Moving to Spain, super confused! :(

For residents of Spain.
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Topic Author
Todtuga38
Posts: 7
Joined: Wed Jun 29, 2022 6:49 pm

Moving to Spain, super confused! :(

Post by Todtuga38 »

Hello everyone!

I've been reading and learning so much from everyone since I found you and started investing in 2016; thank you so much!

I am finally posting because I’m moving to Spain for work around mid-December and, although I've read all the posts here and have done my research, I’m really at a loss as to what to do :confused . I’m 36, single, here’s my financial/immigration “story”:
• J1 and F1 student visas (2006-2012)
• TN visa – non-immigrant visa, but considered resident alien for tax purposes (2012-2018)
• H1B visa (2018-2019)
• Green card (oct 2019-2029)
Whether or not the above classifies me as a Long-Term Resident (8 out of the 15 years), I guess the only thing I would care about is if I would be a Covered Expatriate? But I’m not (not that “rich”, ha!), so I have nothing else to worry about? Also because I’m a home owner (still paying mortgage) but I’m not selling, I plan on renting, I’d have to file US taxes anyway? (and along the same lines, not worth it to renounce Green Card then?)

Now, I have some savings in retirement and brokerage accounts:
Retirement
• 401k – with pre-tax and post-tax dollars
• HSA
• Traditional IRA (Vanguard)
• Roth IRA (Vanguard)

Brokerage
• Vanguard
o Most holdings are VTSAX, VTIAX, VTMGX
o A couple ETFs (VDE, VEA, VTEB, VTI, VWO)
• Wealthfront
o ETFs (VTI, VEA, VTEB, VWO, VIG, XLE)

I looked at my numbers and I calculate to be able to FIRE in ~10 years (I will by then very likely still be living in Spain but plan to travel extensively), but from everything I’ve been reading, this move to Spain can hit me bad if I don’t make some adjustments in my accounts while I’m still in the US. Work is providing tax services but on the Spain side, not the US side :oops: , so I’m trying to understand what my options would be (before paying $300/hr to confirm with a tax advisor? Recommendations, anyone?)…

• 401k – since I’m leaving the US company, do I just roll the pre-tax money into a Traditional IRA and the post-tax money into a Roth IRA? (No US tax consequence on this, right?, just Spanish income taxes when I make distributions at 59.5 yo?)

• HSA – (sigh), was planning on using like a Roth IRA since I’ve saved quite a bit… but cannot take out principal, so I guess this money is stuck there until I’m 65 yo? Then Spanish income taxes?

• Since Spain doesn’t recognize the mechanism behind Roth IRAs, should I take out all my principal while I’m in the US? And then I guess pay Spain income taxes on the rest when I make distributions at 59.5 yo?

• Retirement accounts – are there any issues with Vanguard holding them? Will the fund/ETF US domicile regulations land me with big taxes when I sell, etc?

• Brokerage accounts – anything I have to do with my Vanguard and Wealthfront ones?
o Will they just liquidate everything when they see I’m not a US resident anymore? Or…? Cashing out now, I’d have to pay lots of US taxes on capital gains, but then I could bring the money in to Spain and start from scratch? (This sounds like a terrible idea to me, but my sister wants me to ask).
o What happens if I want to sell some shares? Are the capital gains taxed in Spain?

• Beckham law – are there any reasons to not take it? From what I understand, you get a lower tax liability for the first 5-6 years, and then back to regular Spain brackets?

As you can see, I’m quite confused with this convoluted situation… :confused everywhere it says to get a qualified tax advisor, but can anyone recommend one? I’m not particularly fond of the idea of paying $300/hr to be told what I already know…

Thank you everyone in advance for your time!
andreas
Posts: 40
Joined: Tue Sep 14, 2021 2:07 am

Re: Moving to Spain, super confused! :(

Post by andreas »

One thing to consider: If you move permanently out of the US you will lose your green card. It is not like you can come back until 2029 and work in the US again.
andreas
Posts: 40
Joined: Tue Sep 14, 2021 2:07 am

Re: Moving to Spain, super confused! :(

Post by andreas »

Also, I think for the 7 year exit tax deadline starts to count when you get your greencard. So you should not be covered.
I don't you need to file a US tax return just because you have some US brokerage accounts. But, your accounts could be closed because you do not have an US address anymore.

You might want to move your assets to an international brokerage such as IBKR and work with them to transfer your account to Spain.
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Moving to Spain, super confused! :(

Post by TedSwippet »

Todtuga38 wrote: Tue Nov 01, 2022 12:04 am I am finally posting because I’m moving to Spain for work around mid-December and, although I've read all the posts here and have done my research, I’m really at a loss as to what to do ...
A good first step would be to spend some quality time with the US/Spain tax treaty and its associated protocol and technical explanation:

Spain - Tax Treaty Documents | Internal Revenue Service

Also, relevant wiki article:

US tax pitfalls for a non-US person moving to the US - Bogleheads

On some specific points ...

No matter how much money you have, you do not become a 'covered' expatriate until 2026. However, unless you plan to return to the US, keeping the green card is both tricky (requiring things like a 'reentry permit') and a tax ball-and-chain that will restrict many of your financial activities in Spain:

US tax pitfalls for a US person living abroad - Bogleheads

Under treaty protocol Article X your 401k and IRA accounts should be sheltered from Spanish tax until you make withdrawals:
5. Where an individual who is a resident of one of the Contracting States is a member or beneficiary of, or participant in, a pension fund that is a resident of the other Contracting State, income earned by the pension fund may be taxed as income of that individual only when, and, subject to the provisions of subparagraph (a) of paragraph 1 of Article 20 (Pensions, Annuities, Alimony and Child Support), to the extent that, it is paid to, or for the benefit of, that individual from the pension fund (and not transferred to another pension fund in that other Contracting State).
Notice however that an HSA account is not a retirement account. It is likely then that Spain would treat this a simply another unwrapped and unsheltered trading account, and so tax gains within it annually. Something of a nightmare there, then. On the Roth, protected until withdrawal as above, but possibly (probably?) taxable on withdrawal since the treaty does not appear to make Roths fully tax-free to Spain.

For property retained in the US once no longer a US 'taxable person', watch out for FIRPTA (emphasis below is mine):
Under general U.S. tax principles applicable to FIRPTA, gain is equal to the excess of the amount of money or fair market value of property received over the amount of adjusted basis of the property exchanged. Where the amount received is subject to a contingency, the amount is not recognized until the contingency is resolved.

FIRPTA gain is subject to tax as effectively connected income. Nonresident alien individuals are subject to tax on such income at regular graduated tax rates for U.S. individuals. The deduction for personal exemptions, certain adjustments to gross income, and most itemized deductions are not allowed. Foreign corporations are subject to tax on such income at regular corporate income tax rates. The branch profits tax under Internal Revenue Code section 884 may apply, subject to the branch termination exception. The alternative minimum tax may also apply.
On the face of things, selling your US property after ditching the green card would appear to generate a much larger tax bill than before (so much for congress's claim to make expatriation 'tax-neutral'). However, not ditching the green card leads to all the US tax pitfalls noted above. Well-informed non-US investors who hold US real estate do so through an intermediate holding company. This can avoid FIRPTA and US estate tax issues, but (of course!) generates a raft of other complications and costs.

Look out for any 'special' Spanish tax treatment on non-UCITS fund or ETF holdings. Some countries apply unfavourable tax rates to what are to them 'offshore' funds. Everything you hold at the moment is US domiciled, and not UCITS. Spain may do something similar (no connection personally; don't know for sure either way).

Certainly cleanest is to cash out everything you can before -- or perhaps immediately after terminating US residency, if that produces a lower tax bill -- and then begin again with equivalent UCITS ETFs once you are resident in Spain. Note in particular that if you do not ditch the green card, investing in any local Spanish or UCITS funds or ETFs after you move to Spain will generate a US tax nightmare that will have you envying the dead at tax time.

Finally, be very aware that Spain has no US estate tax treaty. Once no longer domiciled in the US then, everything you hold in the US above just $60,000 is under threat of US estate tax, 26-40% of the balance above that amount. A huge (and uncompensated) risk. Also, some risk of US gift taxes, although perhaps to a lesser degree than US estate taxes.
User avatar
Watty
Posts: 28813
Joined: Wed Oct 10, 2007 3:55 pm

Re: Moving to Spain, super confused! :(

Post by Watty »

I know little about it also look to see if your current state will still try to tax your US assets. If you have a mailing address in a state for your tax forms then the state will likely get a copy of them too and assume that you are still a resident of that state.
Topic Author
Todtuga38
Posts: 7
Joined: Wed Jun 29, 2022 6:49 pm

Re: Moving to Spain, super confused! :(

Post by Todtuga38 »

Thank you TedSwippet for all the information. I thought I had posted a reply, but evidently I didn't... I'm going to post anyway in case this helps others in the future :)

I read all the links you sent and the newest posts on the Forum related to expatriates, and agree with you on multiple things:
  1. I'm not a covered expatriate.
  2. It'll be pretty much impossible to retain the GC status after a couple of years of not living in the US - my plan now is to get the first permit (gives max 2 years I believe) to keep it and make all the financial movements I need to do and then rescind it.
  3. Under the Beckham Law, Spain has no say on non-work income outside of Spain, so that gives me the (5-6 years) window to make these movements too.
  4. Based on this and what you mentioned:
  • I will definitely sell my house before I rescind my GC.
  • Roth IRA - will definitely take out the principal before I rescind the GC. I'll lose the Roth benefits of tax-free earnings, but at least I won't get anything taxed twice.
  • HSA - yup, goodbye plans of using it as retirement account. Haven't given much time to deciding what to do about it just yet...
  • I won't do any investing in Spain while I hold a GC (a true tax nightmare as you mentioned!).
  • For the brokerage accounts currently held by Vanguard - a friend called as a "new investor that would move to Spain in a couple of years and lose US residency" and asked what would happen to her brokerage account. They said:
    • (For both US citizen and non-resident), person would be able to keep account (so they won't just cash everything and send a check) but won't be able to buy any new funds/stocks/ETFs (so no account rebalancing).
    • Friend asked if they could just transfer equivalent ETFs to Vanguard Spain, but person on the phone and her team didn't know if that was possible (as you said, people you get on the phone don't know much about handling these more complex situations). They said I should write to foreign_investor_policy@vanguard.com and ask. Might just be easier to move everything to IBKR as others have suggested...
  • I wasn't able to find anything on "'special' Spanish tax treatment on non-UCITS fund or ETF holdings", but I'll make another post and ask if anyone knows.
  • Seems like the GC/Beckham Law timing gives me some loopholes to work with... will make another post to see what others think.
Thank you again TedSwippet and everyone else for your insights and help!
Bogler4ever
Posts: 2
Joined: Fri Jul 03, 2020 12:30 pm

Re: Moving to Spain, super confused! :(

Post by Bogler4ever »

@Todtuga38 - OP, hope your move worked out good, and you are settling down in Spain. Did you figure out how best to invest your Spanish income, a la drip feed into the markets? I will be making the move soon, and am more worried about my future investment strategy than my existing assets (simply because I have none of consequence yet). From what I hear, Spain doesn't have a tax sheltered investment wrapper. How are you setting aside your monthly savings/investments now? How do pensions work, in the sense, are there appropriate vehicles to avoid (unnecessary) long term capital gains? Appreciate it if you could share what you learnt from the perspective of a Spanish Boglehead long term investor.
SIY
Posts: 119
Joined: Sun Dec 13, 2020 11:32 pm

Re: Moving to Spain, super confused! :(

Post by SIY »

Bogler4ever wrote: Tue May 16, 2023 5:53 pm @Todtuga38 - OP, hope your move worked out good, and you are settling down in Spain. Did you figure out how best to invest your Spanish income, a la drip feed into the markets? I will be making the move soon, and am more worried about my future investment strategy than my existing assets (simply because I have none of consequence yet). From what I hear, Spain doesn't have a tax sheltered investment wrapper. How are you setting aside your monthly savings/investments now? How do pensions work, in the sense, are there appropriate vehicles to avoid (unnecessary) long term capital gains? Appreciate it if you could share what you learnt from the perspective of a Spanish Boglehead long term investor.
I was thinking the same thing!
Hoping to hear from OP.
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