Life and Taxes: residence and financial considerations

I wrote this in response to a couple folks asking us about our experience moving to Barcelona. It's a complicated process, but the main challenges are getting a residence permit and paying taxes. TL;DR: engage an attorney or firm for both, preferably a local who's in the city you want to move to.

Residence

A tourist visa allows stays up to 90 days, for longer than that you need a residence permit. EU citizens have the right to live in any member country. The next easiest way to gain residence is to have EU ancestry; some countries allow third-generation relatives to get a local passport. 

Irene got her residence due to her UK citizenship before Brexit closed that avenue. Spain has a variety of visas including: non-lucrative (non-working), entrepreneur, and the investor visa (a.k.a. "golden visa") that I used. The golden visa requires investment, including in one or more properties, with a minimum value of 500,000€. Since we'd been seriously considering moving to Barcelona for years, we saved up and I bought an apartment that met this threshold, in my name only.

I engaged a colleague of a real estate firm to take me to places that met our criteria, and engaged a Barcelona property lawyer for the purchase. I wouldn't do it without professional help.

After some false starts, we got a referral to an excellent immigration lawyer in Barcelona who was able to secure my golden visa surprisingly quickly: the government is required to render a decision within 10 days of the application.

There are a quite a few documents you have to provide that prolong the application process. The longest is getting a certificate of clear criminal record from the FBI, and then getting that apostilled by the Department of State. You will also need to purchase Spanish private health insurance; ours is about $1000/year/person with zero deductible, zero co-pay; perhaps best of all, there's also no paperwork for visits.

If you apply from the US, through the Spanish Embassy/Consulate, the residence permit is good for one year; I applied from Spain which gives my permit a two year duration.  The permit can be renewed, and after five years, can be converted to a permanent residence permit.

Several European countries have golden visa programs, but some are shutting down. Ireland and Portugal terminated theirs, and Spain has announced it will cancel its program but it's not clear when.

Taxes

We were not quite ready to move right after buying the apartment, so we rented it out with the aid of our real estate lawyer's firm. This required us to pay taxes on the income, reasonable enough. We also have to pay "Impuesto sobre Bienes Inmuebles" (IBI), a property tax, every year; also, not a big surprise.

We have now been living here for over 183 days, so have become tax residents. There is a tax treaty between Spain and the US which avoids most "double taxation" but it's complicated.  Our immigration attorney recommended a tax law firm, and we wouldn't attempt filing without them. The tax deadline in Spain is after the US April 15 deadline, but you can get an automatic 2 month extension. File your taxes in Spain, then get your Spanish tax person to send those documents to your US CPA to file in the US. The US should credit you for taxes paid to Spain; Spain's tax rates are generally higher than the US, so it's likely there won't be any US taxes due,  but there will probably be state taxes. You have to file in the US, every year, for the rest of your life, and incur the related expenses. Our tax lawyer had us ask our CPA to do a draft of the US taxes, which she then used to fill in the Spanish forms, and we then sent a summary of those to our CPA for final filing by the US deadline of June 15.

Spain requires filing Modelo 100 "Declaración de la Renta" (Personal Income Tax), Modelo 714 "Impuesto sobre el Patrimonio" (Wealth Tax), and Model 720 "Declaración informativa sobre bienes y derechos situados en el extranjero" (declaration of all assets outside of Spain). These are all filed on an individual basis, not jointly.  The M-100 income tax isn't surprising.  The M-720 is unexpected: you have to declare all your assets: bank account balances, retirement funds, real estate, car, etc, etc; this is purely informational, but if you fail to file, there are huge penalties. This real estate site claims the EU struck down Spain's M-720, but I had to file for 2023. The M-714 wealth tax was the most surprising and painful for us: we are taxed on the value of the house we still own in the US, and all our US account balances -- including all the funds we've accumulated over the years to retire on; this is totally separate from taking payments from requirement accounts, which is filed as the income tax. Our retirement savings are not tax deferred like they are in the US. The wealth tax is on a progressive scale and there are some complex exemptions and limits but this unexpected yearly expense is something we need to budget for.  Our tax attorney should be able to help us plan.

Each of Spain's autonomous regions has a different wealth tax scale, but Madrid and Andalucia gave full credit for the national wealth tax. Spain then instituted a "solidarity tax" to force these regions to collect what is basically the same amount, but they then set a 3M€ minimum threshold. This cat-n-mouse seems to be ongoing but may persuade you to chose one region over another.  I'm OK paying taxes here: we get great services, transit, healthcare, and other quality-of-life benefits; we just didn't know about it until we were committed to living here so had not budgeted for it.

Financial Planning, Investments

The complexity of Spanish vs US taxes showed we needed help with financial planning. What's not taxable in the US may be taxed by Spain. For example, if you sell your house in the US, you can deduct the "cost basis" from the sale price and only pay tax on the capital gains; in Spain, there is no such deduction so when we sell our US house, we'll be liable for Spanish taxes on the entire sales price -- ouch! You might consider selling your US house before moving.

The US has imposed onerous reporting requirements on US financial institutions, as well as on foreign institutions. The former has resulted in many US institutions summarily closing the accounts of the clients who move overseas. Vanguard terminated our decades-long relation with their financial planner when we changed our address to Barcelona, but allowed us to keep the accounts; it's unclear whether we could have created new accounts there subsequently. US requirements on foreign institutions are allegedly to avoid money laundering but they impact even small timers like ourselves: many banks don't want to deal with US clients. Others, however, are courting expat clients, so that shouldn't be a problem.

Initially, we changed our address to my parents' US address but that's not really legitimate and they'll likely close your account if they find out. It helps to have a friend or relative to forward mail through, at least for a while. We both had Google Voice numbers and changed various website login verification phones to those, or email if they allowed; unfortunately, you cannot forward your Voice number to a non-US phone number, but you can receive calls and texts with the app; some sites (e.g., PayPal) won't accept VOIP numbers. There were numerous organizations we forgot about and it was a chore to recover accounts, including our state and county tax websites.

There are lots of organizations whose business is to help folks move overseas, and I've sat in on quite a few eye-opening free presentations.  The folks behind Spain Revealed (based in Madrid) have some free guides and a paid class on moving to Spain, as well as recommended immigration and financial partners. Other firms publish guides and blog posts, and I found Walkner Condon's international team's blog and podcasts to be very helpful (based in Wisconsin). We've met with the folks behind both IAM Advisors (San Francisco) and EuroAmerican Financial Advisors (Sevilla) who have also offered webinars, and sometimes organize seminars advertised in Barcelona Metropolitan. After interviewing both and comparing fee structures we made a choice to go with one of them, but you'll have to make your own decision.

After consultation with them, we moved our assets from Vanguard to Schwab International, which is one of a tiny handful of financial institutions that accept US citizens living abroad.  However, expats cannot buy ETF and other diversified funds as individuals like we could when we lived in the US; instead, we buy through our financial advisors who are partners with Schwab. They (and others) also advised keeping our assets in the US, since the US stock market is huge, competitive, and files the right paperwork with the IRS.  Purchasing the European equivalents of some assets can incur "punitive" taxes and incredibly burdensome reporting requirements. 

We've been using the multi-currency "neobank" Wise (formerly TransferWise) to transfer dollars from our US accounts, convert to euros, then transfer to our Spanish bank to pay bills, taxes, and daily expenses. The app is good, and you can get a debit card to pay for purchases.  While I think Wise is fine for general USD, EUR, and GBP spending, in Spain bills are direct debited and the government scoops out taxes you owe on the payment dates -- so I think you pretty much have to maintain a Spanish bank account. Unlike conventional banks, Wise has actual daily market rates and low conversion fees they publish at tranfer time. If you use this Wise referral link, you'll get your first transfer free, up to £500. I've also opened an account at competitor Revolut but had to have separate country-based accounts so I don't use them. A friend recently moved to France and "used Lumon because they locked in the best exchange rate".

The US requires citizens to pay taxes regardless of where they live. You may be able to avoid paying US State taxes by becoming a resident of one of the nine states that have no income tax before moving abroad. This may not be easy; states including Virginia are considered "sticky".

Other Considerations

We've been visiting Barcelona for about 15 years, after being invited by a friend from a Catalan family; each time we came, we liked it better than the last. After a while we decided to spend an entire month here and see if we'd like it as pseudo-residents, instead of as tourists, using grocery and hardware stores, transit, etc. That was our gateway drug to looking for an apartment.

By that time we had a sense of the city and its various neighborhoods, both likes and dislikes. When it came time to purchase, we could narrow down our choices.  For example, we realized we didn't want to be in the most tourist-heavy areas of the Ciutat Vella (the old town), and that we wanted to be close to one of the excellent municipal food markets. 

We'd never really considered other countries seriously, and had not visited other Spanish cities. We recently visited Vic, Girona, and Valencia  and I think we could be very happy living in Valencia.  Valencia is Spain's 3rd largest city, it's on the Med, has lots of parks and bike lanes, and a vivid food culture; it does get its share of tourists but it didn't feel so overwhelmed as Barcelona's medieval areas. Valencia also didn't seem to be affected by the multi-year drought that has caused Barcelona to shut down its fountains and beach showers.

We'd strongly advise coming up with a list of candidate countries and cities, and staying for a month. Or rent, before you commit to buying, but that doesn't help with getting a golden visa.

When I bought our flat, there was a hefty 20% tax; I believe selling incurs a 10% tax. So changing apartments gets really expensive. Other cities/countries may have different rates. 

The move itself was complicated. We interviewed a few international moving companies and got quotes, chose one, and selected a pack-up date with them. We had to downsize from our 3000 square foot custom house to a 900 square foot apartment and spent the intervening months giving 2/3rds of our things away, which sounds easier than it was. The moving contract included a basic insurance, but we separately insured a couple pieces of art and paid extra for them to be crated. The transit took about 3 months. We slept on a blow-up bed in a big empty house before we left; our Barcelona apartment came furnished. The US company partnered with a local company in Barcelona for final delivery. To avoid taxes on the import of our goods, we had to show that we had not been living in Spain, which involved a visit to the Barcelona city hall and US Consulate and getting forms notarized for the mover.  We had to complete our paperwork and be ready to receive the shipment, or we'd incur demurrage (storage) fees. We made sure that our contract specified delivery to our apartment so the moving company would clear customs, get permission to block the street, take away the packing materials, etc. Surprisingly, the two crated artworks were the only things that arrived damaged, and we had to go through a lengthy process to document value and get reimbursed. Don't pack your super-precious things: we got a direct flight to minimize chances of lost luggage and put important things in our suitcases, with our most critical legal and tax documents in our carry-on bags.

We moved to go someplace new, not escape the US.  If you're moving to avoid US politics and only plan to stay a few years, it may be difficult. You'd become an expat tax resident, then change back.

After six months here, our US driving licenses are invalid. We've just gotten (provisional) licenses after four theory classes and an exam, then many road classes and an exam; I didn't pass my first time! The out of pocket was about 1000€ for each of us, and has taken almost six months. Or friend who moved to France was able to exchange her Virginia license with no hassle, what a relief!

Take language classes. We signed up for state-run summer classes last year which were quite good, but couldn't get into the subsequent classes because they were overloaded. Now that we're done with driving classes, we're considering taking classes again, but travel will interfere with that. Some folks here have recommended online native tutors, which may give us more flexibility for travel.

Will you miss anything from or about the US? Besides our friends, I miss fireflies and haven't had a good crispy chicken wing since we've been here, but otherwise we're pretty comfortable with what we have and our quality of life.

Expat Insider just published their 2024 report; interestingly it claims Spain has the best quality of life, for the third year in a row. Perhaps they have guides to residency, taxation, etc. You can find lots of opinions and firms on Facebook (search "expat") but the signal-to-noise ratio is very low.