# Taxes for an American in Spain



## BrunellaSheen

Bevdeforges said:


> Welcome to the start of the US tax-filing season. As always, all Americans with gross income greater than the filing threshold are expected to file a tax return, even if they owe no taxes.
> Bev


Hi Bev, I am exploring the possibility of moving to Spain and have had a tough time figuring out how to estimate the tax hit from both Spain and the US, given my particular situation. I have scoured the internet, tried speaking with so-called 'expat tax experts' here in the US, and read a number of good posts on this forum, but am still pretty foggy on what to expect. 

I will be visiting Spain over May 2013 and intend to meet with a tax preparer there (who?), but want to have a reasonable idea of if my situation will be something I can afford before going over to try Spain on for size in May.

Anyway, here are my particulars, any input would be soooooo appreciated:


I will have dividend-earning investments in US
Own a rental property in US the generates income
Will eventually get US social security
Own an internet business in the US
will operate my business from Spain - no employees, just me

I have read that in the simplest terms, taxes are computed as follows:

X = what my taxes would be in the US
Y = what my taxes would be in Spain
Z= total taxes paid

So for total taxes paid:

Z = X if X is more than Y, or 
Z = Y if X is less than Y (is that right?)

I am quite familiar with what 'X' will be as I have been clubbed down that road many times here, but will I be able to write off my business expenses in Spain the same way as I have in the US or are the rules substantially different?

Any advice on what to expect or where to look for a clear picture would be greatly appreciated.

Also, what sort of visa should I get given that I own a company abroad, and do I need to do anything special in Spain in the way of registering this activity?

Bru.


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## BBCWatcher

Wow, lots of questions, Bru. 

First of all, the U.S. and Spain have both a tax treaty and a Social Security treaty in force. You might want to read those documents to see if they offer any help.

Yes, you've got the general principle right, but I can make it a bit simpler: Spain's tax rates are generally a bit higher than those of the U.S. To the extent your income is subject to Spanish taxes it's unlikely that same income will incur any U.S. income tax liability. Moreover, it's quite possible, even likely, that you can accumulate excess foreign tax credits that can be applied to your immediate prior year tax return before you go to Spain (by filing a 1040X amended tax return) and then also used toward future tax years upon your return to the U.S.

Spain might have some tax breaks for new resident expatriates with home country income -- I've seen some mention of that -- but I think those breaks are limited in time and/or size.

Spain has introduced an elective residency program for foreigners willing to buy a home in Spain with a minimum purchase price of 160,000 euro. I would look into that program if you need a visa to move to Spain. Just make sure that type of visa and residence permit allows you to manage a U.S. business from Spain.

You can receive U.S. Social Security benefits in Spain, although note that the benefit amount will always be calculated in U.S. dollars. You'll be responsible for the exchange rate risk between dollars and euro. In other words, if the euro increases in value relative to the dollar, your Social Security benefits will be less valuable toward your Spanish lifestyle. Of course the opposite can happen, too. If you intend to stay in Spain for a fairly long period of time -- buying a home would tend to indicate that -- then you might want to consider ways to reduce exchange rate risk. (There are many such options.)

I think I would avoid establishing any business presence in Spain and keep your U.S. business a U.S. business, if possible.

Be careful about renting out your primary residence in the U.S. If you rent it out too long you could lose a key U.S. capital gains tax break. You'll probably want to take a look at whether it makes better sense to sell your U.S. property/properties. It often does, at least if you're going to stay overseas for a reasonable period of time.


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## Bevdeforges

Um, no - your understanding is not quite correct.

First of all, as a US citizen, you will always have to file a US tax return, declaring your worldwide income. There is the Foreign Earned Income Exclusion (FEIE) which allows you to exclude up to about $96K per year of earned income (basically salary and salary-like income) while working abroad.

Past that, your primary tax obligation is normally to the country in which you are considered "tax resident." The US, however, still wants you to report everything and figure out the taxes on it according to their rules. You then can take a tax credit for income taxes only that you have paid to your country of residence on the income that is generating the taxes.

For details on how this all works, you can download IRS publication 54 from the IRS website.

I don't know how income taxes work in Spain - perhaps someone can wander by here with information on this. But the two items on your list that are the most likely to complicate things for you are your US Social Security and your Internet company.

US Social Security is normally taxed by the US according to their rules. (I.e. depends on your other income plus your filing status.) However, you should check to see if there are any "peculiarities" in the Social Security treaty between the US and Spain. Some countries have particular clauses in their treaties that may work either in your favor or not.

If you are physically resident in Spain while earning money from your US based business, you will probably be able to make use of the FEIE to exclude that income from US taxation. However, at the same time, that often means that you have to establish some sort of Spanish business entity (a branch, a company, etc.) in order to meet the Spanish requirements for taxes and social insurances - because if you are doing work for which you are being paid while you are considered resident in a county, you are usually considered to be working in that country. Spain (and most other countries) have their own rules about how a small business or "self employment" business is taxed.

You should pose the visa question over in the Spanish section of the forum. They may also have more information about the Spanish side of setting up your business.
Cheers,
Bev


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## BrunellaSheen

> ...If you are physically resident in Spain while earning money from your US based business, you will probably be able to make use of the FEIE to exclude that income from US taxation. However, at the same time, that often means that you have to establish some sort of Spanish business entity (a branch, a company, etc.) in order to meet the Spanish requirements for taxes and social insurances - because if you are doing work for which you are being paid while you are considered resident in a county, you are usually considered to be working in that country. Spain (and most other countries) have their own rules about how a small business or "self employment" business is taxed.
> 
> You should pose the visa question over in the Spanish section of the forum. They may also have more information about the Spanish side of setting up your business.
> Cheers,
> Bev


Bev, thank you for the comprehensive response, I suspected the process would be complicated, now it's confirmed. I did post this question on the Spanish section of the forum as well, there just aren't that many American expats over there to poll, unfortunately. I did, however, get a great suggestion from a moderator over there to look into securing the services of a gestor in Spain (loosely translated as one well-versed in the bureaucracy of the country) who could probably help a great deal.

Any sites you are aware of to help me along would be great too!

Thanks again.

Bru.


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## BrunellaSheen

BBCWatcher said:


> Wow, lots of questions, Bru.
> 
> ... I think I would avoid establishing any business presence in Spain and keep your U.S. business a U.S. business, if possible.


Thanks BBCWatcher, I am reviewing the treaty and SS pages now - very useful sites, thank you. Just wondering why you feel it would be better to keep the business in the US, are the rules difficult in Spain, or ...?

-- Bru


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