Thursday, April 23, 2015

Taxation of mutual funds in Spain

Spain has a pretty bizarre taxation system when it comes to mutual funds. As long as the investment meets the criteria of “collective investment” (500 investors, and you can’t own more than 5% of the capital), you can switch between mutual funds to your hearts content without any capital gains taxes.

Feel nervous about the market? Switch to a money market fund, then switch to Asian equities, etc. As long as you don’t cash in your shares, you don’t have to pay any capital gains in Spain.

In addition, there’s no anti-deferral rules like in the US, so any increase in price due to interest, etc is treated just as a capital gain.

The one thing that isn’t clear is how automatically reinvested dividends are treated. European mutual funds generally don’t do yearly distributions of capital gains, interest, etc, so this doesn’t appear to be anticipated in the rules. From a lawyer I talked to, he thought that automatically reinvested dividends wouldn’t be taxed either. This is very similar to a scip dividend, which aren’t taxed in Spain either, so you have at least two arguments.

Of course, the US doesn’t look at it that way and taxes you as soon switch funds (unless they are shares of different classes in the same fund), so you might be able to do funky things in terms of timing your sales if you want to even out your US/Spain taxation.

Wash sale rules (antiaplicación): Spain vs US

If you are calculating your capital gains, keep in mind that the US and Spain have different wash sale rules (in Spanish it's called antiaplicación). A wash sale is when you sell a stock or mutual fund and buy back a substantially similar one within some period of time.

In the US, if you sell a stock at a loss and buy back a substantially similar stock (or a contract to do so), you don't count this is a sale, but add this to the cost basis of the new shares instead. The rule doesn't apply for gains.

In Spain, the rule applies for two months, but you need to declare the loss in a special box that can be used later on when you sell the shares.

So in theory something could be a wash sale in the US, but not in Spain, either because of timing or because of currency movement.

Oh what fun.

I'm writing a program to do this calculation... perhaps I'll post it on github when it's done.

Tuesday, April 21, 2015

Yes, you should definitely get a copy of your DNI/Passport to the bank before April 30th

You’ve probably got a bunch of letters from the bank asking you to bring your documents, which you’ve probably ignored.

Turns out that the law is actually quite severe, and unless you want your account blocked for suspicion of money laundering, you need to make sure your bank has a recent copy of your identification documents.

There’s supposedly some process to unblock it, but do you really want to go through that?

Monday, April 20, 2015

Traducción jurada: officially translating your documents into Spanish

Many times expats need to present a translation of a document for various government agencies. This needs to be a “traducción jurada”, done by a translator certified by the Spanish government.

The funny part though, is that almost all the translators have you send them a PDF over email, which they then translate and send you back an official looking translation with stamps and all that.

So you get this sworn statement that some random PDF you sent them is an official certified translation of an original that they have never actually seen in real life. Seems like there is an obvious flaw here.

Thursday, April 16, 2015

Spanish inheritance law and Sharia law

Kind of bizarre that both Islamic law and Spanish law both specify that 2/3 of the inheritance goes to legal heirs and only 1/3 can be bequeathed freely.

Ironically the wife gets 1/8 by Islamic law if there are children, but by Spanish law isn’t entitled to anything.

ECB should hire photographers as bodyguards

I thought it was funny that the photographers at the ECB conference where Draghi got paper thrown at him were so much faster than the bodyguards.

Wednesday, April 15, 2015

Careful with Spanish short term capital gains and US foreign tax credit

For 2014 (and only 2014, as the Spanish government realized they had done really stupid), short term capital gains (ie 1 year or less) are taxed at your general income marginal rates (up to 52% yeah!) instead of as part of your savings base (which is taxed separately around 21%).

Normally, when you do your US foreign tax credit, you calculate it separately in two buckets: first for your general income (salary etc), then for passive income (interest, dividends, capital gains, etc). (There are a couple more special buckets).

Now comes the annoying part: any passive income that is taxed at a rate higher than the highest US marginal rate (39.6%) gets “kicked out” of the passive bucket and put into the general bucket. The reason this is annoying is that you cannot use buckets to offset against each other. You overpay your capital gains at 52%, but underpay your interest (21%), but you can’t apply one against the other.

Luckily this is going away next year.