If you are thinking of living in Spain and have an investment account that you want to leave in the US, you may want to think about simplifying your taxation.
If you hold your investments in your own name, you will need to recalculate your taxes once for the US, then do the same thing again for Spain, apply the US-Spain tax treaty, pay some amount in Spain and some in the US. In addition, for some assets there may be differences in how they are treated in terms of recognition of gains, so you may end up with double taxation.
One alternative is to hold your US assets in a member-managed US-based LLC (Limited Liability Company).For US tax purposes, LLCs pass-through their earnings to the owners, so from a US perspective, there’s no change to your taxation. Since you are a US citizen, you need to declare and pay taxes on this income.
From the Spanish side, you need to make sure that you avoid the Controlled Foreign Corporation rules. A foreign company owned by a Spanish resident is generally exempt if that company is:
- not based in fiscal paradise, and
- the company pays (including taxes paid on passed-through earnings) at least 75% of what it would pay if it declared taxes as a resident of Spain.
Since US marginal rates for passive income are generally higher than in Spain, it’s pretty standard to easy to meet for US citizens. If you were not a US citizen you wouldn’t be able to do this since you would not need to pay any US taxes on pass-though earnings, and thus would fail the 75% test.
Although this normally won’t save you any taxes, it could save you a bunch of aggravation. If you want to be fancy, you can fund the LLC though a loan instead of via equity to reduce the book value of your acquisition.