The right advice
Getting the right financial advice as an expat in Spain is so very important. Over the coming months we will be publishing articles by David Rogers of Black Tower Financial Management. In my view David is the person to speak to when seeking advice in finance related matters.
The Spanish Advantage (Investments)
There are a substantial number of Expats living in Spain that may not be aware of certain advantages open to them purely as a result of the fact that they live here.
For example did you know that you can be protected from the European Savings Directives rules on Withholding Tax, which is a tax levied on growth from savings or investments?
To avoid this you need to take advantage of the favorable way in which Spain looks at investments. In this regard it is possible for a person who lives in Spain to open what are known as Spanish Compliant Portfolio Accounts (SCPA). A SCPA is an extremely tax efficient vehicles for holding invested funds and cash.
For example: If you held funds on deposit in the general banking system or you have funds invested in non-complaint products, under the European Savings Directive, any growth obtained is subject to withholding tax.
The current rate of withholding tax is 19%. (This is tax law and is always charged on growth, although not readily explained by the banking system or many off-shore providers.
What does that mean? Well as an example if you had €100,000 either on deposit or in certain non-compliant off-shore structures and that grew to €110,000 then there would be a 19% tax charge applied to the growth element only (€10,000).
This would result in withholding tax charge of €1900. This applies no matter whether you touch the original amount or the growth element. In other words tax on the growth is unavoidable.
Unless you take advantage of a Spanish Compliant Portfolio Account, in which case, the tax treatment is far more favorable.
In this case if the €100,000 had grown to €110,000 and the policy owner decided NOT to touch the investment at all, then there would be NO tax to pay. This is known as tax free role up, because the policy owner can now get growth on the tax that they would have paid if the had been in the banking system or in non-complaint off-shore structures.
Furthermore, should the policy owner wish to drawdown from the policy a Spanish Compliant Portfolio Account also provides an extremely favorable tax position for the policy holder.
In this case for example, if the client wished to take the whole growth (€10,000) then this would be treated as follows:
Of the €10,000 withdrawn, €9,000 would be treated as Return of Capital, and be exempt from tax (zero tax to pay) and the remaining €1,000 would be taxed as investment income which is levied at 21%. So in the case it is possible for the policy holder to get hold of €10,000 with all taxes paid for only €210 or 2.1% in tax. Or put another way he would have saved €1,690 in tax charges alone.
There is not a more favorable (legal) way of dealing with invested funds and as such this should be, at least, considered as an option for anyone living in Spain or anyone that has funds invested in either the banking system or in non-complaint investment portfolios.
In this regard many Expats have been sold and/or invested in non-complaint products so if you have funds invested its worth establishing of they are Spanish Compliant.
If you want to know more, or want to establish whether you are in non-compliant products please contact me on 0034 952 816 443 or 0034 622 345 558 or email me at david.rogers@blacktowerfm.com
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