Frugal chicos journal - ERE in Spain

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ItsALongStory
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Re: Frugal chicos journal - ERE in Spain

Post by ItsALongStory »

Always love keeping up on your blog, I love how you two have really aligned priorities and are able to live the life you have dreamed of. A year from now you could very well be seeing your spending drop significantly below $1k per month with 10 month's worth of expenses being put away.

Congrats on all you've accomplished and what you are about to do!

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

@ItsALongStory
Thank you very much for your kind comment. It is very rewarding to see we are getting close to our goal - freedom! :D

Time for our monthly update:

NOVEMBER INCOME –$10,506.94

NOVEMBER EXPENSES – $959.75 USD - The expenses below are in Euros, we do the conversion of the total into USD.
Car annual insurance: $0
Gas (Car): $0 - Still have a full tank since we are only able to move around our town.
Groceries: $271.07 - We contribute buying fruit, veggies or whatever my mom and us need.
Cellphones: $20 - Chica's international plan with Lebara and my monthly plan, also with Lebara. No complains.
Internet & My phone: $0
Misc./Entertainment: $511.78 - Costs of shipping stuff I sold on eBay, I bought some running gear, got an old iPod classic to restore (will sell the parts I am not interested in keeping to cover the cost of its purchase), some gifts for friends and family who had babies, medicines, new battery for laptop and phone and other random stuff.

We saved 90.86% of our income.

CURRENT ASSETS: $590,538.23 ($38,585.97 increase from last month)
Cash savings: $167,189 - We paid another 10K to Chica's parents for the loan they gave us. Another 5K to go to be done with it.
Investments: $423,348.40

ACHIEVEMENTS/HAPPENINGS THIS MONTH:
This month went by pretty fast and somehow uneventful since we couldn't do much because of the restrictions implemented to mitigate the Covid infections. However, these are the highlights.
- I got a job as logistics manager in an important international company close to our town. Quite excited for the opportunity. I feel it is a great step in my professional career. It is a temporal contract since I will be covering a LOA for 10 months. However, I have a chance to be part of the team in a future whenever somebody retires or leaves.
- I had to quit my Basque classes because the schedule is not compatible with my job. They will refund part of the money (like 2/3rds of what I payed)
- Chica and mini had to cancel their flights to the US because Chica's parents got infected with Covid. They are ok and recovered. We also got the money back from the airline. She will probably fly sometime in summer next year.
- I have been running early in the mornings alone since we can't practice sports with others that are not living with us.
- Cool story: I had a box full of old soccer cards from when I was little, and I thought I would give it a try to put them on sale on eBay. It pretty much went nuts and I sold most of them making a profit of close to $450. I decided to buy a $9 PS4 game with the profits and open an investment account for mini Chica with $450 on it (she already made 10 cents).


GOALS FOR THE MONTH:
- Do well at work
- Keep running whenever I can.
- Miracle: Achieve the 600K mark by the end of the year!!!

2Birds1Stone
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Re: Frugal chicos journal - ERE in Spain

Post by 2Birds1Stone »

Congratulations on your continued success toward goals.

That income is truly something amazing, even by USA standards. In Spain you must be top 1%ers =D

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

@2B1S

Thank you very much! That's our combine incomes (Chica's US salary + mine Spanish). We might be making more than the king of Spain :lol: - or at least working more than his stupid corrupted ass

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

First week of work has been good. Getting training and then coming back home and work remotely. Pretty happy with it so far (even though, I rather not work).

Life is good so far, working, playing a lot of The Last of Us in PS4 (very recommended), downloading music and spending a lot of time with family. I guess I can't ask for more in life in these times.

2020 has been quite unusual but financially speaking might be our best. Hopefully, we can keep our saving pace and totally retire in 4 years or so. :D - Rooting for it!

ertyu
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Re: Frugal chicos journal - ERE in Spain

Post by ertyu »

What % do you target for "totally retire"?

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

@ertyu

Ideally, 2.5% or about 800K + a house paid off. Our current expenses are about 1,200€/month and below our current 3.5% SWR (based on 590K NW).

Hopefully, we will be able to close on the purchase of a condo that along with the reno will cost us ~130K and still leave us with ~450K in investments. Honestly, we could technically be ERE at this point but still feel we want to keep accumulating in order to have more options, feeling of safety I guess and options in the future.

I guess that mostly, it all comes down to running numbers and putting all together with a figure that makes you feel confortable. In our case is the house paid off and 800K. Hopefully, we will get there in 2-4 years (depending on jobs, stock market and so on)

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

So, we are in quite a pickle.

I have been investigating about how to pay taxes for Chica's job in Spain and it seems not only complex, but absurd. The Spanish government doesn't recognise the status of freelance. They only have two status, self employed (autonomo, you need to establish a company) or being an employee working for a company.

It seems that for chica to be able to legally pay taxes here, she would need to become an autonomo, pay the 283E/month fee for it, issue invoices with a 21% VAT on them for each service she provides (which she will have to pay since her company doesn't have to pay it in the US) and then, she will have to declare her salary and pay taxes based on it on a monthly or quarterly basis (this can go up to 42%).

Summarising, she will need to pay 3 fees/taxes:
- autonomo: 283e/month minimum, regardless of how much money she makes.
- VAT from each invoice: shaving her salary benefits by 21%
- IRPF: tax based on your annual salary/benefits - this can go up to 42% if it is 60K or above.

I need to confirm all this info with a tax attorney. In case it is true, I am afraid we will go back to the US and finish what we started saving all the money we need to fully retire.

Edit: just read she might be exempt of the VAT since the invoices would be considered as export and they taxed as 0.
Last edited by Frugalchicos on Sun Dec 27, 2020 8:50 am, edited 1 time in total.

rube
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Re: Frugal chicos journal - ERE in Spain

Post by rube »

A tax specialist sounds like the right person to consult. Perhaps the company setup might also create some tax benefits / possibilities (like deferring profit for later years against a lower tax %, rent a room from your own home, write offs of phone, laptop etc.).
If in the end Spain is not working out, there might be other options besides going back to the USA?
Good luck.

2Birds1Stone
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Re: Frugal chicos journal - ERE in Spain

Post by 2Birds1Stone »

Hmmmm, wouldn't it just be better to stay in Spain and not report any income to them? Report all of your income for Chica in the USA and pay taxes there instead?

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

@rube
Thanks for your comment. If Spain doesn’t work out, the other option is Kansas City, MO since chica is from there and she has some family around. Not my preferred spot in the world, but it is affordable and a good place to keep building wealth.

@2B1S
You are obligated to report worldwide income and offshore accounts (same than in the US). If you don’t and they catch you, fines are absurdly high. So, they kind of got us grabbed by the OO...,

zbigi
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Re: Frugal chicos journal - ERE in Spain

Post by zbigi »

> pay the 283E/month fee for it, issue invoices with a 21% VAT on them for each service she provides (which she will have to pay since her company doesn't have to pay it in the US)

I don't know your actual situation and I'm not a tax professional by any means, but at least here in Poland, if you have a company which sells services to outside of EU, you shouldn't charge any VAT on them. And, since the VAT rules are supposed to be somewhat unified across the EU, maybe it's the same in Spain? BTW I believe the idea behind this rule is that VAT is an internal/EU consumption tax and it shouldn't be imposed on EU's exports.

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

@zbigi

Yes, i saw that today. Now, I’m trying to find out hiw much we should pay annually. I have an appointment with a tax lawyer on Tuesday. Trying to burn all the ships before moving back to the US

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

Good news people. We will only have to pay about 28% in taxes. We celebrated it with 2 pizzas and a Franziskaner Weissbier. Now I feel kind of drunk and thirsty AF...but very happy and relieved.

anesde
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Re: Frugal chicos journal - ERE in Spain

Post by anesde »

If you wouldn’t mind a detailed explanation I for one would be very interested. My medium term plans involve moving to Portugal and my SO may work part time remotely. I know it’s a different country but curious what the final result is with Spain.

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

@anesde

Absolutely, I hope I can shed some light to anyone in a similar situation to ours or yours.

First of all, Spain might have a different and more complex taxation system than any other country in the EU. However, it is probably quite similar in the gran scheme since we are talking about US worker living in a EU country.

Quick introduction to the taxation system in Spain: Spain was formed by the union (by force and/or royal marriages and alliances) of several kingdoms. Those kingdoms or what we now call autonomies still carry different taxation systems. The Basque Country is a unique case along with Navarra (we have the fueros or forums that different kings pledged loyalty and respect to in order for the Basque to keep having exceptions and acknowledging rights in different terms of the law and constitution). They somehow operate like an independent country in regards to tax, health insurance, education, roads management and so on...Therefore, the taxation form is different than in the rest of Spain, and inside the Basque Country, you have 3 different regions (Diputacion Foral of Bizkaia in our case) that applies different brackets of taxation and different fiscal percentages to different scenarios like inheritance, gifted money, loans from family, etc.

Alright, now going to our case scenario:
- There are only two ways of working in Spain. Either you work for somebody or for yourself as an autonomo. Chica will have to set herself up as an "autonoma", she has to go to the Social Security and sign up as such paying 283E a month. I think the first and maybe second year is only 50E. Doing this, she can contribute to the Social Security and issue invoices and pay taxes.

- She will have to issue invoices to the USA with VAT as 0% since it is considered as an export. VAT is short for value-added tax, it's a consumption tax applied to nearly all goods and services bought and sold within the EU. Chica is exempt since her services are being used outside the EU.

- Based on her salary and the different brackets, she will pay a flat fee of about 21K for the first 67K she makes and a 42% of the rest of the money which at the current exchange rate is about another 10K - So the total would be like 25K to pay for her income. Not bad considering all the benefits we enjoy here like free access to healthcare and education (both basic and higher - or at least close to free, especially comparing it to the US).

- Summarising, Chica would have to pay about E28K out of a E86K salary in The Basque Country, Spain.

- Then we will have to file taxes in the US as it is mandatory (so annoying) for any US citizen. You are exempt of paying anything when you are below 107K. Spain and the US has a treaty that avoids double taxation. So, we should pay $0 in the US. Just filing taxes for them to know what we are doing.

- Then, in the case of gifted money (which we are expecting some from Chica's family) we will have to declare it within 30 days of receiving it and pay a 1.5% fee.

- Spain requires to file the form Modelo 720 that informs of all your accounts, properties and so on abroad above $50K. Once you pass the $50K mark, you have to declare every single account or property, stocks, etc...Same thing in the US with the FBAR form.

And that's all I know for now. Complex process but necessary to be able to sleep right and get things straight in both countries. We will hire the guy we talk to yesterday to help us out the first year.

I hope it helps future EU residents!!

rube
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Re: Frugal chicos journal - ERE in Spain

Post by rube »

Very good Chicos!
Should the flat fee be 21% instead of 21K in your explanation?

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

@rube

It is actually more of a flat fee for anyone in the bracket of 67k to 80K (i believe it was 80K, can’t find the chart right now). Then whatever you are making above 67 is taxed at 42%. Idk if the explanation is clear?

anesde
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Re: Frugal chicos journal - ERE in Spain

Post by anesde »

@frugalchicos - just noting you have (2) options when it comes to the US:

1) Foreign income exclusion
- This is as you described whereby you can elect to not pay any US tax on the first 107k (used to be 90 but I guess it’s increased?). However note that this only applies to wage income (not investment income

2) Foreign tax credit
- You can elect to offset US tax with already paid foreign tax (subject to having a tax treaty in place, which I believe Spain/US do but best to check on that). Here you offset the taxes paid, owing any difference to the US (but given Spain taxes are higher this should be zero).

For countries with no income tax (places like the Middle East) Option #1 is better. For places with high taxes that also have a tax treaty in place with the US Option #2 is likely better. Note a couple of things:

a) Any unused tax credit can be carried over 1 year back to 10 years forward. Note this does not cover anything other than foreign earned wage income (I.e you can’t use foreign tax credit for domestic investment income, etc).

b) Once you elect to choose Option #1 above you’re locked in for 5 years to that option, regardless of what foreign country you work in (I.e if you move from Spain to Italy)

c) For Option #1 any income earned above the exclusion is taxed without the benefit of any foreign tax credit offsets.


I’m not sure any of this will actually change how you approach it but I can tell you from my own experience (US citizen living/working in UK) using Option #1 would have me pay more tax as I earn more than the exclusion and already pay quite a lot to the UK government under it’s higher taxes. I use those to offset any tax liability to the US vs having to pay the US for liability above the foreign income exclusion cap.

Ultimately please do check with a tax attorney and ensure the same applies to Spain, etc. But if so just note you do have options and if there’s a chance Chica will make more money in the future it’s possible Option #2 would be more tax efficient. I’ll note the if the same does apply Option #2 wouldn’t see you paying any more tax to the US anyway, given higher taxes in Spain. It’s really more for people working in Oman/UAE, etc where there aren’t any income taxes.

Also noting that I don’t know your status but if you hold a US green card / permanent resident than you also need to file a return. If you aren’t you can still elect to do so and enable married filing jointly. Married filing jointly increases all limits substantially (especially for investment income limits). Note the downside is you need to also declare all worldwide income.

Hope some of this helps when you speak to the tax guy! I’ve had to go down the rabbit hole of reading the UK-US tax treaty to ensure I didn’t get caught up in any snares!

Frugalchicos
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Re: Frugal chicos journal - ERE in Spain

Post by Frugalchicos »

@anesde

Thanks for the details, we definitely have to make a lot of financial decisions this coming year... I guess that for us option number 1 might make more sense. Any tax lawyer / website for expats you can recommend?

We are both US citizens. I also hold Spanish citizenship and Chica just became permanent resident too.

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