# Does Spain Tax Retirement Assets (e.g. IRAs, etc.) of USA Citizens?



## RonBo (Apr 19, 2021)

Hello Folks,

I'm a US citizen who's seriously thinking of retiring in Spain.

I've been trying to figure out how I would be taxed by Spain and I'm having a heck of a time finding a good answer. I know if you live in Spain for 183 days or more you'll become a tax resident, but does Spain tax US retirement assets such as IRA $, etc? People on the Internet are saying both yes and no and I don't know who's correct. Even lawyers in Spain are providing different answers on their websites/videos. Does anyone have actual experience in this area, please?

I'm very worried because Spain's tax rates are significantly higher than the US (something which I thought was impossible). If Spain is going to tax my retirement assets at such a rate, then I'll wind up kissing 50% of my assets goodbye. Which leads me to the question of why would I move to Spain given that scenario?

Thank you,
Ron


----------



## kaipa (Aug 3, 2013)

One of the major problems moving from one country to another is tax. Many people wrongly assume that one is being greedy asking about tax and ways to lessen it or avoid paying. However, the problem is that while it might appear that Spain's tax system seems unfair it is only because many of us view it from a different framework. For Spanish people who have worked and saved they make long term financial planning based on what is best in the Spanish system. For foreigners who perhaps have worked and saved according to their system then it could mean quite a mismatch resulting in much higher taxes on assets they wouldn't have incurred in their country. My feeling is that it is probably not worth effectively giving money away to another's tax system if you haven't really been benefiting from it for many years. It is probably better to remain a non-resident and make do with 90 day visits which for most people is sufficient to enjoy a country. Becoming a resident but not really integrating seems daft to me and shallow. Better to be who you are in terms of cultural identity and learn to enjoy both your own country and another. Stay in US, use the money you save on tax to visit and explore Spain is my advice


----------



## Joppa (Sep 7, 2009)

Agree with Kaipa. What is tax-efficient in one country is hardly ever valid in another country or jurisdiction, and there is a danger of paying a lot more in tax once you become tax resident. I don't know the specifics about US taxation, but just comparing UK tax with Spanish, tax-free wrapper investment like ISA in UK is fully taxable at one's marginal rate of tax in Spain. From 0% to 20% is bad enough, but 0% to 50% is crippling. Also in UK you can take 25% of your private/corporate pension as tax-free lump sum, but in Spain it's fully taxed. One way to get around it is to cash in before you become Spanish resident. Those who have spent most of their working life in Spain will have a tax-efficient mode of retirement investment and finance, which is hardly ever the case for someone who has worked mostly overseas and now retiring in Spain. I suggest you get a review of your finances with Spanish-based accountant, as variation in personal situations can make a big difference.


----------



## tobyo (Jul 16, 2011)

RonBo said:


> Hello Folks,
> 
> I'm a US citizen who's seriously thinking of retiring in Spain.
> 
> ...


Totally agree!! So many conflicting answers.

There is something I discovered whilst trying to figure this out for myself: Foreign Tax Credit.

I have only scratched the surface on this topic and have not read the information at the link I provided in depth. I also have no clue what the Spanish income tax return even looks like. This would be a deal breaker for me. I was hoping to save some money on cost of living items that are cheaper in Spain but if I'm going to be taxed up the ying yang for living in Spain, uh.....probably not happening!

So, yes, I am considering a 90 day stay myself. The Visa application and tax situation might just be too complicated for me.


----------



## tomwins (Dec 27, 2014)

Thank you for asking the question. I have been asking the same question for a few months now. Getting a clear answer seems impossible which I find odd. Hasn't someone moved to Spain from the US and had to pay taxes? Where did you pay them? What did you pay to each? These seem like clear questions but no one seems to be willing to answer.
You did get some replies that were more about HOW and the USEFULNESS of taxes in Spain vs the US. To that issue I'll say I don't mind paying taxes in Spain as the benefit I'll get will justify the amount. In the US the benefit is less clear especially since the role of government in the US is under attack and many agencies that still exist have been turned into tools of corporations rather than having any mission toward providing services aimed at protecting the well-being of the people.
Here is what I have found that may be useful: https://www.irs.gov/pub/irs-trty/spain.pdf 
It is the tax treaty between Spain and the US. 
Let me warn you that most of this document addresses corporations and those still working. So don't get lost in trying to understand it all as only a small amount applies to retirement benefits.
Look on page 17 where I found what I was most interested in. Since my main source of income is from a government pension, it says that these are only taxable in the country in which they're being paid. This makes sense as my pension is coming from a US body, the US should get the taxes from it. The same is true with Social Security Income (also on page 17). 
From my reading, I suspect the same is true for Traditional IRA distributions and Required Minimum Distributions.
Where I still have questions is regarding taxes on my ROTH IRA if I decide to get a distribution from it.
What I don't know (and haven't deciphered yet) is what about earning from my brokerage account. 
I also have a house in Mexico that I want to sell. If I am a tax resident of Spain when the sell goes through will I be taxed in Spain?
Those are my specific questions and what I have been able to discover based on my situation. 
I hope it has helped you some. If you discover a good resource, please share with the rest of us.


----------



## Jamglish (Mar 15, 2014)

tomwins said:


> Thank you for asking the question. I have been asking the same question for a few months now. Getting a clear answer seems impossible which I find odd. Hasn't someone moved to Spain from the US and had to pay taxes? Where did you pay them? What did you pay to each? These seem like clear questions but no one seems to be willing to answer.
> You did get some replies that were more about HOW and the USEFULNESS of taxes in Spain vs the US. To that issue I'll say I don't mind paying taxes in Spain as the benefit I'll get will justify the amount. In the US the benefit is less clear especially since the role of government in the US is under attack and many agencies that still exist have been turned into tools of corporations rather than having any mission toward providing services aimed at protecting the well-being of the people.
> Here is what I have found that may be useful: https://www.irs.gov/pub/irs-trty/spain.pdf
> It is the tax treaty between Spain and the US.
> ...


----------



## Jamglish (Mar 15, 2014)

I am a US citizen and I have just finished filing taxes in Spain for the first time. It is complicated, and for the US filing I am using a specialized tax service that deals only with US expats. For the Spanish taxes I am using our local assesor. Spain, like the US, wants to tax worldwide income, and this includes pensions (social security in my case), distributions from 401k and similar retirement funds, and any work done in US or Spain for which there is a tax document issued, such as a W-2 or 1099. Spain also needs a statement (modelo 720) on worldwide assets, including pension funds, property and investment accounts. This is a one time statement unless the assets are large enough or increase sufficiently over time (not my case), and so this did not trigger any taxes for me as I am below the threshold wealth.

There is a tax treaty between US and Spain, and so any taxes paid in Spain that bring the total taxes paid in both countries above the total required in the US will be filed as a foreign tax credit and refunded in the US, assuming that Spanish taxes are higher than in the US. As Spanish taxes are due in June, this means one has to apply for an extension to October before filing the US tax return. 

I am not an expert on taxes, but once the dust settles on this first foray I will update my experience. On a personal note, Spanish income taxes are higher than equivalent in the US, but I am happy to pay them as this is now where I live and I enjoy the services provided by the tax, such as good infrastructure etc. And if one includes the cost of US medical insurance and OTC and prescription drugs, then the total in Spain, including good medical insurance and healthcare, is lower than in the US. I doubt that I will ever live again in the US, but will visit of course.


----------



## tobyo (Jul 16, 2011)

Jamglish said:


> I am a US citizen and I have just finished filing taxes in Spain for the first time. It is complicated, and for the US filing I am using a specialized tax service that deals only with US expats. For the Spanish taxes I am using our local assesor. Spain, like the US, wants to tax worldwide income, and this includes pensions (social security in my case), distributions from 401k and similar retirement funds, and any work done in US or Spain for which there is a tax document issued, such as a W-2 or 1099. Spain also needs a statement (modelo 720) on worldwide assets, including pension funds, property and investment accounts. This is a one time statement unless the assets are large enough or increase sufficiently over time (not my case), and so this did not trigger any taxes for me as I am below the threshold wealth.
> 
> There is a tax treaty between US and Spain, and so any taxes paid in Spain that bring the total taxes paid in both countries above the total required in the US will be filed as a foreign tax credit and refunded in the US, assuming that Spanish taxes are higher than in the US. As Spanish taxes are due in June, this means one has to apply for an extension to October before filing the US tax return.
> 
> I am not an expert on taxes, but once the dust settles on this first foray I will update my experience. On a personal note, Spanish income taxes are higher than equivalent in the US, but I am happy to pay them as this is now where I live and I enjoy the services provided by the tax, such as good infrastructure etc. And if one includes the cost of US medical insurance and OTC and prescription drugs, then the total in Spain, including good medical insurance and healthcare, is lower than in the US. I doubt that I will ever live again in the US, but will visit of course.


Thank you for this!! How did you find the tax service for your U.S. return? I have used a software called TaxHawk for several years and I'm thinking it would be able to produce a return for me once we're in Spain (if we go). But I'm curious how you found the tax service that you used.

And, how does one figure out how to file a return in Spain?? I find all kinds of general information when I google but it's all SO confusing!!

any help or advice is appreciated.


----------



## Jamglish (Mar 15, 2014)

tobyo said:


> Thank you for this!! How did you find the tax service for your U.S. return? I have used a software called TaxHawk for several years and I'm thinking it would be able to produce a return for me once we're in Spain (if we go). But I'm curious how you found the tax service that you used.
> 
> And, how does one figure out how to file a return in Spain?? I find all kinds of general information when I google but it's all SO confusing!!
> 
> any help or advice is appreciated.





tobyo said:


> Thank you for this!! How did you find the tax service for your U.S. return? I have used a software called TaxHawk for several years and I'm thinking it would be able to produce a return for me once we're in Spain (if we go). But I'm curious how you found the tax service that you used.
> 
> And, how does one figure out how to file a return in Spain?? I find all kinds of general information when I google but it's all SO confusing!!
> 
> any help or advice is appreciated.


Yes, the whole tax thing in Spain and US is very confusing, and I am still working my way through the maze. The Spanish tax system is different than in the US. Up until now, I always did my US taxes myself using one of the standard online US tax services, such as Taxact or Turbotax, and they did the job while I was living in countries that didnt want to also take a bite of any worldwide income I made. I just filed the foreign tax exemption on my US taxes. However, living in Spain now, one has to give both countries their bite. This year I consulted with an expat tax advisor on Zoom, but she wanted about $1200 to file the US taxes and the required FBAR (Foreign Bank Account Report) required by the US (so they know about my immense wealth stashed in regular bank accounts all around the world!). You have to file an FBAR if you had more than $10k total in all foreign banks at any time of the year. I unfortunately barely qualified this tax year, and so next tax year will make sure that I dont exceed the $10k limit, and wont have to file another FBAR. The fee required by the above tax preparer seemed excessive, so I ended up trying a tax service recommended by International Living, called Bright!tax. They charge $450, and you upload your documents after first having filed Spanish taxes. They automatically apply for the US extension to October, giving you the time required to file in Spain first. In Spain, I used our local tax preparer and assesoria. She has handled most of the various actions required to buy a property in Spain and deal with the bureaucracy. For the taxes, I gave her the required income information and she generated the tax return and submitted it, with the taxes taken from our bank account on the due date. This year I split the taxes into two payments, 60% and 40%, due at the end of June and November, at no extra charge. For handling the Spanish taxes (form Modelo 100), she charged 70 euros, and I think it is well worth it. I wouldnt know how to do it myself. Now, I am waiting to see how Bright!tax does with the US taxes. I think I should get a refund from the IRS of some of the total taxes paid to both countries, but I will find out in due course. If they do a good job and, looking at the tax return for 2020, it looks easy enough, next year I will see if I can do it myself and save that filing fee.


----------



## tobyo (Jul 16, 2011)

Jamglish said:


> Yes, the whole tax thing in Spain and US is very confusing, and I am still working my way through the maze. The Spanish tax system is different than in the US. Up until now, I always did my US taxes myself using one of the standard online US tax services, such as Taxact or Turbotax, and they did the job while I was living in countries that didnt want to also take a bite of any worldwide income I made. I just filed the foreign tax exemption on my US taxes. However, living in Spain now, one has to give both countries their bite. This year I consulted with an expat tax advisor on Zoom, but she wanted about $1200 to file the US taxes and the required FBAR (Foreign Bank Account Report) required by the US (so they know about my immense wealth stashed in regular bank accounts all around the world!). You have to file an FBAR if you had more than $10k total in all foreign banks at any time of the year. I unfortunately barely qualified this tax year, and so next tax year will make sure that I dont exceed the $10k limit, and wont have to file another FBAR. The fee required by the above tax preparer seemed excessive, so I ended up trying a tax service recommended by International Living, called Bright!tax. They charge $450, and you upload your documents after first having filed Spanish taxes. They automatically apply for the US extension to October, giving you the time required to file in Spain first. In Spain, I used our local tax preparer and assesoria. She has handled most of the various actions required to buy a property in Spain and deal with the bureaucracy. For the taxes, I gave her the required income information and she generated the tax return and submitted it, with the taxes taken from our bank account on the due date. This year I split the taxes into two payments, 60% and 40%, due at the end of June and November, at no extra charge. For handling the Spanish taxes (form Modelo 100), she charged 70 euros, and I think it is well worth it. I wouldnt know how to do it myself. Now, I am waiting to see how Bright!tax does with the US taxes. I think I should get a refund from the IRS of some of the total taxes paid to both countries, but I will find out in due course. If they do a good job and, looking at the tax return for 2020, it looks easy enough, next year I will see if I can do it myself and save that filing fee.


thanks for all that info!! much appreciated. I'd love to hear the rest of the first tax filing so I hope you'll come back and fill me in!


----------

