Passive Investing Advice

For residents of Spain.
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ShufflesWorld
Posts: 1
Joined: Thu Jan 23, 2020 2:14 am

Passive Investing Advice

Post by ShufflesWorld »

Hi,

I'm an Irish citizen but resident in Spain.

I'm completely new to investing but want to start (looking to invest for the long term).

A lot of research I've done only shows approaches for US citizens (i.e. the VTI etc).

What would be the best ETF (or multiple) for me to setup as a Spanish resident?

I was thinking that a combination of the VWRL and VUSA would be good for complete coverage?

However, I'm not sure and from a tax point of view I've no clue either.

My aim is to passively invest monthly for the next 30 years.

Apologies but I also don't know what platform/service is good for Europeans to use for investing (again, every YouTube video out there etc talk about the US perspective - Robinhood etc etc).

Many thanks in advance!
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Passive Investing Advice

Post by TedSwippet »

Welcome.
ShufflesWorld wrote: Thu Jan 23, 2020 2:23 amI was thinking that a combination of the VWRL and VUSA would be good for complete coverage? However, I'm not sure and from a tax point of view I've no clue either.
Have you found our wiki section for non-US investors: Outline of Non-US domiciles - Bogleheads

A single holding of VWRL would probably do just fine. Remember that VWRL will be around 60% US stocks by market cap, so combining that with VUSA (which is all US stocks) overlaps to give you a huge US bias that you might not want, particularly as a non-US based investor. There are alternative but broadly equivalent ETFs from iShares that are currently a little cheaper than VWRL, so maybe consider those too. They may be particularly useful if Spain gives you a bit of a tax edge from using accumulating ETFs (not in Spain personally, so no idea on the real details here).

On taxes, perhaps not simple. Both Spain and Ireland have some ... odd tax rules, for example the Spanish wealth tax and the weird Irish every-eight-year deemed sale rule. There are pages for investors based in both of these countries in the wiki section linked above, but watch out for additional and particular complications if you plan to move from one to the other (or to anywhere else, really). UCITS ETFs are generally fine to hold across international relocation withing Europe, but can be tricky if moving outside (and especially to the US). Worst case, you have to sell to cash before moving and then reinvest after in ETFs or funds that do not cause local tax problems. Buy and sell on the London stock exchange or several EU exchanges, for example EuroNext.

As for practicalities, if you cannot find a suitable local broker, Interactive Brokers should give you an account inside which you can hold these ETFs. You might also want to try to take as much advantage of any local tax-free or tax-deferred wrappers you can use, though be aware that these can be very problematic if you move country. If planning to move back to Ireland, for example, you'd want to be sure of the details in any Ireland/Spain tax treaty before investing heavily in any special Spanish retirement or tax sheltered accounts, particularly any where you cannot easily cash in the entire fund and take it with you if you leave.
Mikadelic
Posts: 1
Joined: Wed Jan 29, 2020 2:17 am

Re: Passive Investing Advice

Post by Mikadelic »

Hi,

I actually registered to answer here, as I am also Irish living in Spain looking to get on the same ladder!
Hope the information below helps, and would love to see corrections or recommendations to my opinion. :D

My suggestion is to spend a few hours getting correct tax advice for your situation here in Spain. In fact, when planning for the long term, I think it is the single most important aspect of investment - to understand your tax obligations and ways of being tax efficient for the long term.
Even in each province there are difference tax implications that will affect your investments. In summary there is wealth tax, income tax, dividend tax, Capital gains tax, donations and inheritance tax (there could be another one or two). Also note if you have recently moved from Ireland or have wealth abroad you are required to declare any wealth over €50,000 outside of Spain in your annual spanish income declaration. And if you have existing net worth in Ireland you should probably be aware of the double taxation treaty between Ireland and Spain.

For investing purposes, Spain is at least relatively better than Ireland given the Irish 8 year deemed disposal and crazy 41% exit tax on investments.
Plus there is a lot more one can access from Spain in terms of broker options and funds.

You can even invest in Vanguard directly here if you have €100,000 minimum to buy into a fund. But obviously if you decide for a two fund portfolio or more, this is prob not the best option if you do not have large sums to start investing.

Biggest local knowledge in Spain is that index funds are preferred over ETFs, because if you have a portfolio of several ETFs and want to do rebalancing you have to pay capital gains as you rebalance. With index funds, as long as you balance from one fund directly into another fund, there is no tax event triggered. This is a major difference if you are looking at a multi asset portfolio.
There are ways you can still work with ETFs no problem, such as balancing when you contribute money to your funds, but that is for each person to decide. But once you start reading you will see that there is just a massive preference for index funds for the reason outlined above.

There are a good range of brokers to choose from, Interactive Brokers, Degiro, Openbank, Renta4 and more (in no particular order). You need to do the homework to see which one suits your situation depending on your investment plans. I am still in the process of doing my homework as I would probably use one of these to access a Vanguard index fund (or several) for example.

SICAVs are also very popular in Spain, they are essentially one or several people that actively manage money from other people. There are news articles in Spain that talk about the Royal family having their money invested through these vehicles, but it such a common occurence across the country, you will find any financially aware family in most cities that will have their money in a local SICAV. They are just a trusted way of actively investing here in Spain, and there is a legal structure setup around these type of actively managed funds. Please do your own homework if interested in this, as I have not dived too deep into this option, and my opinion is not from experience.

And also should give a shout out to Roboadvisors, the newest and smartest kid on the block is Indexa Capital. But this is essentially actively managed and not tracking an index so you will pay more for it. But they do make life easier in other ways if your risk appetite is low.

Once you look around there are a few good resources here in Spain such as forums and websites that you can follow to keep yourself up to date.
I still need to have a good browse through the Spain section here.

Hope it helps.
MarkTwain
Posts: 1
Joined: Sun May 31, 2020 2:21 pm

Re: Passive Investing Advice

Post by MarkTwain »

Hi. I intended to provide some more info about taxes in Spain, would be great is someone else can shed a light or make corrections if any.

As Micadelic said, I think spending some time understading taxes in Spain is worth it, since there are some tax benefits depending on the legal form you choose to make your investments.

In summary, as an individual, you will be accountable for the following taxes as Micadelic already explained:
- Income tax in Spain: Which is a tax over wages earned in Spain and CAPITAL GAINS FROM DIVIDENDS and benefits. If you have obtained tax residency in Spain, you should be able to opt for taxation under the regulations for non-tax residents, as contemplated in the Beckham Law. Nevertheless, I doubt this would be beneficial for you in any way, since tax burden in Ireland may be heavier. If you decide to become a tax resident, income tax is progressive and works as follows:
- Below the first €12,450 you earn, you will pay 19% of the income tax.
- From €12,450 to €20,200, you owe the Spanish Tax Agency 24%.
- From €20,200 to €35,200, 30%.
- From €35,200 to €60,000, 37%.
- And above 60,000 €, 45%.
There are also several allowances that you can claim if you are a tax resident. https://www.myspanishresidency.com/taxes-spain/

Wealth Tax: The wealth tax is a direct and personal tax that is applied individually, not on annual income or transactions, but on the personal wealth of persons, and is calculated based on the value of all the assets of the taxable person. The wealth tax is only payable if you own property in Spain. Nevertheless, it has some differences depending in which you are tax resident or non tax resident:
- If you are a tax resident, you will have to pay wealth tax on your world wide assets, but in return, you will have several tax-free allowances.
- If you decide to make use of Beckham law and declare taxes as a non tax resident, you will only liable on net assets within Spain.

Regarding Funds and Sicavs. One of the major differences between the fund and the sicav, regardless of whether it is domiciled in Spain or in any other EU country, relates to the requirements that the latter must meet in order to be eligible for tax deferral for transfers. In order for the shareholder of a sicav to be able to transfer his or her savings to other collective investment institutions without having to pay tax on the accumulated capital gains or deduct the losses, the sicav must have more than 500 shareholders. This is a requirement that not all SICAVs under Spanish law registered with the CNMV comply with.
Indicate that both the fund and the sicav seem to me to be suitable products for managing savings. However, due to their greater accessibility and fewer limitations when it comes to subscribing, transferring or reimbursing, I consider that the funds are the ideal vehicle for both small investors and large fortunes.
The most popular Sicavs, accessible from a handful of euros (the price of a share), include Brunara, managed by BBVA AM, and Cartera Bellver and Torrenova, which are managed by Banca March.
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