode, then suddenly you’re a tax resident, and you may be subject to a wealth tax, or depending on your situation; you may be subject to an income tax because as we, I don’t know if we’ll touch on it in any of these questions later on but definitely, in our previous interviews we went into quite a lot of detail as to how pensions and retirement plans are configured and recognized in Spain and Portugal that are different from the US.  

DERREN JOSEPH  

So, you may think that if you have a pension, based on a quick reading of someone’s version on the internet, that says you’re not supposed to pay any tax on it. And then suddenly you find out that you do need to pay tax on social security or that pension. And perhaps you’re wondering, depending on your situation, if there’s an opportunity for planning here. Again, this does not apply to everyone. Still, there may be a planning opportunity if you fall into the category of successful higher, income-earning, or higher net-worth individuals. The normal Visa may not be the right one for you. Maybe. Maybe it isn’t, and maybe you’d want to look at a planning opportunity that will take advantage of this new nomad visa or the Beckham law in a way that structures your affairs. Because one of the great things, the appealing things of the nomad visa or the Beckham law, is that from a tax point of view, essentially, you are a non-tax-resident. 

Yes, you are an immigration resident but a non-tax resident. To me, that’s what makes Spain one of the most attractive value propositions on the map right now. 

The idea is that you can live in Europe, have all the benefits and infrastructure, the lifestyle, a pathway to citizenship, and invest your things. But at the same time, at least for a period of time, it’s not going to last forever. Nothing lasts forever, but you can be a non-tax-resident for some time. So again, whoever asks this question, I hope we’ve answered it somewhat, it depends on your situation, but perhaps there’s a planning opportunity. 

So yeah, okay. Rolling down next. Yeah. Do you think at the EU level, well, we know that at the EU level clearly from the narrative that has come out around what has happened in Cyprus and what’s happening now in Malta, faced with certain legal issues, that Brussels may be slightly uncomfortable with the whole golden visa thing?  

DERREN JOSEPH 

We get that Brussels is potentially uncomfortable with special tax regimes as well. I say this in the context that when someone asks me something like this, I do recall that once upon a time, you could have moved to Portugal with your pension, which would’ve been zero-taxed. And then certain European countries complained to Brussels, and then it was 10%. And similarly, there’s been some restructuring of tax benefits in the Madeira structures as well. And you know, some other European special tax planning opportunities are disappearing. 

DERREN JOSEPH 

So again, stepping back, Todd, this is perhaps your space. What are your sentiments? What is your experience telling you here? 

TODD COWAN 

Well, I think it’s a very interesting question that was raised, but the one thing I would say is that in my 15 years of travel in Spain and eight years on a professional level speaking with tax attorneys and immigration attorneys. I haven’t come across the concern about some sort of Brussels legislation or uniformity. As you rightly pointed out a minute ago, Derren, nothing lasts forever, and you can’t rule anything out. So there certainly could be potential for some sort of EU regulation. The other side of the coin is that whether it finds its appropriate level, and as long as there isn’t some sort of harmonization or general legislation throughout the EU, people will continue to find the opportunity that makes the most sense for them when it comes to either migration or how their pension might be taxed, and these will be considerations. 

What I find interesting is that we’re discussing the potential end or at least a change in the golden visa program, particularly in Portugal. This is a matter of finding a balance. Rightly or wrongly, the Portuguese government has taken a stance on the impact of the golden visa program on their local economy and, specifically, real estate prices. Most likely, another Mediterranean country will become the beneficiary of this shift. And perhaps that country will eventually reach its limits in terms of inbound immigration, leading the focus back to Spain. 

TODD COWAN 

And so, like I said, I kind of leave that at other Mediterranean country out of the mix because we’re talking about Spain and Portugal. But I do think that there is this cyclical nature of where immigration and, more specifically, retirees and money flows, and it has a lot to do with the lack of harmonization on this front. So, you know, kind of tying it back, as you said, nothing lasts forever. It could certainly change in time. But I think the benefit of the EU and having opportunities to go where you might want to form inbound immigration relies on a little bit of competitiveness when it comes to tax rates and immigration law.  

TODD COWAN  

Andres, do you want to comment on that?  

ANDRES GUTIERREZ  

Yeah, it’s exactly what we’re thinking. I mean, harmonization, etc., right? Is it necessarily a good thing? You know, having zero tax rates is just too aggressive, of course. But we cannot propose or think that all countries should have the same amount of taxation in terms of personal and corporate clients, etc., because every jurisdiction has its own particularities and needs. As long as there isn’t rampant tax evasion and everyone complies with their reporting duty, etc. 

There is nothing extraordinary bad to say I’m going to compete from a tax perspective because what I wanted is to touch base on affluent people, successful entrepreneurs that will come here to live on these shores, that they’re going to pay taxes, they’re going to be compliant with all O E C D standards, they’re going to start their businesses, they’re going to build more wealth for the people in the generations to come. And some jurisdictions may need that more than others. And that’s fine.  

So that is, that is my take, to be honest with you. If there is going to be a normalization in the future, as Todd said, you never know, you never know what might happen. 

ANDRES GUTIERREZ 

But at the same time, it will dig deep into the powers of each particular country, and there, of course, we’re going to see some views against it, more than in favor, most likely. 

DERREN JOSEPH  

Fantastic. Thanks for sharing those perspectives. For me personally, I mean, obviously, we’re aware of the DAP’s initiative, the Base Erosion Profit Shifting. We know what’s going on at the UN- OECD level; we know within Europe, within the OECD, we also have the MDRs (mandatory disclosure rules). In Europe, in particular, we have the DAC6, and we are looking forward to, well, it’s on the horizon, to DAC8. So, once upon a time, there was a lot more leeway in terms of individuals and the opportunity to tax-plan and jurisdictions in their ability to shape attractive incentives. 

But you know, over the last decade or two, we’ve seen an erosion of both individual and national sovereignty. We have a global minimum tax, and we have the principal purpose test, which is kind of like what Covid has done to the supply chain. Some people argue that that’s what the principal purpose test does to the whole tax planning space. So there seems to be a lot of harmonization, at least at the macro level of the multilateral institutional framework.  

DERREN JOSEPH 

My concern was a so-called leak in the media recently. Let’s say today (May 17), In terms of one of the political parties in the UK, as part of their policy proposals, as the UK moves into elections, there is a definite plan to materially scale back the reson dame incentive, and it appears as if there may even be bipartisan support. So, it seems as if there’s a consensus at the level of the OECD to cut back on previously legitimate and okay planning opportunities. But as we say, this is a moving target, and we’ll see what problems will be had in the future. But, you know, let’s watch this space.  

Next question, this next question is pretty detailed, so Todd, I’ll, I’ll throw this one onto you, and I’ll just read it. 

DERREN JOSEPH 

I’m cutting through his introduction. So, he has a three-or four-part question. So, in his first part, I’ll just ask the first part, can you continue to invest in a Roth IRA while being a Spanish tax resident? Any downsides or better options?  

TODD COWAN  

I’m taking it head-on; the answer is yes; you can contribute to the Roth IRA as a Spanish tax resident. The caveat to this is that, for Spanish tax residents, Roth IRAs are not treated as tax-deferred vehicles. So, it’s basically a look-through account. So, as a Spanish tax resident, it would basically be considered as a brokerage account. Any gains or income would be taxed as a Spanish tax resident, but it doesn’t prevent you from investing in it. So, it’s neither here nor there. I don’t know if you would want to continue making those contributions, especially if you were to leave Spain for a long enough period to no longer be a Spanish tax resident. In that case, the contributions could still be there for you, and the money, from a US perspective, can continue to grow tax-deferred. 

But it’s just the one caveat that you’re going to want to make sure that you understand: from a Spanish tax perspective, you’re not going to get that benefit of tax deferral on that account.  

Are there any better options? I think, was that the second part, Derren? Yes? I think the interesting thing is, and I will make an assumption here. If you’re investing in a Roth, then you’re probably US-connected as well, or at least a US tax filer, and the challenge you have is that most Spanish incentivized plans, whether it be Spanish-compliant bonds or Spanish private pension, are not really suitable investment account structures for IRS filers.  

So, you know, whether you’re a green card holder or a US citizen, anything that you might get as a local resident in Spain with preferential tax treatment may not necessarily work for a US-connected individual. On the other hand, a Roth IRA will not be a great solution. So, you’re a little bit boxed in. 

I do recall this from earlier, Derren. I believe the next question was whether they could continue to invest in a brokerage account in the US. Yes? Then a brokerage account in the US will continue to be a good opportunity, 

DERREN JOSEPH 

Right? But before we go there, so, again, it depends on their situation, right? So, for example, imagine if it is that for this person, Spain is a stint, so they’re there for X period of time, and eventually, they will get back to the US. Well, you know, Roth is king. Yep. But if it is that, and they’re seeing that they’re seeing Spain as long term and having a conversation with them. Cause like I’ve been dealing with a client in Spain who’s given up her green card. So, if they intend to give up their US tax status, then there’s probably an opportunity for planning around Spain instead of the US. So, it really, it really depends.  

DERREN JOSEPH 

And, to your point, you mentioned that things that may be tax efficient from a Spain point of view might be unhelpful. I’m thinking perhaps like a PFI. So, from a US perspective, perhaps it’s an opportunity to sit with a professional like yourself or your team to look at their overall portfolio and look at the specific family objectives. Perhaps it’s not Roth but something else. But if it’s Roth and something else, you create a diversified portfolio that works to your specific means. I’m just thinking aloud.  

TODD COWAN 

 No, absolutely. You make a great point because those Spanish investment structures can be efficient for EU or Spanish nationals in various situations. As you mentioned, it’s the underlying investments that can cause complications. Typically, they are in the form of PFI because that’s what the banks have to offer, whether it’s a Spanish-compliant bond or a Spanish private pension, for example, you’re absolutely right that we need to try to find solutions when we speak with individuals who have queries like this. 

TODD COWAN 

But you also rightly pointed out that if Spain is just for seeing or stopping by, seeing what they know, spending some time, and then possibly moving back to the US, then there’s tremendous planning opportunity to continue incorporating Roth. It’s just more about people understanding what they might be getting into or not being taken advantage of while they’re Spanish tax residents.  

DERREN JOSEPH  

Wonderful. Thank, thank you. So now, jumping into the second part of this very long question: Can you continue to invest in a regular brokerage fund while being a year a Spanish tax resident? And, like a second part to that second part of the question, do you need to pay taxes on any dividends earned on this year’s brokerage? Todd?  

TODD COWAN  

What I’m going to do is I’m going to think ahead on and say yes, you can continue to invest in it with one caveat again. And this one comes into the idea around custody and or financial institutions. And the reason is that right around 2009 and 2010, in the wake of FACA, a number of US financial institutions started getting out of the business of working with non-resident Americans-individuals who moved overseas. And coincidentally, at the same time, a number of foreign financial institutions, meaning non-US, were also kind of stuttering their doors to Americans that were looking for an investment proposition.  

TODD COWAN 

And so, it created this kind of a vacuum by which very few operators can actually provide advice and then ultimately execute. So, the answer is yes, you can continue to contribute to a brokerage account, but you just need to make sure that whatever financial institution you’re dealing with is comfortable because whether you’re using a family member’s address to be able to maintain that account (that may work for a time). But if the financial institution, for example, UBS, fidelity, Merrill Lynch, Wells Fargo, and other household names like Chase or JP Morgan. These firms have made a decision that they’re not really in the business of working with Americans that are outside of the US, and therefore if they do find out whether you volunteer it or you go and ask them, I’m thinking about relocating, what can I do? 

From an investment perspective, they will ask you to find a new home in terms of the taxation portion of this. Basically, this is where tax treaties come into play. And Derren, please close this more eloquently, but if you are a Spanish tax resident, I mean, they’re going to want to know all the activity and the accounts that you have. Once they reach a certain threshold, I think it’s 50,000 euros. In Spain, it could be 60,000. I just need to double-check that. But they’re going to want to know all the activity, and you could have tax consequences as a Spanish resident to the extent that those outweigh what the tax consequence might be in the US. Perhaps there’s an opportunity for foreign tax credits?

TODD COWAN 

But I’m starting to get a little bit over my skis on that front from a taxation perspective. But, generally, yes, I mean, if you are US-connected, you have reporting requirements, and that will be what’s going on in your US brokerage account. At the same time, if you’re a Spanish tax resident, you’ll have Spanish-based reporting requirements, and as a Spanish resident, they’ll have tax rights first. 

DERREN JOSEPH 

Yep, absolutely. You know, that that’s, that’s a, a running topic for US-exposed persons once you are abroad–the fact that your brokerage firm may not like you anymore. Now, I know that there are some forms and people talk about using a VPN, but we’ve had clients that use VPNs, and they get caught out as well. I mean, think about it, if Netflix knows that you’re using VPN, then surely a financial institution will know that as well. So yeah, I don’t see that being a long-term solution. As to Todd’s point, you definitely find out what the rules of your financial institutions are, and if they don’t like you anymore, I’m sure institutions like London and Capital may be happy. 

TODD COWAN 

Exactly right. 

DERREN JOSEPH  

And, in terms of that second part of the question, I guess it really depends because if the second part is the tax consequences, absolutely. If you have no protection and no planning, then you’re under the full weight of Spain’s tax system, which of course, is pretty aggressive vis-a-vis the US. But if you take advantage of one of the available special regimes, like if you’re in a Golden Visa, then you don’t need to spend sufficient time and therefore trigger tax residence in the first place. So, you have ultimate control over that. That is the ultimate benefit or tool you must dispose of for full control of your taxability. 

DERREN JOSEPH 

Otherwise, if you’re on a nomad visa, if you’re on the Beckham law, then similarly, you may have some degree of control. It’s not completely eliminated like the Golden Visa, but it’s substantially reduced. So, I guess it depends on the situation. Okay. The third part of this very lengthy question, do you have any suggestions for someone in their 30s who is working as an auto freelancer in Spain looking to continue building their US retirement and investment portfolios? I currently only have a Roth IRA and a typical US brokerage account. I’m unsure of whether I’ll retire in US or Spain.  

DERREN JOSEPH 

I currently feel that being a Spanish tax resident does not provide any tax incentives for any type of investments, at least US investments. Overall, the different taxes imposed in Spain seem very daunting and confusing. Todd, any comments?  

TODD COWAN 

Yes, I think I would just echo what we mentioned before in the previous question. Given the pattern that the individual shared, I believe they are Spanish tax residents, but they do seem to have US connections, so it will be challenging. Their assessment is accurate that there aren’t a lot of compelling opportunities for them from a Spanish perspective to put money away in some tax-deferred manner. But all the things we mentioned before about the Roth IRA continue to ring true in this instance, and depending on their long-term objectives, it could still be a great tool. 

 Yes, they can contribute to it, but if they fall in love with Spain and will be there long-term, they just need to be prepared to know what that means from a tax perspective on Roth. And to the extent that their financial institution can allow them to continue working with them. It may sound like they’re asking the right questions and doing the right things just to continue sucking money away into a general investment account, and based on what we’ve shared if the Roth makes sense for them, then you know, works for me. 

DERREN JOSEPH 

Absolutely. And I think that’s the number one thing when I speak to clients like I had a client yesterday–Americans who were moving from London to Spain, coincidentally. I was asking them, what are your plans? And they actually don’t know. The point is, when you don’t know where you’re going to be, nobody can advise you because the tax planning or an investment strategy around staying in Spain for the rest of your life will be way different from returning to London or going back to the US. So, you need to understand first where you want to be, and then you can build your tax planning or tag an investment strategy afterward.  

DERREN JOSEPH  

So, moving on, whoever asked that really long question, I hope we answered it. So now, so the next person, they’re Mexican and US citizens, they have a rental portfolio. So, the net rental income from the US portfolio properties exceeds 300,000 per year. They also do consulting with a US company, so they work remotely. So, I guess they’re looking at Spain. They’re asking: Is a nomad visa the best route as a US or Mexican citizen?  

DERREN JOSEPH 

Also, will I be taxed on a rental income in the US and Spain? And lastly, will assets in the US be subject to Spain inheritance taxes? Andres? Todd? Who wants to take a look at that question? 

ANDRES GUTIERREZ 

One can check a little bit on the immigration side. Basically, it’s Nomad versus Golden visa. So, at the end of the day, the Nomad Visa will basically just look into the certain requirements of moving here, working remotely, etcetera. It’s basically just looking into complying with those requisites and also on the amount of flexibility that the individual wants to have because with that amount of income and with those strength income from other parts of the world, it’s probably that they have a sort of lifestyle where they may not spend most of their time in Spain with a Nomad visa. 

ANDRES GUTIERREZ 

So, my recommendation is–especially if they’re Mexican–is to apply for a Golden Visa and a Nomad Visa as well. But with their lifestyle, looking at a Golden Visa will allow them to live in Spain. Basically, they do not have any particular ties with their consultancy work because it seems they want to move and be free on that side and link their residency rights to property or financial asset investment in Spain. This will allow them to have a base here and go around Europe. And in two years’ time, provided that they have a vital center of interest in the country and it is their thing to apply for citizenship, and then just basically relocate to Portugal and apply for the NHR or they can go to Malta and apply for a non-Dom. They have different options once they are European citizens. So that is my take. It all depends at the end of the day on the stage of life that you are; I mean, if you’re moving around with your consultancy work and you have a lot of activity that you can do abroad, maybe you’re right, but if you are in a more senior position, you have basically consultancy fees that give you certain flexibility to go here and to go there, and you don’t want to be locked up in one place, and you have the financial means, I think basically the Golden visa will be the thing, but we have to look into every particular circumstance before being able to give proper advice on the immigration side. 

DERREN JOSEPH 

Todd? 

TODD COWAN 

I think I would just add on the idea of the Digital Nomad Visa. It’s important that the individual considers whether there are specific rules that determine whether they qualify to apply for it. For instance, I have seen cases where people who are self-employed or working as consultants may not meet the requirements. Based on conversations I’ve had with Immigration Attorneys in Spain, it’s unclear if those situations would be eligible. I believe it would be beneficial to have a discussion with a Spanish-based immigration advisor to determine if the individual’s circumstances align with the requirements of the 

DERREN JOSEPH 

Yes, I completely agree with you, gentlemen. If you have rental revenue streams exceeding 300K, your portfolio is definitely in at least seven or maybe eight figures. So, I’m concerned about your wealth tax and the additional income flows from your investments. In a regular year, you’re likely already in the seven figures. Therefore, I think it’s crucial for you to consider some planning, and the best option on the table, as Andres has mentioned, is probably the Golden Visa. It puts you in the driver’s seat and gives you control. So, I think that’s definitely something you need to look at. 

In terms of the inheritance taxes. Well, inheritance laws in Spain, from my understanding, are like in most jurisdictions, including the US, a specialized field and can be very complicated. But generally speaking, you’re only looking at Spanish assets for inheritance purposes. If that is the case, specific laws in continental Europe differ from other jurisdictions. Considering this person’s dual US-Mexico citizenship, they probably have exposure to it in Mexico anyway, as Mexico follows Roman civil law. Therefore, there may be some forced heirship issues to consider.

DERREN JOSEPH 

So, you probably would want to sit with a Spanish equivalent of an estate lawyer and get that sorted. Do you guys have any comments on the inheritance tax piece? 

ANDRES GUTIERREZ 

Just very broadly, it is important to understand that in Spain, the inheritance tax, like other taxes, involves tax competition among the different autonomous communities. Many people choose to go to Madrid, for example, because the inheritance tax there is very low, if not negligible, compared to Barcelona. So, my key takeaway is that it’s crucial to first consult with a tax lawyer specializing in Spanish inheritance tax. They can assess your tax position if a succession occurs while you’re in Spain, consider your assets here, assist you with tax planning for structures outside of Spain, and help you draft a will that complies with the relevant jurisdictions.

ANDRES GUTIERREZ 

To be honest with you, when I have clients who come to Spain and apply for a Golden Visa, especially those in their fifties, sixties, seventies, and beyond, I always recommend two things. First, speak with a tax lawyer to ensure proper tax planning. Second, consult with a private estate-tax lawyer to have your will and private affairs completely in order. This approach ensures a straightforward succession process for your beneficiaries. 

DERREN JOSEPH 

Yeah, and it could be very nuanced, especially in the US, where the area of tax practice with the greatest amount of litigation is estate taxes, right? So, there’s always going to be an argument over that. It’s highly nuanced, and to your point, if this person is already a dual citizen of Mexico and the US, they would need an estate plan that addresses the Mexican assets separately, one specifically for the US, and if they’re going to invest in Spain, then they’ll need something specific to that as well. So, in total, they would require three plans that can interact with and acknowledge each other. That’s definitely the best way forward. 

Next question, is a UK ISA or private pension excluded or included in Spain? How are they taxed, Todd?

TODD COWAN 

Yeah, I think that’s a good question from my perspective. Again, you caveated it very well at the outset in terms of not providing advice. That said, I am not fully up to speed on the Spanish-UK tax treaty. But what I do know is that, well, Derren, I don’t want to throw it back to you so quickly, but my understanding is that it’s possible that it would be caught up unless they’re involved in the Beckham regime, or they have some sort of tax favorable status within Spain. If they have wealth tax exposure, an ISA would certainly be part of that.

TODD COWAN 

But again, I want to caveat myself and clarify that I cannot make definitive representations. It’s based on my understanding, and I’m applying other experiences to this particular instance. So, I apologize for potentially passing it back to you.

DERREN JOSEPH 

No problem at all. So yeah, this is something we get in a lot more detail in some of the other talks we’ve done. Additionally, on our website, there’s an article that dives into a lot of detail. You are absolutely correct that it depends on various factors. For instance, if you are in one of the special tax regimes like the Nomad Visa or the Beckham law, wherein you are an immigration resident but not a tax resident anyway, the answer is, it’s not going to be included, right? But, if you don’t have the protection, you’re not on the Golden Visa, you’re not on the Beckham law, you’re not on a Nomad Visa, then yes, chances are your ISO may be included in the tax calculation. But of course, you may want to sit with someone and get advice relevant to your situation. 

Where are you in Spain? You know, are you in Madrid or are you in Barcelona? Are you in the Basque? Where are you now? So, what is your overall situation? We’d need to know.

Looking down, okay, inheritance tax. If may want air, if the heir lives in Spain, but the deceased lives in the US, would the heir be taxed in Spain, or would the same rule apply where it would be taxed under the rules of the deceased (I e, in the US)? That’s, that’s a bit complicated. 

 DERREN JOSEPH 

Todd, any initial thoughts?  

TODD COWAN  

Well, I think we touched on it briefly earlier, but I think this is another one that creates a great opportunity for a conversation and some planning with a tax expert, especially on the estate side. So, it’s one of those where conceptually, I have conversations with individuals and tax attorneys and estate planning attorneys in Spain all the time, but it’s not my remit to weigh in on, so I do not know. 

DERREN JOSEPH 

Okay, I apologize. No problem. So, what I’m going to do is I’m going to skip all those around inheritance taxes, right? 

Let’s go to Kell. So, okay, I’m a Spanish tax resident with an American LLC. Should I pay taxes both in the US and Spain? What are the steps and procedures in that case? Any comments on that, Todd?

TODD COWAN 

I think that for a Spanish tax resident, it sounds like you’re definitely going to need to be reporting this income of the US LLC to the Spanish tax authorities to the extent that you have a liability; you’re likely to be on the hook for that. Again, this goes back to the idea that if that liability is, is more than what you might otherwise pay in the US; maybe there are foreign tax credits by which you will accumulate. But again, if you’re on a favored tax regime, then I don’t know in this instance if there would be a combination between Digital Nomad Visa and Beckham Regime allowing you to plan around this. 

TODD COWAN 

But I think that if you’re a Spanish tax resident and you have that LLC in the US, at the minimum, you will need to report that to Spanish tax authorities, and there could be a liability on that. 

DERREN JOSEPH 

Okay, I think this is quite relevant, not just in Spain but both in Spain and Portugal, and I see a lot of debate around this topic online. Unfortunately, we see people representing themselves as credentialed tax professionals actually offering it and selling it as a solution. There have been cases in Portugal’s equivalent of the tax court that I’ve come across in Portuguese and English, and I’m sure similar situations exist in Spain. I’ve also seen discussions on this matter in countries like Ireland, Israel, France, and the UK. 

DERREN JOSEPH 

 So, this has been knocked down time after time. If you have an LLC, especially if it’s a single-member LLC, meaning you run the business on your own and use the LLC to separate yourself from liability and handle client invoicing for marketing or other purposes, it’s important to note that you can’t rely on the treaty to categorize it as dividends and benefit from reduced tax rates or special exemptions to obtain zero tax. It doesn’t work that way. The income generated from the LLC would typically be treated as either business income or personal income at best. It’s not typically seen as a tax planning opportunity from a European perspective.

DERREN JOSEPH 

So that much is clear. Whatever income you’re earning definitely needs to be declared to both Spain and the US. Unless, of course, you are under one of the special regimes, as Todd said. But it needs to be declared. Taxes will be paid in both. If your tax team knows what they’re doing, you will not be double-taxed. This has nothing to do with the treaty because most developed countries recognize the principle of foreign tax credits. So, you get a credit to offset against what has been paid elsewhere. So typically, you’ll be paying the higher of the two jurisdictions. This is a quick way of wrapping your head around it. That’s the quick answer. 

59m 56s

DERREN JOSEPH 

If it is that your LLC income is pretty substantial, then you’d probably want to sit with a professional who understands both and look at some options from a planning perspective. So, with that, we come to the end of our session. I apologize to those who sent in questions that we were unable to address. This means we will have to schedule another session in the future. Considering that many of the questions received were related to inheritance taxes, it might be a good idea to invite an expert since none of us here are specialists in Spanish or Portuguese inheritance taxes.

DERREN JOSEPH 

So, we’ll try to get an expert to address those questions, and we will have another session as soon as we can. Thank you very much for joining. Again, this is published on over 24 podcast platforms, basically iTunes Cloud, Spotify, and the web. The video will also be available on YouTube and our website. If you would like to contact Andres or Todd, what is the best way to reach out to you?

ANDRES GUTIERREZ 

In my case, email is the best way, which is my name, Andres Gutierrez, write it down. andres.guttierrez@henleyyglobal.com. That’s the best way to do it. 

DERREN JOSEPH 

It’s andres.gutierrez@henley global.com. And Todd?

TODD COWAN 

The same email works for me. It’s todd.cowan@londonandcapital.com. 

DERREN JOSEPH  

Fantastic gentlemen. Thank you very much for your time and expertise, and I will see you next time. Bye-bye. 

ANDRES GUTIERREZ 

Thank you. Cheers. Bye-bye. 

TODD COWAN 

Thank you. Yes. 

VOICE-OVER 

So, if you’re a six, seven, or eight-figure investor, entrepreneur, or business owner who needs a tailor-made solution from a qualified team of professionals, we can help you achieve the international lifestyle, the freedom, and even the tax savings you’re looking for. Visit us AT htj.tax and live that international life. 

Table of Contents: Iberia Unlocked: Pre-immigration tax considerations

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