Early Retire to Spain

[NYEXPAT]

Assuming your "income producing assets" are in China, why not transfer into your Wife's name or into a jointly controlled corporation ( with your Wife receiving the income) and avoid reporting anything to the IRS and just complying with Spain's tax laws?

 

[JakeinChina]

Hi Jake, best of luck with your plans, they sound great.

You mentioned that the US will not tax the first $100k of your income, but I think that is earned income and you said that you wouldn’t be working. Our son is a US expat in England and his earned income is excluded from taxes using the FEIE, but I am retired here in England and the US fully taxes my pensions, both US and foreign.

The US tax treaty with Spain may be different than the one with the UK but you should check it out first to avoid surprises.

Thanks Alan. Agree, I do need to research more on taxation. My income after I resign will be from rental income, and as of now, I do not pay much on rental income since there are so many expenses that I'm allowed to deduct on my tax bill. The tax treaty between U.S. and Spain is something I need to research. I know I will have to pay taxes in Spain on my worldwide income (ie rental income) but I just don't what the calculation will be. I know Spain has many deductibles for income tax, like if your married, if you have a child and so on. I will hire a local accountant my first year or two in Spain.

 

[JakeinChina]

With respect to retiring in Ireland and the onerous conditions like 50k/person, the Irish government is offering a deal to Trump that Ireland will provide easy visas to US persons in exchange for a good deal for the 10000-15000 undocumented Irish in US. According to this article Trump is interested. So might be easy to retire in Ireland soon. Who knows how these things end up of course.

( Of course weather wise I'd wayyyyy pick Valencia [emoji41][emoji41] )

https://www.irishcentral.com/news/politics/donald-trump-ireland-bilateral-visa-agreement

I use to follow these articles almost every day before I decided on Spain. I'm aware Trump wants to make a deal with Leo regarding the illegal Irish in the U.S. and which will provide it easier for American's to retire or live long term in Ireland. That being said, Congress is a mess and can't decide on any immigration deal, so I have a feeling this will take a long time. Maybe a couple of years until a deal is completed.

Plus, I'm not sure the income requirements and the stamp 0 policy will change all that much, but we will see.

 

[JakeinChina]

Assuming your "income producing assets" are in China, why not transfer into your Wife's name or into a jointly controlled corporation ( with your Wife receiving the income) and avoid reporting anything to the IRS and just complying with Spain's tax laws?

My assets are in the U.S. and my name is on the home ownership deeds. I thought about this many years ago in regards to many banking and tax reduction ideas. Doesn't work when your stuffs in the U.S.

Good idea thought and thanks for sharing bud.

 

[Jeff76Canada]

I've been many times to Valencia. You will enjoy the city a lot. Food is awesome in Spain. Fast train to Barcelona also great for turistic proposes.
The city is spread, and there are tons of parks ( the river Park).

 

[RetiredBrit]

Hi Jake,

Congrats on your achievement and plans.

Out of interest, what criteria had you been considering when choosing Spain?

I ask because the Brits associate living and retirement to Spain as something regularly done by those Brits looking predominently at climate and much lower-cost of living but they most often miss the variable climate and some miss culture. Many Brits end up returning to the UK. Many Brits are also currently concerned about political turbulence in Spain. You sound like an internationalist and with a Chinese wife and Spain sounds like an "interesting" choice to me.

 

[explanade]

Keep us updated on how this works out.

Immediate concerns are whether you'd need a bank account for things like utilities, phone, Internet, etc.

Ideally you would pay with US credit cards and not even have local bank accounts. So you'd never have to deal with transferring some of your US-hosted funds.

Of course how much taxes they'd want on income generated from US assets would be a big question, as well as what you get for those taxes. If it gets you into their health care system, then paying taxes would be more tolerable.

 

[bmcgonig]

Keep us updated on how this works out.

Immediate concerns are whether you'd need a bank account for things like utilities, phone, Internet, etc.

Ideally you would pay with US credit cards and not even have local bank accounts. So you'd never have to deal with transferring some of your US-hosted funds.

Of course how much taxes they'd want on income generated from US assets would be a big question, as well as what you get for those taxes. If it gets you into their health care system, then paying taxes would be more tolerable.

Irish friends just bought an apartment in Spain. They said opening a bank account there was jokingly simple. As you stated they needed it for paying internet etc.

 

[explanade]

Might be a difference between EU and non EU people.

 

[JakeinChina]

Hi Jake,

Congrats on your achievement and plans.

Out of interest, what criteria had you been considering when choosing Spain?

I ask because the Brits associate living and retirement to Spain as something regularly done by those Brits looking predominently at climate and much lower-cost of living but they most often miss the variable climate and some miss culture. Many Brits end up returning to the UK. Many Brits are also currently concerned about political turbulence in Spain. You sound like an internationalist and with a Chinese wife and Spain sounds like an "interesting" choice to me.

I'm probably not going to just "retire" because I'm only 40 and personally I feel its way too young to stop working, but I wanted to live in Europe before I assume we will eventually move back to the U.S. At this point I have no idea how long we will live in Spain, but at least two to three years. Maybe longer, maybe it will be our home and we will just visit the U.S. during the summer months and Christmas? I'm not sure.

Wifey and I looked into investor visa's for both Portugal and Spain. I'm interested in both countries, the weather seems great, its affordable, and its Western Europe and developed (for the most part). We decided against the investor visa as we both thought it was risky to have to invest 500K Euro's in a real estate market like Lisbon or Madrid/Barc when the prices can fluctuate so much. Plus there are fees with this investor visa that add up to between 50K Euro to 80K Euro, which seems like a lot.

We looked at moving to UK and Ireland, but getting a long term visa when you don't have a job for Non-EU nationals is very difficult, and with a 5 yr old child, the last thing I wanted to worry about was having to move often because of visa issues.

I researches the Non-Lucrative working visa for Spain, and found it fit our visa needs without having to invest heavily in the country, esp when rent is around 1K Euro's in the city center for many Spanish cities. We selected Spain over Portugal because we thought Spain offered more, had better access to travel to the rest of Europe, and that we could as a family study Spanish and use it in the future if we left Spain, vs Portugese which is not used that often outside of Portugal (And maybe Brazil?).

Were sending our daughter to a Spanish speaking school when we arrive next year, and we plan on studying Spanish. I'd love to make friends with locals and eventually speak fluent Spanish, but my wife and I are also realistic and that this may be challenging. Hanging out with mostly expats, but understand the local lanaguage and culture to some degree is fine with us. I've lived in Asia for 17 years and I could never fit in with the locals always, but I did learn Chinese and could speak it fluently. I'd like to do the same with Spanish, even if I don't fully fit in all the time.

 

[JakeinChina]

Keep us updated on how this works out.

Immediate concerns are whether you'd need a bank account for things like utilities, phone, Internet, etc.

Ideally you would pay with US credit cards and not even have local bank accounts. So you'd never have to deal with transferring some of your US-hosted funds.

Of course how much taxes they'd want on income generated from US assets would be a big question, as well as what you get for those taxes. If it gets you into their health care system, then paying taxes would be more tolerable.

You need a local bank account, and its requested for the Non-Lucrative (non-working) Spain residence visa by the authorities. Every year you need to reapply for the visa and they want to review your banking details, along with income requirements for the visa.

Now for taxation in Spain, that's different and I'm sure there are strategic ways for you to limit your income (or keep the amount you don't need in your home countries bank) to keep taxes down but still meet the non-lucrative Spain visa income requirements each month. We would live off of rental property income generated in the U.S. We will need to pay personal income tax in Spain, but it depends on how much money we flow into our Spain bank account. Also, there are many deductibles for reducing your tax bill on rental income, esp outside the country, just like in the U.S. I do need to do more research in understanding all of the tax laws in Spain, but I'm fine with contributing some tax payments to our new country. We will be part of the local healthcare system and school system. It isn't entirely free, but we will get something at least out of those taxes. In China, I pay taxes and get absolutely nothing. Not to mention, have to pay (thru my company) 22K USD for kindergarten at an international school here in China for our daughter.

My monthly living expenses in South China are almost 5K USD total. In Spain we're budgeting 4K USD.

 

[Totoro]

I'd love to make friends with locals and eventually speak fluent Spanish, but my wife and I are also realistic and that this may be challenging.

Depending on where you actually settle, in general the Spanish have local social groups and of course their family that last their entire lives. Some areas have local 'enclaves' consisting of European expats (German, British, Dutch, Belgian), they tend to be more open obviously.

So, harder to do than the US, but much easier to connect I believe than in Asia.

 

[NYEXPAT]

Our boy's are in private catholic schools as opposed to international schools. The cost is about 1/2 and their friends parents are in the young upwardly mobile class as opposed to the rich entitled class. We are involved in the school and have made many life long friends amongst the locals. Our 3 year old has been in school for a year now and we are under pressure to form a new group of friends with his classmates parents. In SA family and social connections are very important for the future careers of your children and international schools provide those connections. If your children will end up in the USA ultimately, then those connections are not really important and not worth the price.

 

[JakeinChina]

Our boy's are in private catholic schools as opposed to international schools. The cost is about 1/2 and their friends parents are in the young upwardly mobile class as opposed to the rich entitled class. We are involved in the school and have made many life long friends amongst the locals. Our 3 year old has been in school for a year now and we are under pressure to form a new group of friends with his classmates parents. In SA family and social connections are very important for the future careers of your children and international schools provide those connections. If your children will end up in the USA ultimately, then those connections are not really important and not worth the price.

Thanks NYExpat.

We are in a difficult situation in China, as there are only two options for schools. Local Public schools, which the best are difficult to get into, and they still are controlled by the Communist Party of China. The second are international schools that cost between 20k to 30K USD annually. Yes, the international schools are beautiful, but they come with parents that are usually wealthy Chinese who we will never fit in with. There are some foreign parents, but everyone is so transient that they're here one school year and gone the next. Its a tough situation.

Honestly, I only see us being in Spain for a couple of years, for the experience, and then moving onto the U.S. I love living abroad, but I've been away for a long time, and with a mother getting older, and family members and events I've missed, its tough to stay away forever.

 

[JakeinChina]

Hello,


So back in April, I was planning on quitting my job, which I'm really not enjoying, and moving to Spain with my wife and 5 year old daughter. We are actually here now, for a week so far in the city of Valencia, and at this point my wife and I both strongly feel Spain isn't the right fit for us. Originally we wanted to sem-retire in Spain for two or three years, maybe have our daughter become fluent in the language, and meet new friends and enjoy the culture. I'll give the positives of our week in Spain about the city of Valencia, the people, culture, food and so on, as well as the negatives. Please note, I've lived in big cities in Asia (mostly China) for the last 18 years, so I'm not coming from a suburb in the U.S.


Pro's


People - Very warm, kind-hearted people. Helpful and friendly. They LOVE to chat, and incorporate that into food/drink in their daily lives, which is a nice change from some places where nobody really talks to each other anymore, instead sits in their homes looking at a screen.


Location - Easy access to the rest of Europe to explore. Also transportation like the roads, and also public transportation are excellent and not too expensive.


Cost - Clothing, food, housing and all inexpensive when you compare it to northern Europe or even the East/West coast of the U.S. 800 Euro's for a two bedroom apartment in the heart of downtown, where you can walk to everything.


City Life - If your into living in the city, Valencia is a great place to live. Its noisy, its somewhat grimy, but the size of the city is great. Its not too large and not too small. There are some beautiful tree-lined streets to live on where there are tons of bars and outdoor restaurants. Everything is easy to walk to.


Cons


Language - For those of you who speak Spanish, or at least a low level of conversation Spanish, Spain might be for you. If you speak 5 to 10 words like my wife and I do, well then its going to be a challenge. I walked all over the city of Valencia (Spain's 3rd largest) and I think once I heard someone speak English. EVERYONE is speaking Spanish. I don't blame them, and I'm certainly not saying people should be accomadating Americans or native English speakers, but the local language, as well as the culture and lifestyle are very strong and influential. As much as I'd love to learn Spanish and become fluent, I'm 40 years old, and I think that ship has sailed. Plus, I plan on moving back to the U.S. because I want my daughter to grow up and be educated in the U.S.


Culture Differences - As an American, the Spanish culture is very different to what I'm use to. As my wife and I are getting ready for bed at 10pm each night, most families here in Spain are cooking and having their dinner. Its loud, there's a lot of listening to people chatting and yelling at each other. Most restaurants don't open for lunch until 2pm, and then close at 4pm and open back up for dinner at 8 or 9pm. I just can't nor do I want to adjust. I like getting up very early, and going to bed early. Also, like I said above, EVERYTHING is in Spanish. Every movie at the movie theater is dubbed in Spanish, even if its a Hollywood movie. TV is all in Spanish. Its a great culture and I can totally see how people love it, but if you can't speak Spanish, your just going to feel like a tourist all the time. You'll be like those Brits who live in the Algarves or other beachy places in Southern Spain and Portugal who live in those British expat bubbles. That's not what I want.


Education - I don't feel comfortable sending my daughter into a public school in Spain, since she can't speak the language. We visited the American International School in Valencia, and over 90% of the students were simply Spanish kids who came from upper middle class or wealthy families and wanted to send their kids to a private school to learn English. My wife and I were not fans of it and felt our daughter's international school in China was much better and more diverse.


Overall, its a beautiful country and great people, but its just not for us. The people are beautiful. I've been to many Asian cities where the women were good looking, but in Spain, there is something in the water. The women (and the men) are amazingly beautiful. Even the older women in their 40's and 50's are beautiful and dress nicely.


If your young, single and interested in learning Spanish or already have a background in it, I can see young people wanting to move to one of the larger cities in Spain. Also, if your coming from living in the suburbs of the U.S. or UK, I can see people attracted to the walkability and cute neighborhoods of living downtown. Even single middle aged people, or people married but wthout kids, I can see Valencia or Madrid or Barcelona being a great fit. A 40 something year olf couple with young kids might be a different story, but it depends on what you like a value for your kids. Personally, I'm burnt out on living in a city now. I was in Ireland vacationing and rented a home in a small town. We had a huge backyeard with grass and my daughter ran around playing in the neighborhood with other kids who live in the area and she loved it. My wife had picnics with her on the grass and we played sports games as well. Its just something we prefer right now at this moment in our lives.


I'm going to stick it out another year or two in China, and then make arrangements to move to the U.S. with my family. In the U.S. I will semi-retire, and start up a real estate company where my wife and I together will restore homes and sell them for a small profit. I'm very interested in real estate, so doing that on the side as I retire from the corporate world at 42 years old will be enough, along with spending more time with my wife and daughter.


I'm very happy we checked out Spain. Its a beautiful country with amazing people, but its just not the right fit for me and my family right now.

 

[braumeister]

I'd just like to address two of your comments:

As much as I'd love to learn Spanish and become fluent, I'm 40 years old, and I think that ship has sailed.

Don't be so hard on yourself. When I moved to Brazil I learned Portuguese when I was nearly 40. I had no Spanish or Portuguese background, but within a couple of years I was so fluent I was doing simultaneous interpreting at business meetings.

I don't feel comfortable sending my daughter into a public school in Spain, since she can't speak the language.

I knew lots of Americans who were assigned there and their kids had no language training at all. Brazil has a federal law requiring all instruction in schools to be entirely in Portuguese, so the kids were just thrown in, sink or swim. They had no trouble at all, even picking up the local accent quickly. Minds are very flexible when you're young, and the other kids will have enough English to help them.

 

[samm]

Valencia is beautiful and I have thought of retiring there, but...:
1. The two official languages spoken in the city are Spanish and Valencian, a dialect of Catalan. I do not want to learn Valencian/Catalan -- waste of time to read, hard to speak, useless elsewhere in Spain. If you want to learn standard Castilian it is better to be farther West (West of Alicante, perhaps Seville).
2. The "Modelo 720" annual financial asset reporting is a hassle and is setting the stage for a global asset tax for expats. The EU supports wealth/asset taxes because there is too little income reporting.
3. The immigration bureaucracy is bad, worse than in the US.
Let us know how things turn out

 

[explanade]

Thing about Spain though is that there's a huge UK expat population there. Maybe they're in some isolated enclaves though, not necessarily woven into big cities. I think the UK retirees go for warmest weather and cheapest housing so they're in small coastal communities along the southern and SE coast?

So English speakers can kind of live among expats, never really have to speak Spanish.

Of the many times I've visited, speaking English wasn't a problem. I took Spanish in high school so I could recognize a lot of words but mostly I would ask "habla Ut. Ingles." The answer was usually "a little."

Can't carry deep conversations but enough to communicate.

I think Southern Europe, which don't have as many English-speakers as northern Europe (from Netherlands to the Nordic countries) but the situation has improved even in just the last 20 years or so. Anyone with career aspirations learn English or have their kids learn English, if not outright go to school in the US or the UK.

As for culture, yeah they stay out all night and Spanish buildings are bad for sound isolation as you hear activity throughout the night. Definitely the siesta culture is strange to people who come from outside of it. I don't think it would be that big of an adjustment.

I've never been to Valencia but I would wonder if there are as many connections to other European cities from LCCs as Madrid or Barcelona.

 

[explanade]

Valencia is beautiful and I have thought of retiring there, but...:
1. The two official languages spoken in the city are Spanish and Valencian, a dialect of Catalan. I do not want to learn Valencian/Catalan -- waste of time to read, hard to speak, useless elsewhere in Spain. If you want to learn standard Castilian it is better to be farther West (West of Alicante, perhaps Seville).
2. The "Modelo 720" annual financial asset reporting is a hassle and is setting the stage for a global asset tax for expats. The EU supports wealth/asset taxes because there is too little income reporting.
3. The immigration bureaucracy is bad, worse than in the US.
Let us know how things turn out

So this wealth tax thing is interesting to hear about.

There are a lot of UK retirees there and they don't appear to be rich, so the appeal of Spain besides the weather is the low cost.

Maybe EU citizens are exempt from wealth taxes? At least until Brexit?

 

[Alan]

So this wealth tax thing is interesting to hear about.

There are a lot of UK retirees there and they don't appear to be rich, so the appeal of Spain besides the weather is the low cost.

Maybe EU citizens are exempt from wealth taxes? At least until Brexit?

AFAIK EU citizens are not exempt from the wealth tax in other EU countries. If you live in France or Spain you are subject to their wealth tax.

 

[orangehairfella]

So this wealth tax thing is interesting to hear about.

There are a lot of UK retirees there and they don't appear to be rich, so the appeal of Spain besides the weather is the low cost.

Maybe EU citizens are exempt from wealth taxes? At least until Brexit?

They’re not exempt, they just don’t have many assets. Pensions are not subject to wealth tax

If you’re trying to live off assets you might be in for a real hurt. My understanding is that if you’re a resident, wealth tax applies to all global assets in excess of 700k euros (1.4m for a couple). For a couple with a 3m euro portfolio, not uncommon on this board, you’re looking at 30k euros in wealth taxes, a full 25% off the 4% rule. Plus applicable income tax on top of that.

The OP’s 2.2m portfolio might only incur 5kish in wealth tax, but Spain also takes 24% of rental income. Though as the portfolio grows, taxes would increase, despite the OP avoiding realizing income from it. So between wealth tax and rental tax they’re looking at an effective tax rate around 33%

Oh, and 21% VAT on most goods and services.

If anyone has a better understanding of the situation, I’m curious, but that wealth tax is a tough pill to swallow. In the case that your portfolio grows, but your income needs don’t, wealth tax seems like it would become a real burden.

 

[Nemo2]

As for culture, yeah they stay out all night and Spanish buildings are bad for sound isolation as you hear activity throughout the night. Definitely the siesta culture is strange to people who come from outside of it. I don't think it would be that big of an adjustment.

A few years ago, when staying in a an alleyway airbnb in Barcelona, there was a lady across the way who'd play piano for an hour or so at night......very relaxing.

We had no problem with the building-to-building conversations either....all part of the atmosphere, (and we didn't have to work the next day anyway).

 

[explanade]

They’re not exempt, they just don’t have many assets. Pensions are not subject to wealth tax

If you’re trying to live off assets you might be in for a real hurt. My understanding is that if you’re a resident, wealth tax applies to all global assets in excess of 700k euros (1.4m for a couple). For a couple with a 3m euro portfolio, not uncommon on this board, you’re looking at 30k euros in wealth taxes, a full 25% off the 4% rule. Plus applicable income tax on top of that.

The OP’s 2.2m portfolio might only incur 5kish in wealth tax, but Spain also takes 24% of rental income. Though as the portfolio grows, taxes would increase, despite the OP avoiding realizing income from it. So between wealth tax and rental tax they’re looking at an effective tax rate around 33%

Oh, and 21% VAT on most goods and services.

If anyone has a better understanding of the situation, I’m curious, but that wealth tax is a tough pill to swallow. In the case that your portfolio grows, but your income needs don’t, wealth tax seems like it would become a real burden.

Hmm that makes sense that pensions are not included.

Now is this on people who get some kind of long-term visas or people who become citizens?

What if one wants to try living there for a year, renting a place, rather than committing longer term?


If they're going to charge you wealth taxes like that, they better give you health care in their system and voting rights.

 

[Alan]

Hmm that makes sense that pensions are not included.

Now is this on people who get some kind of long-term visas or people who become citizens?

What if one wants to try living there for a year, renting a place, rather than committing longer term?


If they're going to charge you wealth taxes like that, they better give you health care in their system and voting rights.

Why do you think paying taxes should give you the right to vote? We lived and paid taxes in the USA for 11 years but could not vote until we were citizens. I would think that situation is the norm.

 

[braumeister]

Why do you think paying taxes should give you the right to vote? We lived and paid taxes in the USA for 11 years but could not vote until we were citizens. I would think that situation is the norm.

And it makes sense. "Taxation without representation is tyranny" as they said in the 1760s, but they were British subjects who had no representatives in Parliament. Not the same thing at all for expats.