Saturday, April 23, 2011

Are people in L’Hospitalet lazy?

The Schweppes launched a campaign for the V-Energy drink with the slogan “Treballa com un suec encara que siguis de l’Hospitalet” (Work like a Swede, even though you are from L’Hospitalet). Apparently this was offensive to people from L’Hospitalet, although I couldn’t find the exact reason. I do have a couple questions:

  • Are Swedes considered hardworking? Is this a Spanish idiom that I missed somewhere? (There is an expression “do the Swede”, which means to act dumb… that doesn’t seem to fit.)
  • Are people from L’Hospitalet lazy?
  • Supposedly this is an ethnic stereotype. If so, what ethnicity?
  • Does this have anything to do with Ikea?

Any answers would be appreciated.

Thursday, April 21, 2011

Reducing your Spanish taxes as an expat

There are two main options for reducing your Spanish taxes, once your Beckham non-resident rate of 24% expires. (If you are moving here, the Beckham tax rate is generally your best first option, but you need to move quickly. Once you’ve been here for more than six months, you will not be able to apply anymore. The application process is trivial, so it’s better that you do it yourself, rather than risk missing the date due to the incompetence of your human resources department. Yes, Spanish HR departments are among the worst I’ve ever experienced.)

So you’ve been here for six years, what do you do now?

First, if you live here without your family, and you have more connections back in the US (other countries with a lower tax rate and a tax treaty with Spain may also work), you can use the “tie-breaker” provision in the tax treaty to be a tax resident in only the US. The US/Spain tax treaty states:

Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (center of vital interests);

(b) if the State in which he has his center of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;

(d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

This means that if you are a US citizen, with a home back in the US available to you, and your family lives in the US, you have a pretty good case for being treated as a US resident for tax purposes, which means you are a NON-resident in Spain (and you continue paying 24%). Note that if you have your spouse or children living with you in Spain, this argument generally doesn’t work. You also need to get a certificate of tax residency from the US consulate.

Secondly, if your work involves a lot of travelling, you can exclude a big chunk of your your income if you perform work for a company or entity that is not resident in Spain. This only helps if the country you work for has a lower tax rate than Spain (or in the case of the US, income you already have to declare if you are American). Our helpful friends at KPGM explain:

Income generated from employment for services rendered in a foreign country is tax exempt up to a limit of €60,100 (2009), provided that the work is performed for a company or entity non-resident in Spain, or for a permanent establishment located in a foreign country and provided that a tax similar to the Spanish Personal Income Tax is applied in the territory where the work is performed. In addition, the territory must not be considered a ‘tax haven’ by the Spanish tax authorities. At present, the UK Dependent Territories of the Channel Islands and the Isle of Man, as well as the UAE, Hong Kong and Singapore, are all included on a ‘blacklist’ of tax havens maintained by the Spanish Tax Authorities.

Tuesday, April 19, 2011

ETFs and systemic risk

There’s been a slew of articles on the potential for ETF (exchange traded funds) to help fund the next big financial crisis. Naturally, the problems associated with ETFs come from a new breed of more “innovative” structures.

The main problems boil down to two fundamental issues:

  • Practically unlimited short selling of shares: For many funds, the number of short-sold shares vastly outnumbers the number of real shares. This is means that the shares sitting in your margin account most likely are not actual shares, but an IOU for shares. Since short-selling gives you cash now, in exchange for the obligation to deliver shares later, there is a risk that banks/individuals are using this as a funding mechanism. No one knows exactly what would happen if there was the equivalent of a “bank run” on an ETF, but my guess is that a lot of holders would find out to their surprise that the shares they hold are not actually redeemable for the underlying.
  • Derivative based ETFs: This is particularly nasty and happens more in Europe than in the US. Your ETF isn’t holding actual shares or interest in the underlying, but holds derivate contracts written by various banks in order to simulate this. Naturally, if any of these banks go bust, you are pretty much screwed.

At this point, I’ve given up on ETFs and just own regular old US mutual funds (with a low expense ratio) and plain stock for my foreign content (since the IRS makes it extremely unpleasant to hold non-US mutual funds).