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Spain does not tax stock market profits
Spain does not tax profits made by an EU non-resident investor in the Spanish stock market. These profits from sale and income from interest on bonds are now considered as not arising in Spain. Dividends, however, remain taxable, when paid by Spanish companies.
But even dividends are free of Spanish tax when the EU investor puts his money into a foreign company that is quoted on the Spanish stock-market, and there are many.
This freedom applies only to individuals, not companies, who are resident in other EU countries. It supposes that the nonresident investor is paying his taxes in the country where he resides.
You may also find new investment opportunities open up for you as a non-resident of your home country, such as certain British government stocks that are not taxed at source when the holder is a non-resident.
Expats find new hazards as well as new opportunities, however. If you are tempted to invest your pension capital in offshore funds that promise rapid growth, be warned that the “Independent Financial Advisor” is completely unregulated in Spain.
Investments in the Spanish stock market are controlled by the Commission Nacional del Mercado de Valores, a board that oversees the stock market. Insurance investment products are regulated by the national insurance board.
The offshore funds, however, manage to fall outside the control of these bodies, Many of the funds provide good returns but the investor should be warned that he has no comeback if things go wrong.
Investing in property
You can do what thousands of Europeans have done and invest in real estate, especially on the Spanish coastline. This can take the form of buying large tracts of undeveloped land and waiting for the price to go up.
Or perhaps you want to develop it yourself and create your own urbanization. You might chance across one of the last empty building lots in a town by the sea and put up your own apartment block. The Spanish real estate market is booming in the new millennium.
Perhaps you want to purchase a few apartments and make some income by letting them to holiday-makers while you wait for them to increase in value in today’s rising property market. With stocks and shares down, rental property begins to seem like an attractive alternative even though it involves much more administrative work.
You will be allowed, as a non-resident, to take out of Spain the rents you receive for your property. Of course, you have to pay Spanish tax on this income arising in Spain. Legally, 25 per cent should be declared on form 210 and paid to Hacienda before you are allowed to take the rest out of Spain.
If you rent regularly to tourists on a short-term basis, providing linens and cleaning services to holiday-makers, you must also charge IVA, or value added tax, at 16 per cent, and register your business as tourist letting.
Your accountant or property consultant or management company can steer you right on these taxes. You also get to make a number of deductions for property maintenance on your income tax that are not available to home-owners who inhabit their property.
Now that you are a rather international sort of person, you may find that offshore banking and investment have advantages. There are perfectly legal ways to increase your income and avoid certain taxes by keeping your assets in investments located in tax havens such as the Channel Islands or Gibraltar.
There is a big push in Gibraltar to offer banking services and the formation of “offshore” companies that are non-resident in Spain. These companies are legally empowered to own property in Spain. They offer the advantages of secrecy and the legal avoidance of some Spanish transfer taxes, because when the time comes to sell, one does not sell the property, but only the company. Hence, no transfer has taken place in Spain, as the same company continues to own the property.
This system can also avoid Spanish - or any other - death duties and can be useful where property is bequeathed to a non-relative (see chapter on “Making A Will” and “You and Your Taxes” for more information on off-shore companies and their taxation.)
“Avoiding” taxes, by the way, does not mean “evading” taxes. To evade a tax that you are legally liable to pay is a crime. But to take advantage of your change of residency in order to avoid taxes is only sensible.
In any case, you must look into the possibility of an offshore company before you purchase property. And remember, the formation of the company also incurs expenses. Such offshore ownership is not for everyone. You’ll need expert advice to determine what’s best for you.
For example, British emigrants should establish both residency and legal domicile (two different things) in Spain before they sell up their business in Great Britain. They can often, though not always, avoid British capital gains tax this way There are similar advantages for those of other nationalities, but you need to take expert counsel.
This book cannot replace an individual investment adviser who studies your particular circumstances and plans the wisest course for you. Each person’s situation and needs are different, requiring different strategies. The formation of a family trust or corporation based in Andorra or another tax haven, which would own all your property and pay you an income, might be best for some people. Such a family corporation has great advantages in tax reduction and also attracts no death duties.
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