That’s where we come in. Bright!Tax has helped thousands of clients in hundreds of countries worldwide file US taxes accurately, on time, and optimally. This includes finding all the ways you can be as tax-efficient as possible. One of those opportunities specific to the UK – American expats can withdraw up to 25% of their UK pension without being taxed by either country.

Taxing Pension Withdrawals in the UK vs. US

Before delving into the specifics of tax-free lump-sum pension withdrawals for American expats in the UK, let’s first examine how the UK and the US tax pension withdrawals.

How the UK Taxes Pension Distributions

Let’s dig into one of the biggest tax benefits the UK offers. The UK grants pensioners a one-time tax-free withdrawal of up to 25% on pensions, up to £1,073,100. This is known as Pension Commencement Lump Sum (PCLS). After this withdrawal, the pension administrator withholds taxes on the remaining pension at standard rates.

The UK tax authorities will then tax the remaining 75% at the standard personal income tax rate, which ranges from 20% to 45%, depending on your total annual income, upon distribution.

How the US Taxes Pension Distributions

US Taxes on Distributions From Domestic Pensions

In the US, the taxation of domestic pension (or retirement) income varies depending on its source:

• Traditional 401(k)s, traditional IRAs, pensions/annuity distributions, short-term capital gains, bond income, non-qualified dividends: Ordinary income rate (between 10% and 37%, depending on total annual income)
• Roth IRAs, Roth 401(k)s, qualified distributions: Tax-free, since contributions came from post-tax income
• Social Security: Up to 85% of the benefit is taxed at ordinary rates (between 10% and 37% depending on total annual income); the remaining 15% is tax-free
• Long-term capital gains, qualified dividends: Long-term capital gains rate (between 0% and 20%, depending on the total of gains realized)

US Taxes on Distributions From Foreign Pensions

As you likely already know, the US’s citizenship-based taxation system means that all American citizens and permanent residents are subject to federal income taxes, even if they live and work abroad — so by extension, pensions owned by US taxpayers that are based in other countries are still subject to US taxes.

The US does not consider most foreign pensions as qualified — meaning they don’t recognize the tax-deferred treatment of the pensions like the foreign country does. This means, by default:

• You pay tax on the income you contribute to pensions — so even if the foreign country doesn’t tax the income that you put into a pension account, the US will
• As your pension accumulates, you must pay taxes on any investment gains or earnings that contribute to the account’s growth.
• If you fail to report pension contributions and growth as income properly, the IRS will tax you on the distributions.

In such cases, the US taxes foreign pension distributions at ordinary income rates (between 10% and 37%, depending on annual income) unless they have a tax treaty with that country that specifies a different tax treatment.

Related: Taxes in the UK vs. US: The Full Breakdown

The Role of International Tax Treaties

So what exactly is a tax treaty, and why are they so important?

Again, Americans who live abroad may be subject to taxation by the US and the country where they reside. To eliminate or reduce the risk of double taxation, the US has signed a number of different international tax treaties.

These treaties often include several common elements, such as:

• Residency determination
• Permanent establishment criteria
• Treatment of certain types of income (e.g. wages, gifts, bonuses, capital gains, etc.)
• Withholding tax rates on dividends, interest, and royalties
• Procedures for dispute resolution/tie-breaker rules
• Savings clause

To claim the benefits of a treaty like this, you must meet particular requirements. The specifics vary from treaty to treaty, but generally, you must be a tax resident of both the US and the country in question.

Unfortunately, most of these treaties contain a savings clause. This states that the US government reserves the right to tax its tax residents as if the treaty didn’t exist. However, this doesn’t preclude you from claiming benefits under the treaty. The savings clause typically includes a list of exceptions to which it does not apply – in other words, provisions that survive and remain enforceable in a legal context.

The US-UK Tax Treaty

(Bear with us, we’re about to get technical.) 

The UK is one of the countries with which the US has a tax treaty. The treaty covers a wide variety of topics, but a few of the most noteworthy provisions include:

• Avoiding double taxation on certain types of income
• Income taxes & capital gains taxes between the two countries
• Measures designed to combat tax evasion

For the purpose of this article, however, we’re going to focus primarily on the US-UK pension tax treaty provision: Article 17. Two components of Article 17 are of particular interest to those with UK pensions:

• Article 17(1)(b) states that distributions from pensions based in one country are exempt from taxation in the other
• Article 17(2) states that lump-sum withdrawals are only taxed in the country in which the pension is based

While the US-UK tax treaty includes a savings clause that negates Article 17(2), Article 17(1)(b) is not affected. It is acknowledged that interpretations of these clauses can vary among professionals. Nonetheless, at Bright!Tax, we assert with confidence that because Article 17(1)(b) remains effective, we can rely on the reciprocity provision. This key provision mandates that any tax exemption granted by the UK government is to be mirrored by the US government.

In practical terms, this means that a lump-sum withdrawal from a UK-based pension, if it constitutes 25% or less of the total value, remains tax-free in both the UK and the US. This interpretation aligns with the savings clause’s directive for the US to honor UK’s tax-free treatments.

Our analysis of the treaty is both extensive and meticulous, grounding our position and ensuring that our clients fully leverage every exemption available to them. Further, we have actively validated this interpretation through consultations with numerous external financial and legal experts, confirming the exemption of such withdrawals from taxation in both jurisdictions.

Related: US Citizens Working in the UK: A Guide to UK Employment Tax

Practical Considerations of Lump-Sum Pension Withdrawals

Making a tax-free withdrawal of up to 25% from your UK pension can be a great way to minimize your tax liability and jump-start your retirement with a comfortable cushion of liquid assets. However, it may not necessarily be appropriate for every American expat living in the UK. Keep in mind that:

• The typical minimum age at which you can make a withdrawal is 55, but it may vary between plan administrators.
• Tax exemption applies to one-time lump sums only.
• Any withdrawal exceeding 25% of the pension’s total value will be subject to ordinary UK tax rates unless you hold certain lifetime allowance protections.
• You may not transfer funds from US-based pre-tax accounts such as traditional 401(k)s or traditional IRAs into a UK pension since that would result in you not paying taxes on that income at any point.

If you do decide to capitalize on the US-UK pension tax treaty provision — or claim other benefits of the overall US-UK tax treaty — you must file Form 8833 along with your federal tax return.

Speak With an Expat Tax Expert

Before making a big change to your tax or retirement strategy — including a lump-sum withdrawal from a UK-based pension — you should always consult with a tax professional. Bright!Tax’s team of dedicated expat tax experts can help you learn more about and claim this provision, as well as optimize your overall tax strategy.

Schedule a consultation today!

The post The US-UK Pension Tax Treaty Provision Expats Need to Know About appeared first on Bright!Tax Expat Tax Services.

When you consider tapas culture and the longstanding tradition of the afternoon siesta, it’s easy to see why many American tourists dream about buying a house in Spain. What may surprise some people, though, is that as popular as Spain is, it’s very possible to find an affordable and beautiful Spanish property to purchase and own in one’s own right.

In this article, we’ll cover what you need to know about purchasing property in Spain as a foreign buyer. You’ll notice similar considerations as we guide you through capital gains tax and property tax considerations, and introduce you to some key Spanish real estate terms. 

Finally, no conversation about investing in European real estate is complete without talking about the Golden Visa — which Spain does indeed offer. 

Let’s dive in!

Why buy property in Spain?

Spain has become an increasingly hot real estate market in recent years for a number of different reasons, including its:

• Mediterranean climate
• More affordable cost of living
• High quality of life
• Warm, welcoming people
• Excellent food and wine
• Rich culture and fascinating history

Whether you’re hoping to enjoy these perks yourselves — or just invest in a real estate market where more and more people are looking to move — purchasing property in Spain is an attractive option at the moment.

Related: Taxes in Spain: A Complete Guide for US Expats

Benefits of investing in real estate in Spain

Beyond the motivating factors mentioned above, there are a number of benefits to buying property specifically in Spain. Consider that:

• Foreigners have the right to own property in Spain (which is not the case in every foreign country)
• The Spanish property purchase process is relatively straightforward
• The cost of buying real estate in Spain is often lower than in the US
• There are a number of highly desirable areas of Spain to live in
• It’s possible to create a reliable passive income stream by renting out a Spanish property
• Real estate in areas of Spain with high foreign demand tends to yield the strongest ROI¹
• In some situations, buying property may even offer you a pathway to residency (more on that below)

The Spanish economy

While Spain’s economy is the 15th largest in the world and the sixth-largest in Europe,² arriving at that status hasn’t been without challenges. 

Between 2008 and 2014, a burst of the housing bubble and the subsequent Great Recession dealt a significant blow to the Spanish economy, resulting in high unemployment, collapsing wages, bank closures, and government debt. A bank bailout deal from the European Union, and improving global economic conditions have helped the economy gradually improve.³

But in 2020, the COVID-19 pandemic dealt another serious blow to the Spanish economy, as the highly tourist-dependent country saw international visitors disappear nearly overnight. 

Fortunately, the country appears to be back on the road to economic recovery today. Tourism, GDP, and tax-collection figures are up while inflation has slowed down.⁴ 

Note: While Spain has received significant aid from the European Union during periods of economic difficulty, they’ve also launched their own initiatives to support economic recovery — such as the recently-launched digital nomad visa and before that, the Golden Visa. More on the latter below!

Qualifying for the Spanish Golden Visa

In 2013, Spain launched a Golden Visa, offering a pathway to residency for non-EU citizens who make significant investments in Spain. 

The most accessible way to qualify for the visa is to buy a property in Spain (without a mortgage) worth at least €500,000. 

However, you can also qualify by depositing €1,000,000 in a Spanish bank or purchasing Spanish shares worth €1,000,000.⁵

In addition, you must:

• Be over 18
• Arrange your own health insurance for the duration of your stay
• Prove that you can financially support yourself and any family members you might bring
• Have a clean criminal background check
• Not be on Spain’s list of undesirable people or have previously had a Schengen Visa rejected⁶
• Once obtained, the Golden Visa is valid for one year and can be renewed two more times for two years each. After five years, you can apply for permanent Spanish residency.

How to buy property in Spain: A step-by-step guide

So, how exactly do you go about buying property in Spain? Here’s a quick rundown on buying property in Spain as an American. 

Spain makes it fairly easy for Americans to purchase property whether they’re residents or not — but there are a few differences you should keep in mind. Additionally, the purchasing process for foreign buyers differs depending on whether you are purchasing as a resident or non-resident. 

Purchasing property in Spain as a resident

In order to purchase property as a foreign resident in Spain, you’ll need to:⁷

• Set a budget
• Identify a property you want to buy
  • Online: Idealista is the most commonly used real estate website, but Fotocasa and Kyero are popular as well
  • Real Estate Agents: Many Americans choose to go with the Spanish offices of American companies like RE/MAX, Sotheby’s, and Coldwell Banker. Other options include Engel & Völkers, HomeEspaña, and SBD Immobles. Remember to always research agents/agencies thoroughly before partnering with one
• Make an offer
  • Once the offer is accepted, you’ll need to a) produce a Contrato de Reserva, which temporarily takes the property off the market while you complete due diligence and b) pay a holding fee
• Conduct due diligence
  • This typically involves checking the Registro de la Propiedad to ensure there are no debts on the property, verifying the legality of the sale documents, and having the house surveyed
• Sign the sale contract (Contrato Privado de Compraventa) & pay a 10% deposit
• Sign the Escritura de Compraventa to finalize the sale & pay any remaining dues
• Register the sale at a Notary Public

Purchasing property in Spain as a non-resident

Americans who aren’t already residents in Spain will follow all of the same steps above, with one addition: They must register for a Número de Identificación de Extranjeros (NIE), a tax identification number. It’s also a good idea to open up a Spanish bank account to expedite the process.

Note: If you open a Spanish bank account to facilitate the transfer of funds to purchase property in Spain, you will likely trigger FBAR and FATCA filing requirements on your upcoming US tax return.

Where to buy property in Spain

According to Caixa Research (1), there is a strong correlation between strong real estate appreciation and where foreign buyers tend to purchase property. Throughout 2023, real estate has trended in the following provinces. 

Seville

Population: Approximately 690,000

Region: Andalusia

Known for: Stunning architecture such as the Alcázar of Seville, vibrant Flamenco culture, and the annual Feria de Abril festival. Its charm and warm climate make it a sought-after destination for property buyers seeking an authentic Spanish experience.

Granada

Population: Approximately 230,000

Region: Andalusia

Known for: The iconic Alhambra palace nestled against the Sierra Nevada backdrop, captivating Moorish heritage, and the historic Albayzín quarter’s labyrinthine streets. Foreign property buyers are drawn to Granada’s unique blend of cultural allure and natural beauty.

Valencia

Population: Approximately 800,000

Region: Valencian Community

Known for: Striking City of Arts and Sciences, miles of pristine beaches along the Mediterranean coast, the La Fallas festival in mid-March, and delicious paella. Valencia’s modern amenities, coastal charm, and lively cultural scene make it a prime choice for property investment on the eastern seaboard.

Tarragona

Population: Approximately 132,000

Region: Catalonia

Known for: Ancient Roman ruins, including a seaside amphitheater, UNESCO-listed Tarraco Archaeological Site, picturesque Old Town with medieval streets, and beautiful Costa Daurada beaches. Property buyers are enticed by Tarragona’s historical treasures and coastal relaxation, offering a unique slice of Catalonia’s past and present.

Murcia

Population: Approximately 450,000

Region: Region of Murcia

Known for: The Mar Menor lagoon, Costa Cálida’s year-round pleasant climate, historic Murcia Cathedral, and locally grown fruits. Murcia’s unhurried lifestyle, diverse landscapes, and affordable real estate options attract property seekers looking to enjoy both coastal beauty and Spanish culture.

Girona

Population: Approximately 100,000

Region: Catalonia

Known for: Captivating medieval architecture, the well-preserved Jewish Quarter, stunning Onyar River houses, and as a filming location for iconic scenes in Game of Thrones. Girona’s historical charm, connection to popular culture, and proximity to the Costa Brava coastline make it a captivating prospect for property buyers seeking a unique blend of past and present.

Malaga

Population: Approximately 570,000

Region: Andalusia

Known for: Birthplace of Picasso, vibrant cultural scene, sun-soaked Mediterranean beaches, and a burgeoning digital nomad community. Additionally, golf aficionados will find great golf courses in Malaga and the Costa del Sol more broadly. 

With its cosmopolitan atmosphere, tech-friendly infrastructure, and potential for rental income, Malaga appeals to property investors looking to capitalize on the city’s blend of artistic heritage and modern amenities.

Balearic Islands

Population: Varies across islands (e.g., Mallorca – around 900,000)

Region: Balearic Islands

Known for: Diverse archipelago including Mallorca, Ibiza, Menorca, and Formentera; pristine turquoise waters, exciting water sports, lively nightlife in Ibiza, stunning Serra de Tramuntana in Mallorca, and historic Ciutadella in Menorca. 

The Balearic Islands offer a range of property investment opportunities, from luxury villas to charming coastal homes, attracting those seeking Mediterranean island living and tourism potential.

Alicante

Population: Approximately 330,000

Region: Valencian Community

Known for: Postcard-worthy beaches like Playa del Postiguet, historic Santa Bárbara Castle overlooking the city, lively Explanada de España promenade, and as a gateway to the Costa Blanca region. Alicante’s combination of beachfront beauty, cultural landmarks, and accessibility makes it a desirable choice for property buyers seeking a relaxed Mediterranean lifestyle.

Note: The cost of housing in Europe is typically expressed in cost per square meter. So, when looking at listings of potential homes in Spain, it’s a good idea to understand the average cost in terms of what the going rate per square meter of real estate is in your target city. To dig into the specific costs associated with purchasing, renting, and living in each of these areas, we recommend Numbeo. 

Navigating the property market in Spain as a foreigner

While there are similarities between purchasing property in the US vs buying property in Spain, there are certain aspects to be aware of when purchasing in Spain. 

Property taxes in Spain

There are a few different taxes associated with purchasing or owning property in Spain, including:

• Impuesto de Transmisiones Patrimoniales (ITP): A tax of 6-10% (depending on location, whether the property is commercial or private, etc.) on purchases of existing properties
• Impuesto sobre el Valor Añadido (IVA): A 10% value-added tax on purchases of new construction⁸
• Impuesto sobre Bienes Inmuebles (IBI): An annual tax of .4% to 1.1%, depending on location⁹
• Impuesto sobre el Patrimonio (IP): A wealth/luxury tax ranging from .2% to 2.5% of your net asset value which can be triggered by the purchase of properties exceeding €700,000¹⁰
• Impuesto sobre la Renta de no Residentes (IRNR): A tax on non-residents who use their property in Spain as a secondary/vacation home for less than 183 days per year, applied at a rate of 24% of the home’s imputed income (equal to 1.1% to 2% of the property’s value)¹¹
• Tasa de Basura: A trash collection tax with an average fee of €92.10, although it varies by municipality¹²

Additionally, if you choose to rent out your Spanish property, income generated from that will be subject to taxation by the Spanish government.

Capital gains tax in Spain

If you choose to sell your home in Spain, the gains generated from the transfer of assets are subject to unique tax rates:

Financing options for US expats

US expats can qualify for mortgages in Spain, but it’s worth noting that:

• Properties purchased with the help of a mortgage do not qualify for the Golden Visa, even if they are valued at €500,000 or more
• Expats who are Spanish residents will have an easier time qualifying for a mortgage from a Spanish or international bank (and often, receive more favorable rates)
• Mortgages will not be granted until you buy the property, so it’s wise to include a clause in your contract stating that the purchase is not to go through if you are unable to secure a mortgage¹³

 To secure a mortgage, you typically need:¹⁴

• An NIE number
• Proof of income
• Tracked expenses
• A list of your debts
• Proof that the property has no outstanding taxes to be paid
• A pre-agreement with the seller
• A record of your existing deeds and assets

On top of those aforementioned requirements, you must typically be able to put down a deposit of at least 30% of the property’s purchasing price — likely more if it’s a vacation home or if you’re a non-resident — and prove that your mortgage payments will not take up more than 30% to 35% of your net earnings.¹⁵

Typical mortgage terms and interest rates 

Mortgages in Spain are usually available at either variable or fixed rates, with the former being more common than the latter. 

Pitfalls of buying property in Spain

There are several pros and cons to consider when buying property in Spain. Up until now, we’ve covered key information and many pros, but of course, no picture is complete without the cons. Here are some common pitfalls of buying property in Spain:

• Finding a highly qualified property lawyer takes time and incurs additional legal fees
• Scams aren’t unheard of, so you’ll want to make sure that you thoroughly vet any opportunities you come across and professionals you’re considering working with
• Any official documents must be translated into Spanish. In the event of disputes, Spanish documents are the ones that carry weight in court, so an airtight translation is critical
• Climate change continues to take a toll on Spain, making it riskier to buy properties along the coast or in areas prone to extreme heat
• Buying real estate in Spain not only opens you up to the different Spanish property taxes mentioned earlier but can also affect your US taxes

Live the dream in Spain and leave the tax reporting to Bright!Tax

Bright!Tax has supported hundreds of Americans in purchasing and owning a foreign property. Whether you're considering retirement abroad or expanding your real estate portfolio, we guarantee precise and strategic US tax filing.

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References

1. Where are housing prices growing the most in Spain
2. The world’s largest economies
3. To Hell and Back: Spain’s Grotesque Recession and Its Surprising New Economy
4. Spain’s economy is recovering from the pandemic, but problems persist
5. Golden Visa Spain 2023
6. Spain Golden Visa
7. Buying a house in Spain as an American: full guide
8. Buying property in Spain
9. Property Tax In Spain
10. Luxury tax in Spain
11. Own property in Spain? Here’s everything you need to know about Spanish property tax for non-residents
12. LAS TASAS DE RESIDUOS EN ESPAÑA APENAS CUBREN EL 72% DE LOS COSTES DE SU GESTIÓN
13. Americans Buying Property in Spain
14. Getting a Spanish mortgage
15. Getting a mortgage in Spain
16. WHAT ARE THE BEST SPANISH MORTGAGE RATES? MAY 2023 UPDATE

The post Can Americans Buy Property in Spain? (Short Answer: Yes!) appeared first on Bright!Tax Expat Tax Services.

The Spain digital nomad visa offers an exciting opportunity for US citizens to enter and reside in Spain for an extended period of time. If you’re seeking to embrace a new chapter abroad while continuing to work remotely, you can now do so. Spain, known for its sun-kissed beaches, captivating cities, and rich cultural heritage, rolled out its nomad visa earlier this year, and the details are now readily available.

Under this visa, individuals approved as “teletrabajadores de carácter internacional” – international teleworkers – can legally reside and work remotely in Spain.

In this article, we delve into Spain’s digital nomad visa eligibility criteria and the application process, how digital nomads in Spain pay taxes, and more. If you’re eager to work remotely from Spain, you won’t want to miss this opportunity.

Snapshot of expat life in Spain

Population: 47 million

Capital city: Madrid

Currency: Euro

Official language(s): Spanish

Approximate number of American expats: 40,000

Spain’s digital nomad visa is part of a broader strategic legislative package

Spain’s digital nomad visa is a component of la ley de startups, or the Startup Act.¹ This law is intended to drive economic growth and promote technological innovation in the country by attracting startups, digital nomads, and investors. Spain, together with Austria and Portugal, is a founding member of the European Startup Nation Alliance, which aims to spur Europe to the forefront of the global startup ecosystem.²

The Startup Act was initially proposed several years ago. After undergoing several rounds of negotiations, revisions, and approvals, the law received the green light from both chambers of the Spanish legislative branch (the Congress of Deputies and the Senate) in November 2022. On December 1st, the government publicly announced and published the text of the law. It went into effect a few weeks later.

Save for later: The 13 Best Digital Nomad Cities for US Expats in 2023

Requirements and process to become a digital nomad in Spain

There are various citizenship, educational/work experience, financial, and healthcare requirements an applicant must fulfill to successfully obtain a digital nomad visa for Spain. 

Application eligibility

The Spanish digital nomad visa is open to nationals from countries outside the EU and the European Economic Area. This means that US citizens and permanent residents can apply for a digital nomad visa in Spain. There are a few conditions, though:

• Applicants may not be residing illegally in Spain at the time of application, nor may they have resided there within the past five years.
• Applicants must pass a criminal background check. (Specifically: an applicant cannot have a criminal record in Spain or anywhere else for two years before applying.)

Additionally, applicants for the digital nomad visa in Spain must be able to:

• Evidence that they will earn at least 200% more than the Spanish minimum wage. The minimum wage will soon change, but currently, the amount a prospective digital nomad will need to earn is at least 28,000 EUR (29,800 USD) a year. (You can prove this figure by including items such as contracts, bank statements, invoices, and pay stubs in your application.)
• Demonstrate work with companies based outside of Spain for at least three months before their application
• Be able to provide qualifications to work in their field via a university degree or at least three years of work experience.

Visa requirements

• The work contract must be for remote work as an employee or contractor with a company. 
• You must also be able to provide proof of a work contract for at least three months prior to your application. This work contract must also specifically state that it allows remote work.
• The full-time remote work contract must be 1) with a company outside of Spain, or 2) the digital nomad must be self-employed with multiple clients.

In essence, in order to receive Spain’s digital nomad visa, applicants need to be able to produce the following documents:

• Valid employment contract(s)
• Proof of sufficient income to support your stay and dependents (as applicable)
• Health insurance (such as from SafetyWing)
• Clean criminal record

Visa duration

The length of time a digital nomad may reside legally in Spain depends on how they applied. If you apply from the US, you are effectively applying for a digital nomad visa. Upon acceptance, the visa is valid for one year.* After the first year, you will apply for a digital nomad residence permit, which will allow you to stay another three years if you are accepted. (This three-year permit may be renewed once.) 

If you apply for a digital nomad visa from within Spain, you are effectively applying for a digital nomad residence permit. Upon acceptance, you will be allowed to stay in Spain for three years. After three years, you can apply to renew it one more time under the digital nomad scheme.

*If you apply for a digital nomad visa, you will receive an amount of time equal to the date stated on your work contract (up to one year). For instance, if you’re engaged in remote work on an eight-month freelance contract at the time of application, the visa will be granted for the period between approval and the contract’s expiration.

Spain’s digital nomad visa application process

Let’s now unravel the steps that pave the way to your dream nomadic lifestyle in this Mediterranean paradise:

• Gather the required documents
• Make an appointment at either
  • your nearest Spain consulate/embassy (if applying from outside of Spain for a digital nomad visa), or
  • the Unit of Large Business and Strategic Collectives (if applying from within Spain for a digital nomad residence permit).
• Submit your documents in person
• Pay the application fee
• Receive approval within 20 business days. If no notification is received, then your application is considered approved by default.
• Book your travel to Spain (!)
• Complete all of the necessary administrative procedures necessary to facilitate your move (more on this below)

Related: How to Become a Digital Nomad (Updated for 2023)

Where to live in Spain

Americans living in Spain have a number of different locations to choose from, many of which have established digital nomad and expat communities.³ And thanks to the significantly lower cost of living in Spain vs. the USA, living in Spain as an American is comfortable just about anywhere.

Here are a few of the most popular choices:

Madrid

If you love the hustle and bustle of big cities, it’s hard to beat Madrid. Besides being Spain’s capital, Madrid is also often considered the cultural capital, with an abundance of incredible museums, theaters, concert venues, and gourmet restaurants. From the alternative Lavapiés to the hipster Malasaña to the posh, professional Salamanca, there’s a barrio for just about everybody.

Barcelona

Barcelona boasts a cultural scene just as impressive as Madrid’s, plus a beach to boot. The city prides itself on its strong Catalonian identity, with its regional language, cuisine, and traditions all giving it a completely unique feel from the rest of Spain. Art and architecture fans will also appreciate the almost tangible presence of Gaudi throughout the city, from the Sagrada Familia to Park Güell to Casa Batlló.

Valencia

Valencia’s laidback beach town vibe, thriving nightlife, and lower cost of living have led some to declare it as the best place in the world to live and work abroad. From legendary cuisine (Valencia is the home of paella, after all) and the world-renowned City of the Arts and Sciences — a museum that’s just as fascinating on the inside as it is gorgeous on the outside — Valencia is one Spanish city that’s not to be missed.

Canary Islands

Las Islas Canarias is a beautiful, subtropical island chain off the west coast of Africa. They aren’t Spain’s most populous region, but the digital nomad population has been exploding in recent years. The temperature is pleasant year-round, making any day a great day to visit one of their many beaches. The Islands are also legendary for their party scene, but it’s easy to retreat into nature to rest and recharge when needed.

Related: Taxes in Spain for US Expats: Everything You Need to Know 

Digital nomad life in Spain

5 things that should be on your Spain bucket list

• Explore the Sagrada Família in Barcelona: This iconic basilica, designed by the legendary architect Antoni Gaudí, is a masterpiece of modernist architecture. Its intricate facades and awe-inspiring interior make it a must-visit attraction, blending history, art, and spirituality.
• Experience the Alhambra in Granada: The Alhambra is a stunning palace and fortress complex dating back to the Nasrid dynasty. Its exquisite Islamic architecture, serene gardens, and breathtaking views of the city make it a cultural gem not to be missed.
• Wander the streets of La Rambla in Barcelona: La Rambla is a vibrant and bustling promenade that showcases the lively spirit of Barcelona. From street performers to local shops, restaurants, and cafes, it’s a perfect place to soak in the city’s energy and diverse culture.
• Relax on the beaches of Costa del Sol: Spain’s southern coast offers a plethora of beautiful beaches along the Costa del Sol. With its warm Mediterranean climate and picturesque coastal towns, it’s an ideal destination for sunbathing, water sports, and enjoying the laid-back Spanish lifestyle.
• Discover the Prado Museum in Madrid: Art enthusiasts will be captivated by the Prado Museum’s extensive collection of European art, featuring masterpieces by renowned artists such as Velázquez, Goya, and Titian. It’s an enriching experience that provides a fascinating glimpse into Spain’s rich artistic heritage.

Related: The Top 7 Countries For Digital Nomad Visas in 2023

Expat community in Spain – how to find your people

It’s normal to feel unsure and even a little lonely when you move to a new Spain. Fortunately, Spain is bursting with opportunities to get out and meet new people -you’ll be making new friends in no time. A few ideas:

• Move into a co-living space
• Work from a coworking space
• Stay in a social hostel
• Take classes (e.g. Spanish, cooking, etc.)
• Attend events on Meetup & Couchsurfing
• Join a football (soccer) club
• Get involved in the Spain Digital Nomad Community
• Join local expat groups on Facebook
• Attend a language exchange or use a language exchange app
• Volunteer in your community

Moving to Spain

Before making the leap to becoming a digital nomad in Spain, make sure you cross the following off of your to-do list:

• Gather all of your important documents (passport, visa, etc.)
• Set up a doctor’s appointment to get any vaccines or medications you might need prior to your departure
  • Research the Spanish equivalent of any medications you may need to obtain while in Spain
• Purchase airfare
• Book accommodations for your arrival
• Research what to bring, create a list, and pack your bags (this is also a great time to downsize, but take it slow – packing is one of the most overwhelming aspects of travel)
• Flag your travel plans to your bank (and any credit cards you’ll be using) so they don’t mark purchases abroad as suspicious
  • Note: you may want to open an online money transfer account to facilitate transactions in different currencies. We recommend two depending on whether you require a more personalized service or you’re happy to dig in solo
  • Additionally, setting up a Google Voice number prior to leaving the US is advisable because many US credit card companies still require a US number to send a confirmation text
• Set up a forwarding address for your mail, if necessary
• Connect with other digital nomads in Spain for advice on sites like Reddit or Facebook 

Securing accommodation in Spain

Looking for a new home in Spain, especially in vibrant cities like Madrid, Barcelona, and Valencia, can be quite an adventure. But fear not, we’ve got some insider tips to turn this quest into a fun, rewarding experience. Soon enough, you’ll be enjoying a cup of café con leche on your own Spanish terrace.

First off, let’s talk about Homelike, a website designed with people like you in mind – digital nomads and remote workers who need a flexible, comfortable, and well-equipped space to live and work.  Imagine working from a stylish, fully-furnished rental in Madrid, Barcelona, or Valencia. With Homelike, this dream can easily become your reality.

If you’re looking for long-term rentals, there are several online platforms that can help you find your dream casa. Websites like Fotocasa and Idealista are like your personal tour guides, leading you through a variety of long-term rental listings to suit different needs and budgets. And if you’re open to sharing your space, Piso Compartido is a great place to find a shared apartment.

For those who prefer the traditional route, estate agents, or inmobiliarias as they’re known locally, are always ready to lend a helping hand. They can provide valuable insights but don’t forget that they might charge an agency fee.

Finding a place to live in Spain can be as exciting as exploring its historic streets and vibrant markets. With the right resources and a bit of patience, you’ll soon be calling one of these amazing Spanish cities “home.”

Spain digital nomad visa tax rate

Typically, Spanish citizens and residents pay taxes according to a progressive regime known as Impuesto sobre la Renta de las Personas Físicas (IRPF). However, in the case of digital nomads, the Spanish government has enhanced an already-attractive tax regime to attract applicants. 

The digital nomad tax regime is based on the 2005 Beckham Law,⁴ so-called after David Beckham claimed it when he played for Real Madrid. At present, digital nomads in Spain will effectively fall under the Non-Resident Income Tax Regime,” meaning that they are not subject to the IRPF tax bands so long as they make less than 600,000 euros a year. Instead, digital nomads in Spain will pay a simple flat tax of 24%, which is equal to the second-lowest IRPF tax band. Additionally, family members of digital nomads in Spain may also apply for this favorable regime by extension.⁵

Additional tax benefits for digital nomads in Spain

Holding a “nonresident” tax status also exempts digital nomads from the Spanish wealth tax (Impuesto sobre el Patrimonio). 

There is also a draft provision that would have hugely positive implications for digital nomads seeking to invest in Spanish real estate. It’s important to reiterate that this is a draft proposal and not a current provision, however, the proposal would permit foreigners who invest in qualifying real estate in Madrid to receive a tax credit equal to 20% of the acquisition value. The tax credit would be able to be taken from the first year of investment or within the following five years.

VAT in Spain

According to Wise, the standard VAT rate in Spain is 21%. This figure applies to most goods and services. The two reduced VAT rates are 10% and 4%. Spain also has some zero-rated goods, the sale of which must still be reported on your VAT return, even though no VAT is charged.⁶

Do American digital nomads in Spain have to pay US taxes?

Yes. America’s tax system requires all citizens and permanent residents to file a federal tax return (provided that they meet the minimum income reporting threshold) regardless of where in the world they live.

Related: Digital Nomad Taxes: Frequently Asked Questions

Expat tax provisions for Americans filing US taxes in Spain

Moving abroad may complicate your taxes and can feel overwhelming to navigate. Below are some of the additional reporting obligations tax breaks expats should read up on.

Foreign Earned Income Exclusion (FEIE)

The FEIE allows you to exclude a certain amount of foreign-earned income from taxation ($112,000 for tax year 2022, $120,000 for tax year 2023). There are certain tests that you must pass in order to qualify, though.

Foreign Tax Credit (FTC)

The FTC allows you to subtract what you pay in income taxes to a foreign government from what you owe the US government in income taxes.

Foreign Bank Account Report (FBAR)

If you have $10,000 or more in foreign bank accounts at any point in the year, you’ll need to report the contents of those accounts to the Financial Crimes Enforcement Network (FinCEN).

Read more: FBAR Filing Online in 2023: A Guide for Expats

Child Tax Credit (CTC)

If you have qualifying dependents living with you in Spain, you can file the CTC just as you would in the US to get as much as $2,000 in partially-refundable credits.

Foreign Account Tax Compliance Act (FATCA)

If you have over $200,000 in foreign assets by the last day of the tax year, or over $300,000 in foreign assets at any point during the tax year, FATCA requires you to file Form 8938.

Ready to be a digital nomad in Spain? Bright!Tax is here to support you.

We are also pleased to offer total tax season simplicity to clients based in Spain thanks to our collaboration with an excellent Spanish accountant – contact us today to learn more!

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References

1. Ley de Startups
2. Background – Startups Law
3. Where to live in Spain as an expat
4. Beckham’s Law
5. Spain Digital Nomad Visa Eligibility
6. VAT rates in Spain 

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