ex-pat flat 25% tax rate - other implications?

[libove]

I will probably be moving to Spain (Barcelona) in the near future. I am a US citizen with no prior residence in Spain.

I have read of a flat 25% expatriate tax rate which I may be able to select, instead of the usual graduated tax rates.

A simple analysis shows that income over ~50000 Euros/year benefits from the flat 25% tax, because the graduated tax rates climb rapidly at high income levels.

My question is, what are the other implications of selecting the "Expatriate" tax rate in Spain? Does this make the person ineligible for any benefits which they would otherwise enjoy, such as the Spanish social security medical system, social security pension system? Does this cause foreign governments and tax treaties to NOT exempt the person's Spanish taxes from double taxation in the "home" country (particularly the ever tax greedy imperial government of the United States)? Etc.

Thanks!
-Jay

[Bevdeforges]

I'm not familiar with Spain's tax laws (as I live "next door" in France) but I can assure you that any "expat tax" has no effect whatsoever on your US tax obligation.

I've heard of a couple other countries with "expat taxes" and usually there is some condition - such as a limit on how long you can claim this (say, 5 years) or being restricted to those on certain limited visas (which may, in turn, restrict access to national health or other plans).

For information about the US side of the equation, get a copy of Publication 54 from the IRS (available on the IRS website).
Cheers,
Bev

[libove]

Thank you Bev.

Here is the English Language guide from AEAT.es which mentions (at the bottom left of Page 17, under the title "Optional Regimes - A - Impatriates (Workers displaced to Spain)" the option to elect a flat tax that I mentioned:

(I am too new to the expatforum for it to allow me to post a URL, so, with apologies...) web site www dot aeat dot es under /Lenguas%20Extranjeras/Ingles/Contenidos_Comunes/La_Agencia_Tributaria/Segmentos_Usuarios/Ciudadanos/Tributacion_de_no_residentes/Folletos_divulgativos/manrentanoreside_eng.pdf

The non-resident tax rate appears to have dropped from 25% to 24% (same web page document, page 13 lower right corner, under title C. "Taxation of the most common types of income obtained by nonresidents from sources other than permanent establishments" "Wages and salaries".

Yes, it has a 5 year limit, is only available to nonresidents who have not been resident in Spain within the previous ten years, and it does say "can opt to be taxed according to nonresident income tax rules, without loosing their status as Income Tax Taxpayers". The problem is, that same page, in the upper right hand corner, specifically says "One fundamental characteristic of the taxpayers taking advantage of this option is that they may not qualify for the status of tax residents for purposes of the application of a Double taxation agreement, as they are subject to taxation in Spain exclusively for the income they receive from sources situated within Spain or from wealth situated on our territory.".

It is from this that my worry arises that electing this non-resident flat tax in Spain may affect the US IRS' acknowledgement of the wages earned in Spain as foreign and exempt from US taxation up to approximately US$87000/year plus exempt from double taxation.

I have read, in excruciating detail (is there any other kind when dealing with taxation? :-} ), US IRS Publication 54, as well as forms 2555 and 1116. I find nothing in those publications and forms to suggest that election of the non-resident tax rate in Spain should cause the US IRS to consider me a non-resident of Spain, and so I assume and hope that you are correct, Bev.

I would like to hear from someone who is doing this already and who has received the advice of a tax attorney to be sure on the US side.

Plus I still am uncertain what other Spanish tax implications this election might have. For example, the English language document I linked above from the AEAT site does specifically say on the same page that "The taxpayer opting to pay taxes according to nonresident income rules will be likewise subject to Wealth Tax as a nonresident.". (I posted a separate question to better understand the Wealth Tax). So I wonder, what else other than the Wealth Tax rate is also affected by the inpatriate's election of the non-resident flat tax rate in Spain?

Many thanks to all.
-Jay

[Bevdeforges]

Wow, I'm impressed! The French government doesn't offer any information on the tax system in any language other than in French. That's quite a nice little booklet available on the website.

Obviously, we need to find you someone who has made use of this part of the tax laws to find out the "gotchas." But I see nothing there that jeopardizes your use of the US overseas earned income exemption. (Actually, that's not dependent on a tax treaty anyhow.)

If I read it correctly, you apply for that non-resident rate which covers only your salary income in Spain. For the rest of your worldwide income you wind up paying tax to the US anyhow, so you're all set. Double taxation problems avoided (at least up to the US exemption limit).

You may want to check the website for the IRS office in Paris U.S.Embassy In Paris/Internal Revenue Service which covers Spain. Oddly enough, I've found the IRS people in Paris to be genuinely helpful, and they might be able to clear up your questions quicker than any one else. (At least on the US side of things.)
Cheers,
Bev

[libove]

Great idea, thanks Bev. I have just sent a fax to the IRS post at the US Embassy in Paris. I will post back with their answer!
-Jay