Well, thank goodness that heatwave is over and I can venture out during daylight hours again! September and October for me are the absolute best times of the year here in Spain, great comfortable temperatures, less people (tourists) around and the sea has been warmed up over the summer.
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Top tips for expat finances – Spain
By Chris Burke
This article is published on: 18th September 2023
18.09.23
This month’s Top Tips are as follows:
- 7P tax exemption rule – do you travel outside of Spain at least two weeks a month?
- Property price forecast UK & Spain for the end of 2023/2024
- Why should I speak to a Financial Adviser (a good one, that is 😊) in one sentence?
- 90’s nostalgia advert
7P Tax Rule
One of the most common questions people ask me is ‘As I am not on the Beckham Law, how can I reduce my taxes?’ One of the first questions I ask them is ‘how much time do you travel for work outside of Spain?’ If you travel for 2 weeks or more every month, in simple terms you might not to have to pay tax for those days you are away – a significant saving and you may have a tax exemption of up to €60,100 per year.
The key qualification factors are as follows:
- You must be a Spanish tax resident
- The company you are performing the work for must not be Spanish, must be based abroad and not a Spanish entity (but you can be employed by a Spanish company and have been instructed to carry out this work outside of Spain)
- You must physically be outside of Spain when conducting this work
- The country you are working in must have a similar tax system to Spain/have a double tax treaty
If you adhere to all these points then this tax exemption could be applicable for you – please ensure you take professional advice.
Property price forecast for the UK & Spain, for the end of 2023/2024
Property is, in my opinion, a great asset to hold and one that every investment portfolio should have. Just like ‘non-property’ investments, the value can go up and down. It can be more ‘hassle’ to manage taking into account tenants, taxes, issues with the property etc. but long term it has usually been a good investment. Governments are starting to make being a landlord a more expensive venture in the UK now – let’s see if Spain follows suit.
Since covid we have seen that property prices have generally boomed. However, the last 12 months or so things have started to change. New Zealand is in the midst of a property crash, down approximately 18% in a year. Canada is also in a property ‘recession’, down by approximately 15% year on year (most of you probably won’t have heard about these – the news outlets tell you what they want you to hear). Property, just like investment portfolios, does not only go one way, as in up. This year, for the first time in a long time (probably 15 years), I have been advising some clients to sell their UK property investments if they don’t think they will go back there, and it makes sense from a tax perspective. If you are living outside of the UK, at some point you are going to have a decent sized taxable gain/event on that property, (more so in Spain) and even if it is inherited by someone else, it’s unlikely that even then the tax will be avoided/mitigated.
In the UK, properties valued at up to around £600,000 are ‘still moving’, estate agents tell me. Many people over the next year or two will be coming off fixed rate mortgages they took out during covid (when interest rates were low) and their new mortgage repayments will at least double under current rates. They will have the choice to either swallow this extra monthly cost or sell (some will have no choice). Taking all of this into account, forecasters are predicting the UK property market will decline – it is already stumbling at best, with a slow down in sales and asking prices not being achieved generally.
In Spain things are slightly different, and one of the driving factors is that you can fix your mortgage rate for life, meaning you have much more stability of payments moving forward – they can only reduce (if you re-mortgage when rates come down…if and when they do). Research says that the property market is booming in Spain. However, with approximately 15% of the property bought in Spain last year acquired by foreign buyers, taking into account what’s happening elsewhere an economist might say this impact will inevitably have a ripple effect at some point.
Some professions will always be able to be performed from home, however many companies are also starting to ask employees to return to the office. This could put an end to ‘we can work from anywhere, let’s go and live on an island/in the countryside’.
In summary I would say the Spanish property market is at best coming to a slow down, at worst a decline of some proportion. Of course, if you are holding this property for the long term then this will be of less importance. But considering the prices are the highest now they have ever been, and mortgage rates are much higher than they were, taking on a property now might mean you ‘have’ to hold it for a long time to realise its value.
Why should I speak to a Financial Adviser, in one sentence!?
A good adviser will make you more knowledgeable, financially organised, take the strain away from your finances, make your money work hard for you and always be there for you with sound advice whenever you need it (even if they don’t know all the answers, they will do their best to get them for you), always putting your needs first.
Prudential 90’s advert number 2
Do you remember this timeless, funny classic:
Now you can Identify as a Tree……who would have known back then!
If you would like any more information, or to talk through your situation initially and receive expert, factual advice, don’t hesitate to get in touch with Chris.
Investments in Spain
By Chris Burke
This article is published on: 16th August 2023
16.08.23
Savings accounts or investing in Spain – what is right for you?
This is one of the most common questions I am asked, and with interest rates creeping up I thought it prudent to run through how you should decide what’s right for you.
To help with this, firstly we need an explanation of the important differences between the two:
Why would you put money into a savings account?
Saving is putting money aside in a deposit account for the next few years. When interest rates are low, the return you’ll get on your money will be very modest. The risk is that it won’t beat inflation, which is the rate at which the prices of goods and services increase. So, whilst your money is safe (covered up to £85,000 in the UK and €100,000 in Europe), its purchasing power will be eroded over time, meaning you will be able to buy less with your money in the future. When interest rates are high you will get more return on your money, but generally in this type of economic climate it will still be less than inflation. Because of this, money you keep in cash savings accounts should be for short term savings of less than about 5 years.
Why would you invest your money?
Investing is another way of setting aside money for the future, where you invest your money into something with the aim of making a profit in the long run. When you invest, you’re generally exposed to the risk of stock market volatility (although some investments don’t invest entirely or solely in these markets). Your expected returns can fluctuate and you may not get back what you put in, especially in the short term.
You should aim for a minimum of 5 years when investing and start planning ahead with your investment strategy to manage this risk a few years before you want to access your money.
“Save for what’s around the corner and invest for the future”.
Why take any risk with your money?
Firstly, as explained above, inflation will eat into the power of your money over time. This is a problem while you are working, but is particularly important to manage when you are retired and you cannot replace lost buying power with income from your job. Secondly, not all investment risk is equal. The benefit of taking a calculated amount of risk over the long term is that it gives you the potential to make much more money than you would from a savings account, helping to pay for future large expenses and a more comfortable retirement.
What is the trend when interest rates are high compared to investing in the stock markets?
Over a short timeframe, holding cash in a savings account is usually a safe and appropriate option. It is less risky in the short term as it is readily accessible and interest rates are currently attractive relative to the past few years.
However, time is the critical factor to consider here, as over the longer term cash won’t beat inflation but investing should, as can be seen in the chart below:
Over long periods of time there is a big difference in the returns achieved from saving and investing. In the short-term, investing is riskier than an interest-bearing cash account, however when compared to inflation investing has offered far more certainty and success in the long run.
Prudential 90’s advert
Do you remember this timeless, funny classic: We want to be together!
The principles remain the same even today……
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If you would like any more information, or to talk through your situation initially and receive expert, factual advice, don’t hesitate to get in touch with Chris.
Tax embargo in Spain for incorrect declaration of taxes
By Chris Burke
This article is published on: 10th July 2023
10.07.23
When moving to Spain you find out pretty quickly that the way things work here, bureaucratically and lawfully, are very different from the rest of the Western world, particularly the UK. One such example is if you are suspected of making an incorrect tax declaration or filing. Even if advised by your accountant/tax adviser to do so, you are liable and not them. In Spain, simply put, you are guilty until proven innocent of any suspected wrong doing.
With that in mind, one major example is of a self-employed person having their taxes filed incorrectly by their accountant and being unaware. At some point in the future the individual is notified that they have not responded to the tax office’s request to query this, and thus immediately have their income ‘embargoed’ and the monies they are suspected to owe are either taken from their Spanish bank account and/or taken at source from their main customers/invoices.
In one particular instance the tax office claimed they had ‘written confirmation’ that the notice of their investigation was delivered 3 times, however this confirmation is a signed document from the post office delivery person saying they were delivered, not the recipient signing to say he or she received them. Then, due to you not responding, the case is now closed and you are guilty by not replying, thus the money they believed you owed, you now owe and must be paid.
I have seen this happen many times over the years and cause considerable pain and suffering to people. Imagine the tax office saying you owed them €40,000 then taking it from your bank account, or deducting it each month as you received invoice payments. How do you then pay your bills? And in all of this, you are the complete innocent due to your accountant wrongly declaring your taxes.
What can you do? Well, the process is threefold:
- Firstly, you have to contest the ruling and see proof of what they are finding you guilty of (e.g., incorrectly filing) and that they actually delivered the documents to you.
- Secondly, if you feel their ruling is incorrect, appeal against it explaining why.
- Thirdly, as the appeal will likely be unsuccessful you then go through an ‘arbitration’ process where your likelihood of winning is approximately 75% and above.
The bad news is this process normally takes between 3-5 years. If you win, you will receive your money back plus some interest. If you lose, the European courts are your last option.
My best advice for anyone to avoid this is:
- Make sure you are confident in the accountant you are using to reduce the chance of this happening.
- Always make sure your address on file at the tax office is up to date.
- Only keep in a Spanish bank account money you need to live on. The tax office cannot legally take money from bank accounts outside of Spain unless they go through a court process.
If this has happened to you feel free to get in touch – I can recommend a law firm/accountant that has experience in this field and has been successful. Alternatively, if you would also like a recommendation for an accountant that won’t make these mistakes (hopefully, in Spain it’s never 100%!) then again feel free to reach out.
Click here to read independent reviews on Chris and his advice.
The Beckham Law – Spain
By Chris Burke
This article is published on: 7th July 2023
07.07.23
A chance to change your financial Future Forever!
Many people are aware of the Beckham Law or soon find out about it (hopefully) when they arrive in Spain. In this article I am not going to explain it’s benefits because most people know these, but I am going to explain how being on this tax regime can potentially CHANGE your whole financial future with proper planning.
The big attraction regarding the Beckham Law for many is the low, one band income tax of 24% up to an income of €600,000 per year. Whilst this can massively increase your income over the 5 complete tax years you are here (if you start the Beckham Law in a January/February you pretty much have 6 years on this regime) and allows you to potentially save/put aside thousands over that period of time, for me the other benefits it offers can have the biggest impact on your financial future.
Your worldwide income is not taxable on the Beckham Law whilst tax resident in Spain, which is great if you have investments/assets outside of Spain which would normally need to be declared and tax paid. So, let me give you an example:
You have investments/pensions outside of Spain (let’s say in the UK for this exercise) that are around £1million in total, split into the following asset classes:
- Investment/ISA portfolio £300,000
- Stocks/shares £300,000
- UK pension £400,000
If you were not on the Beckham Law, each time you took money from these assets you would normally pay capital gains tax up to 28% on investments/Isa/stocks/shares and income tax up to 47% on the pension. Imagine if you could ‘encash’ these assets all-in-one go and do NOT pay any tax. Then moving forward set these up in a highly tax efficient manner. You wouldn’t pay any tax on these amounts ever and minimal tax on any gain they made, as these could be offset/deferred and mitigated. Well, normally (always depending on your situation) on the Beckham Law you can do this. You are not a UK tax resident thus there is no UK tax to pay (as long as you have informed that to HMRC) and as a Spanish resident on the Beckham Law there is also no tax to pay on income outside of Spain.
So, rather than pay up to 28% tax on the investments/gains (approximately £138,000 in the above example) and income tax of approximately 30% on the pension income (considering the pension income alongside your state pension also) gives a tax saving of approximately £6,000 per year… for life. Over 30 years that’s £180,000 plus inflation. You have also, very importantly, turned the pension (which has to adhere to pension laws) into a lump sum of money free of tax and are able to do with this what you wish.
Once you have ‘encashed’ these assets and paid zero tax ´potentially´, you can then plan for when the Beckham Law ends, particularly because these are highly tax efficient and minimal taxes would need to be paid on in the future.
This is just one way that smart, efficient financial planning can massively change your financial future that we implement for clients on a daily basis. Alongside this we work with successful, well known mainly UK known investment companies, including ethical and sustainable investing, to work on greatly increasing and secure our clients financial future.
One last note, UK property can also work this way, however savings tax is still payable in the UK on this as a non-UK resident, although there are some potential allowances.
Click here to read independent reviews on Chris and his advice.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with Chris.
You can book a call or Zoom meeting with Chris below.
Financial Top Tips in Spain
By Chris Burke
This article is published on: 11th June 2023
11.06.23
Thanks to everyone for their positive feedback on these newsletters. They are purely to give us ‘foreigners’ the heads up on financial matters that are at best opaque here in Spain. Before I head off to a chiringuito, as it’s that time of year, this month we shall be concentrating on the following important topics:
- National Insurance deadline to backdate/buy years in the UK – act now!
- What pension are you likely to receive as self-employed/autonomo here in Spain?
- How much money do I need to retire (with example) comfortably?
- Legal aid in Spain for British nationals
UK National Insurance deadline approaching
I meet many people who have contributed into the UK state pension (National Insurance contributions) and then move abroad. They may also pay into other countries´ state pensions, but the BIG potential issue is that no one knows for sure if these will be combined and what income in retirement you will receive. Some people say ‘Well they have to, otherwise it’s not fair and that’s how it works now/used to before Brexit’. I tend to focus on as many certainties as possible and always try to have a ‘more guaranteed’ plan instead of relying on what governments do and don’t do, as that doesn’t fill me with confidence.
I have met many people with 5 years’ state contributions here, 10 there and another 5 somewhere else and they don’t actually end up receiving ANY state pension. This is not the situation I want to end up with and that’s why I recommend to anyone who has existing UK NI contributions to continue to contribute to them, aiming to reach the maximum years needed to receive a full UK state pension. As a non-UK resident, if you are paying taxes in Spain it´s normally £12 a month to contribute to the UK system – for me it’s a no brainer.
With that in mind, normally you can ‘backdate’ or buy past years’ contributions to fill in any gaps you may have. However, from the end of July (next month), you will only be able to backdate 6 years, whereas before this deadline you can buy more. So, if you have significant gaps in your UK NI contributions you only have until next month to ‘fill’ a part of them. You can find out more here: National Insurance Gaps
Self-employed/autonomo state pension amounts
I wanted to clarify something that not many people here realise when they contribute into the social system as self-employed. In the UK you pay your contributions and the number of years you have contributed dictates, more often than not, how much you receive. However, this is not the case in Spain.
Many people are autonomo here and presume the monthly payment they make to the social security, if made over the necessary number of years, (currently 35), will give them the full Spanish state pension – unfortunately that is incorrect. That is because it’s not JUST the number of years you contribute, but also the amount you pay. Not many accountants will confirm that there is a choice on how much you can pay each month towards your social security – a low, medium or high amount. Therefore, most people pay the low amount for many years and only realise the problem when they start looking closer, usually at retirement age. I hope most people are sitting down when I tell you that if you paid the minimum contributions for the full number of qualifying years in Spain, you would receive around €643 a month, (almost half of the UK amount), whilst the maximum is €2,617.
That is why I recommend to almost everyone that they ensure as far as possible that they are fully contributed into the UK system by retirement.
Here are the links to HMRC to read about and organise this, (please don’t get in touch with me for help as it has to be done by yourself):
- Information on paying National Insurance contributions from abroad – gov.uk/national-insurance-if-you-go-abroad
- The Form to complete to pay Class 2 voluntary contributions at £12 a month – gov.uk/government/publications/social-security-abroad-ni38
You can obtain a state pension forecast here in Spain if you have a digital certificate here
As a local accountant recently told me, and I quote, “My personal opinion is that it is better that you make your own pension, saving the money and investing it directly, and more because each time the pensions are reduced year by year and it is quite sure that in the future they will be reduced most, but this is only my opinion…… This is what I decided to do a long time ago.”
So, my advice? Pay the minimum here, pay your NI in the UK and reach the maximum alongside making your own provision along the way.
How much money do you need for a comfortable retirement?
Now, this is a very difficult forecast to make given everyone’s very different lifestyles, so I must use a few assumptions based on the following:
- Average annual salary – €3,000 per month after tax
- Medium lifestyle choice in retirement
Therefore, one could surmise an income needed in retirement of €4,000 per month before tax could be the average amount required. If we say you receive the full state pension of around €1,000 per month, you need to supplement €3,000 per month.
If you had €300,000 and it gave you 5% return each year this would give you €1,250 per month – so we still need another €1,750 per month. Of course, this means that as you are taking the full interest earned from your money pot it is not keeping up with inflation. Therefore, taking 4% at most is more applicable which gives you €1,000 per month income. However, if this income falls under income tax (such as property income), then from earnings upwards of the current allowance of €6,700 each year at age 65 in Spain you will be taxed. Adding that to the state pension, (which is declarable for income tax in Spain), we probably need to say it’s more likely €800 a month net from this monetary income.
So, we see the problem, what do we need to do? In essence, make your savings/monies and assets work for you over the years with professional management, taking into account tax mitigation. The more money you invest and the longer the time, the more comfortable or higher probability you will achieve your goals.
By the way, the answer to the above question also depends on how you are receiving the income. Tax efficient savings will greatly reduce you tax liability away from income tax to the lower, (and with possible offsetting capability) of capital gains tax. In monetary terms, to be safe I would suggest €800,000 plus a property rented out in retirement, in today’s money, as an income will safely achieve this. Is that the average persons situation?
Legal aid in Spain for British nationals
The UK has just released the following information on legal aid available for those residing in Spain which is perhaps ‘better’ than I would have expected and well worth knowing: Legal Aid Spain
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If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with Chris.
The Top Tips in Spain | May 2023
By Chris Burke
This article is published on: 15th May 2023
15.05.23
Summer is well on its way, lighter evenings and enjoyable temperatures are here for most and we will soon be commenting on how hot it is, I am sure!
For this month we shall be concentrating on the following topics:
- Driving licence swap now active
- UK investments/ISAs compared to Spanish options
- UK tax code changes – beware!
- State pension retirement options in Spain
Driving licence swap now active
From the 16th March 2023 the UK & Spain driving licence exchange, without the need to take a practical or theory driving test, is back at long last for those who are Spanish residents. From this date, as a resident you can legally drive in Spain on your UK driving licence, having 6 months to exchange.
You will also need to book a ‘Psicotecnico’ as I previously mentioned in my Newsletter and here is a link for the participating places to do this: Psicotecnico centres
So get your driving gloves back on and hit the Spanish roads! Be aware, this new exchange deal between the UK and Spain also means they will be sharing information on fines, speeding tickets and other incidents recorded (intoxication for example) so take note.
UK investments/ISAs compared to Spanish options
Many people who live in Spain are unclear or unaware of the difference between holding UK savings and investments compared to Spanish, and also what your options actually are here.
Unless you are on a specialist tax regime such as the Beckham Law, or potentially the new Digital Nomad Visa, Spain views UK savings and investments as non-Spanish compliant and therefore tax declarable/paid on any gains annually, EVEN if you do not access any of these monies. In the UK for example, normally the first advice any financial adviser will give their clients is to ‘max out’ their ISA and private pension contributions annually, as the tax saving alone makes this a great thing to do. However, once you become a Spanish tax resident these are not generally tax efficient and any gain on non pension related investments has to be declared and tax paid annually – therefore in many cases potentially nullifying the benefits of these.
So what can you do?
Most people speak to their Spanish bank and aren’t given any financial advice as such in respect of their circumstances and, in many cases, are sold investments that are not really what they are looking for, nor, dare I say, are any good from what my clients tell me!
When they have been put off by this they start looking around for something similar to what they had before they moved to Spain, and that’s when they find and/or are recommended to me. In Spain, we have access to several flexible investment solutions backed by some of the UK’s largest and well-known institutions. These products are EU regulated and highly tax-efficient, in essence similar to a UK ISA. We start by looking at your overall situation, carefully understanding what you are looking to achieve – whether that be a retirement plan, mid-term investment or complete financial planning for the whole family, taking into account university fees, or perhaps FIRE (Financial Independence, Retire Early). As the years go by and your money grows we provide ongoing advice to make sure these are optimised, taking into account life events that occur along the way.
UK tax code changes – beware!
On the 10th April this year UK state pensions were increased to rise with inflation up to £203.85 a week (10.1% increase) as the government restarted the ‘triple lock’ agreement it had suspended for one year. For most people receiving their UK pensions this was very good news, however for some it has created another problem depending on other income and how they are set up for tax purposes.
When leaving the UK as a tax resident it is important to inform HMRC. If you don’t, once your income rises above your personal allowance of £12,570 (with the state pension annually now £10,600) you will be subject to income tax in the UK and taxed accordingly.
Worse than that, this hike in UK state pension income has seen many retired people have their tax code changed, wrongly it would seem, by HMRC. In one case I have seen they were being taxed 40% on their income above the personal allowance. If the tax they are taking doesn’t look right a simple phone call to HMRC seems to solve the problem.
If you have set yourself up correctly as a non UK tax resident, then the only UK income you should be taxed on is property rental income. Most other income should not be taxed in the UK, but declared and tax paid in the country where you are tax resident.
State pension retirement options in Spain
Below I have listed the different options when you retire in Spain claiming a state pension – one notable new change is that to qualify for ‘partial retirement’ (also known as active retirement) you can only use Spanish contributions – previously you could include contributions from the UK.
Ordinary Retirement
Retirement age in Spain starts at 65, however for most it is 66 years and 10 months and by 2027 the number of years of contributions to retirement needed will be 38.5 years.
Flexible Retirement
After you retire, you can combine receiving a part of your pension with part-time work (reducing your full working day down to 50%). Your pension is reduced proportionally.
Partial/Active Retirement
If you have not reached the legal retirement age, you can combine a part-time employment contract with receiving part of your retirement pension.
**Reminder – to qualify for the Spanish state pension in general you must have contributed for 15 years, of which two at least should fall within the 15 years immediately preceding the start of your entitlement.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with Chris.
Saving for retirement in Spain
By Chris Burke
This article is published on: 8th February 2023
08.02.23
Retirement options
One of the big differences when you move to Spain are the options available to you for retirement planning. In the UK/Ireland we have ISAs and private/employer pension schemes which both offer good tax savings.
ISAs are not tax free in Spain, and the annual ‘private pension allowance’ is only €1,500 per year per person! In some employer contribution schemes you can save up to €10,000 per year, but these are very uncommon. Compare that to £40,000 per year in the UK, or in Ireland up to €115,000 per person, per year! €1,500 per year is never going to achieve any serious amount of income for retirement.
The main reason for this is that in Spain, culturally people preferred to set up a company structure or accrue properties, passing these from generation to generation. Additionally, there is a lack of incentives from the authorities to entice people to save into retirement schemes.
Pensions have been popular for retirement in the UK/Ireland because of the tax savings and potential employer contributions. Take both of those away and they are not nearly as effective, which is what happens when you move to Spain. So, what can you do if you want to plan for retirement in a tax efficient manner?
For me, retirement is not just about a pension, it’s about a retirement plan. We help clients build that retirement strategy, taking into consideration the amount of income they want, making sure their assets are highly tax efficient (such as moving them away from future income tax positions) and then making sure everything is flexible and portable, because you never know what will happen in life. This is all done by using our client planning portal, where we work together to bring this to life using the following process:
This is all done by planning, where we work together to bring this to life using the following process:
- Assess existing assets including ISAs, pensions and other savings/investments
- Understand your objectives and when/where you are looking to retire and with how much
- Understand your current and ongoing financial situation, taking into account future events such as children/grandparents
- Compile this into a strategy where we plan, implement and review
- Review and adapt as the years go by evolving the plan to fit your life
We never know exactly what’s going to happen, but one thing is for sure, with proper informed planning and regular analysis, you will be much better prepared.
Financial updates in Spain
By Chris Burke
This article is published on: 23rd November 2022
23.11.22
This month we cover the following topics (if there is anything you would like to understand more or wish to see covered in these articles, don’t hesitate to ask):
- Digital Nomad Visa – Update
- New Wealth Tax Implemented for those with assets over €3 million
- New Autonomo payments from 2023
Digital Nomad Visa – Update
The Spanish Government has confirmed plans for its digital nomad visa scheme. The scheme will offer citizens from non-European Union countries the opportunity to live in Spain whilst working remotely for companies located outside the country.
The visas will be available for those who derive a maximum of 20 per cent of their income from Spanish firms and who work remotely for companies located outside Spain. The visas should bring vital help to the Spanish economic sector and that it will also help the country recover from the economic damages caused by the Covid pandemic.
Even though there has been no detailed information publicly and the law has not yet been 100% passed through Parliament, it has been publicised that the visas will be initially granted for a period of one year. There will then be the opportunity for this period to be renewed for more than five years, depending on the circumstance of the applicant.
Spain’s Economic Affairs Minister, Nadia Calviño, stressed that “the digital nomad visa will attract and retain international and national talents by helping remote workers and digital nomads set up in Spain.”
In order to benefit from Spain’s digital nomad visa, applicants must be able to show or prove that they have been working remotely for at least a year and be from outside the European Economic Area. They must also show that they hold a contract of employment or, if freelance, prove that they have been regularly employed by a company outside of Spain. Proof that they have enough money to be self-sufficient and have an address in Spain is needed too.
Spain is not the first country in Europe to instigate a Digital Nomad Visa programme. Estonia, Croatia, Portugal and Iceland already have a similar visa scheme, and in January this year the Government of Romania implemented a similar visa.
New Wealth Tax Implemented for those with assets over €3 million
Spain is set to implement a new wealth tax, its second, as the country looks for ways to raise funding to pay for social policies amid soaring inflation.
As reported by Bloomberg, those who have assets worth at least €3 million ($2.9 million) a year from 2023 will be affected, the Budget Ministry said in late September. Payments made against an existing wealth tax will be deductible from the new one, it said.
There are three ranges to the tax:
| Assets | Tax (Payable Yearly) |
|---|---|
| Between €3 and €5 million | 1.70% payable on the value of the assets |
| Between €5 and €10 million | 2.10% payable on the value of the assets |
| Over €10 million | 3.50% payable on the value of the assets |
23,000 people will be affected by the new tax and is expected to raise around 1.5 billion Euros. In 2024 another 204 million is expected to be raised by an increase of up to 2 percentage points on incomes above 200,000 Euros a year. There will be tax reductions for lower earners which is estimated to be worth about €1.88 billion over two years.
New Autonomo Payments from 2023
Self-employed workers (Autonomo’s) in Spain will start paying new monthly social security fees which will be based on the amount they earn. The changes will be brought into force from January 2023.
For those newly self-employed and under the age of 35:
| Time Period | Amount Payable |
|---|---|
| The first 12 months | €60 (80% reduction) |
| Month 13 – Month 18 | €146.97 (50% reduction) |
| Month 19 – Month 24 | €205.76 (30% reduction) |
This flat rate is a measure to promote self-employment that consists of paying a reduced monthly Social Security contribution as a self-employed person for two years.
For those who have been self-employed for two years or more:
| Amount earned per month (€) | 2023 | 2024 | 2025 | 2026 |
|---|---|---|---|---|
| < 600 | €281,50 | €269,30 | €257,00 | €244,80 |
| 600 – 900 | €281,50 | €269,30 | €257,00 | €244,80 |
| 900 – 1.125,90 | €293,90 | €293,90 | €293,90 | €293,90 |
| 1.25,90 – 1.300 | €351,90 | €351,90 | €351,90 | €351,90 |
| 1.300 – 1.500 | €351,90 | €413,10 | €413,10 | €413,10 |
| 1.500 – 1.700 | €351,90 | €413,10 | €474,30 | €474,30 |
| 1.700 – 1.900 | €351,90 | €413,10 | €474,30 | €535,50 |
| 1.900 – 2.330 | €351,90 | €413,10 | €474,30 | €535,50 |
| 2.330 – 2.760 | €351,90 | €413,10 | €474,30 | €535,50 |
| 2.760 – 3.190 | €351,90 | €413,10 | €474,30 | €535,50 |
| 3.190 – 3.620 | €351,90 | €413,10 | €474,30 | €535,50 |
| 3.620 – 4.050 | €351,90 | €413,10 | €474,30 | €535,50 |
| >4.050 | €351,90 | €413,10 | €474,30 | €535,50 |
*Source: Government of Spain
In summary, the current minimum fixed payment of €294 will be changed to a progressive system of 13 instalments, depending on income. This will be introduced over 9 years. It’s important to note that these changes have not yet been finalised and there are still some details to be agreed.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch. You can book an initial consultation via my calendar link below or email/send me a message.
Autonomo or set up a company/SL in Spain
By Chris Burke
This article is published on: 22nd November 2022
22.11.22
After the recent news from the Spanish Government that they are set to change the Autonomo tax payment structure, many questions have arisen. The main questions surround if it will be cheaper, easier and more effective to start an SL than be Autonomo. In this article, I aim to answer this question and clear any doubts that you may have.
What is an Autonomo?
Autonomo is the Spanish word for freelance or self-employed individual. If you provide some kind of service (irrespective of what this is), you need to register as an Autonomo.
What is an SL?
An SL (Sociedad Limitada) is the equivalent to a Limited Liability company, a private limited company (or ltd) in the UK.
What are the main differences between an Autonomo and an SL?
The 6 main differences are:
1. Set Up
To create an SL, there are several steps which must be taken. Firstly, the initial investment required to set up an SL is a minimum share capital contribution of €3000 (according to the recently approved Law 18/2022, of 28th September, also known as “Ley Crea y Crece” the minimum share capital contribution will be €1, as long as the company complies with the requirements approved). The next steps include registering the company with the Mercantile Registry (Registro Mercantil Central), signing a public deed at a notary office and allowing for additional tax documentation.
On the other hand, becoming Autonomo is much more straightforward. No initial investment is required and the process is significantly faster and easier. You must register with the tax authorities (Agencia Tributaria of Hacienda) and with Social Security (Seguridad Social).
2. Liability
An SL is incorporated as a separate legal entity. It is distinct to the entity of its owner(s) and partners. This means that the shareholder’s liability is limited to the capital invested in the business. The personal finances of the owners/partners would not be affected if the SL was to go under. However, Directors of the company are liable (with all their personal wealth) against the creditors, the shareholders, for their actions taken through the company both legally and financially.
However, Autonomos are responsible for all business debts. There is no legal separation between the company assets and the personal assets. As a result, there is more risk in the form of personal property, savings and possessions.
3. Taxation
An SL, as a legal entity, is subject to corporate tax (Impuesto de Sociedades) at a fixed rate of 25% of profits. A discounted rate of 15% over profits may be available for newly established companies in their first two years of operation (the first year in which the company has profits and the following year).
Any transaction that the company might carry out with related parties must be at the market value e.g. the remunerations paid to the Administrator.
In case the shareholder/s is a person developing a professional activity, the Spanish Tax Authorities require that at least a 75% of the profits of the company must be paid to the professional shareholders. Therefore, in the end only a 25% of the profits of the company benefit from the lower tax rates in the Corporate Income Tax with respect to the Personal Income Tax. If you could not prove that the company has its own personal and material resources, the Tax Authorities could argue that 100% of the profits of the company must be transferred to the professional shareholders.
Autonomos pay IRFP on their net income, after associated business costs. The tax is progressive in the sense that the higher the income, the higher the rate of tax. The tax rate results from adding the Spanish tax rate and the one approved in each region (“Comunidad Autónoma”). For example, in Catalunya the tax rate ranges from 7% (20%) all the way up to 47% (50%), if your annual income reaches more than €300,000. The type of business activity that the Autonomo carries out affects the rate of tax. In the first two years there is a 20% reduction in net income as long as in the year prior to starting the new activity you did not develop.
With regards to IVA (VAT), the rate is the same for both SL and Autonomos.
4. Social Security
For an SL, the costs start at €350 per month (with the new regulations entering into force in January 1st 2023, the amounts to pay for Directors of SL to the Social Security will decrease and this cost will start at 310€ per month). The company director must register with Social Security.
Autonomos are normally eligible for a discounted rate for the first two years (however this depends on the field of work). Furthermore, they may also be eligible for a discount in the third year depending on field of work and age.
The Spanish Government brought in new regulations which will commence January 2023. These regulations will change the Autonomo social security payment structure so that the more the Autonomo earns, the more social security they will pay. For lower earners, they may find that they will pay less than they currently do. However, for higher earners, they may find that they will pay more.
5. Financing
It may be easier for an SL to secure financing and more opportunities may be available. Banks and lenders tend to have more confidence in lending to an SL as opposed to an Autonomo. Due to the way an SL is set up, they are generally seen as more solvent.
6. Accounting
An SL is subject to Plan General Contable (general accounting standards) by the Spanish Government. This is a much more complete accounting process. Documentation must be maintained for all financial operations. Annual Accounts must be submitted in the Mercantile Registry annually. Furthermore, Corporate Tax must be paid annually, and VAT must be paid quarterly or monthly depending on the level of income.
On the other hand, the accounting practice required by Autonomos is simpler and straightforward. They are required to submit all sent and received invoices, with quarterly declarations for IRPF and VAT (if VAT applicable). They are also required to make an annual declaration by the end of June each year.
Costs of becoming Autonomo in Spain
Social Security
A self-employed person that has applied for a reduction in the Social Security Contributions because they started their activity before January 1st, 2023 will pay a flat fee of €68 a month for the first 12 months. They will then be eligible for a 50% reduction over the next 6 months. Following this, they can claim a 30% reduction for the subsequent six months. The self-employed worker will start paying full social security contributions after 2 years has passed.
These contributions to the Spanish Social Security system, from January 1st, 2023, will start at 281,50 Euros, although they will be also able to request a reduction for the first 24 months. They are entitled to an 80% reduction during the first 12 months, a 50% in the following 6 months and 30% during the remaining 6 months. After that, a 100% of the contribution must be paid. There is an additional 30% reduction for a further year for male freelancers under 30 years of age and female freelancers younger than 35 years old.
Autonomos over the age of 65 who can prove that they contributed into the social security system for at least 36 years and six months are exempt from paying the full Social Security contribution indefinitely.
The above costs are the only start-up costs required for anyone who wishes to become autonomo. The only initial start-up cost would be the Social Security payment, as detailed above.
Income Tax (IRPF)
Autonomos must pay tax on their profits. There are certain rules on the deductible expenses for a freelancer. Please see the link to this article here on what expenses you can deduct as an autonomo. The differences in the deductible expenses between an Autonomo and a SL are supposedly none. However, using a company credit card for expenses seems more ‘open minded’ than what an autonomo’s receipts can be made up of. After determining profits, there is a 20% additional reduction on the taxable income for the first 2 years. This taxable income will be subject to the progressive tax rates of the general income in the Personal Income Tax that, as stated, can be higher than 50% in the highest bracket, in certain regions.
Also, on a quarterly basis, the Autonomo must pay 20% of the quarterly profits in advance, taking into account of the final annual tax liability levied on the freelancing. This amount will be deducted from the annual tax liability, once determined.
Costs of starting an SL in Spain
Social Security on a director
The company director of the SL must pay social security contributions and these start at €350 per month. However, the reductions in the Social Security contributions (80%, 50% and 30%) will be applicable if certain requirements are met.
Corporate Income Tax
15% in the first 2 years on the profits, if the company is new and the activity has not been carried out before by the director or by another related company. After that, there will be a Corporate Income Tax rate of 25% of profits
Making the choice
It very much depends on your personal circumstances. In general, if you have 3 directors/employees or more and an annual income of 80k then an SL could be the best option. However, this should be determined on a case-by-case basis and very much depends on your personal situation. It is always recommended to take professional advice to establish if this is the correct decision for your business.
The main factor is how much money you make (or will make) and the size (or size to be) of your business. It is much quicker, easier and cheaper to become Autonomo so if you are starting out and you do not have a clear idea of how much income will be generated, this may be the best option. However and as an example, if you would like to sell shares, take on employees or increase the number of partners then an SL might be the better option. An SL may also portray an image of a larger, more professional and solvent business when compared to the Autonomo set up. As a result, if you plan on working with large, established companies then you may find the SL route the better option.
Finally, you cannot establish an SL and then change to Autonomo. If you want to change to Autonomo when you have established an SL, first you need to liquidate the SL. It is much easier to go from Autonomo to SL. It may make financial sense to do this as you may end up paying a reduced rate of tax. SL’s pay a flat rate of 25% (15% for the first year in which the company has profits and the following year), however if you are a high earning Autonomo then you may find yourself paying up to 47% (50%). The general consensus is that it makes sense switching from Autonomo to SL once you are consistently making profits of more than €80,000 per year, or taking into account all other factors.
If you would like to speak with a Financial Adviser in Spain, Chris Burke is experienced, qualified in personal financial matters. Chris can review your current pensions, investments and other assets, with the potential to make them more effective and tax efficient moving forward. Don’t hesitate to get in touch with Chris via the form below – or click the button below to make a direct virtual appointment here.
Top Tips for expat finances in Spain
By Chris Burke
This article is published on: 21st September 2022
21.09.22
I hope you are well and had an enjoyable summer. This month we cover the following topics (if there is anything you would like to understand more or wish to see covered in these Newsletters, don’t hesitate to ask):
- Early Retirement State Pensions in Spain
- New Cryptocurrency reporting regulations in Spain
- Free Train Tickets in Spain
Early Retirement Pensions in Spain
Did you know that in Spain, under certain circumstances, you can take early retirement before the legal retirement age? But what are these circumstances and what requirements must you meet?
What are you entitled to and how can you apply for it?
This can be quite complicated depending on your situation, and we would recommend taking professional advice so that you can be sure of exactly what you are entitled to.
New Cryptocurrency Regulations in Spain
From 2023 onwards, Spanish residents will have to declare cryptocurrency holdings in their tax returns. Currently, cryptocurrency holders are only obliged to declare any profits or losses in their income tax returns. The 2022 tax return has a special section for these assets. However, from 1st January 2023, a new regulation will be implemented meaning that all Cryptocurrency transactions must be declared. This has been regulated by Spain’s new anti-fraud law, which is currently at the public hearing stage. It has been set out in a draft bill incorporating several anti-fraud amendments.
The new tax declaration will have to be submitted using the form Modelo 721. Information will have to be included on those who have held cryptocurrency or have been authorised beneficiaries of cryptocurrency at some point during the year (from 2023 onwards). Furthermore, cryptocurrency holders will have to include information on what their final balances are at the end of the year, as well as information on the types of cryptocurrency and the amount of units that they hold, along with the equivalent amount in Euros. This new regulation further reinforces the need to seek professional tax advice if you are a cryptocurrency holder or thinking of becoming one.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch. You can book an initial consultation via my calendar link below or email/send me a message.