@Basit Siddiqi
@Joaquin Camarasa
@Bruce Lynn
A few observations/opinions on the topics discussed from a resident of the 51th state of the US (Canada - LOL) and investing in Spain:
1. I think most successful investors would tell you that, while you need to take tax into account in your decisions, you shouldn't make a decision based on that alone. Also, don't forget that, if you pay taxes, it means you're making a profit.
2. Like most countries, Spain will tax you on your worldwide income if you're a resident, as does the US in most countries (so maybe it's not a bad thing that Canada isn't the 51st state - LOL again). Yes, Spain has a wealth tax but it's above €2 million taxable income and the rate is low so it's not going to kill you.
3. Along with Eritrea, the US is the sole country in the world that taxes its citizens on their worldwide income based on residency and citizenship. So, if you're a US citizen and you move to Spain, you'll have to pay taxes in both countries. Thankfully, you'll be able to get deductions based on the bilateral treaty for the avoidance of double taxation but that means that you'll always pay the maximum of the tax rates between the two countries for each category and some items might not be deductible.
4. Yes, Spain is one of the countries in which banks will lend to non-residents (they generally don't) but Spanish banks are much more conservative than US banks so it's more difficult to qualify, especially if you don't earn W2 income. Also, banks normally only lend for holiday homes, not for rental properties but a holiday home can mostly be a short-term rental or become one later.
5. This last bank limitation isn't a bad thing in my opinion because the long-term rental yields are low and what are you going to do if a tenant doesn't pay? Go to court in Spain as a foreign owner? I invest almost exclusively internationally but I would generally never invest in long-term rentals, unless the rentability is very high, which it almost never is.
6. The withholding tax (on gross income) a problem if you:
a) The wealth creation part of that real estate investing is capital appreciation, not cash flow. So, yes, you'll get a lower percentage of the cash flow (which isn't that high anyway for long-term rentals like pretty much anywhere in the world, including the US) but you'll get appreciation and loan amortization.
b) You successfully invest in STRs and make enough money that you don't care that much about the higher taxes.
To conclusion, as a foreigner investing in Spain, with a few exceptions of specialized niches, I focus on areas that have (high) capital appreciation and short-term rental potential.
Hope this helps.
