Dateline: Tbilisi, Georgia
For a while now, I’ve been telling you that having a second residency in Europe could be one of the best moves you could make.
The truth is, these cookie cutter programs may work for some, but they aren’t appropriate for many of the people who write to me. That’s not to say Panama or Paraguay specifically are bad; I have recommended them in some cases in the past.
For many people, however, living in Europe would be their ideal situation.
I receive numerous emails from readers asking how they can live in Italy, Spain, France or some other country in Europe. In truth, living in Europe is the easy part. The real question is whether or not there are benefits to obtaining second residency in a European country over somewhere like Panama or Paraguay.
In my book, the answer is yes . . . and no.
The reality is, with a little help, you can find great European second residency and passport programs for your needs. And having a residency in Europe comes with many benefits. For instance, thanks to the Schengen Agreement, once you have residency in one country you can travel and work in any of the other 26 member countries.
Whether or not you make these benefits work in your favor, however, depends on where you obtain your residency. In some countries it will work out beautifully, in others your residency can become a complicated and restrictive obstacle.
Spain is one of those cases.
The Spanish entrepreneur visa
It seems to me that everybody wants to go to Spain these days. The country is so steeped in culture and romanticism that it’s definitely hard to ignore.
The Spanish government has been working to capitalize on the situation and has made obtaining a second residency in the country rather easy; that is, if you’re the type of person who can create jobs.
Spain is still trying to recover from the economic downturn that began in 2008 and caused unthinkable levels of unemployment among the country’s young people. Because of that, if you can start a business that creates jobs for Spanish workers (or other EU citizens in Spain), they will welcome you with open arms.
The first catch to the program, however, is that the path to citizenship takes years. Becoming a Spanish citizen requires ten years of residence before applying. From there, the process can easily take two to four years. There is no “fast track” option for investors, either. It takes a high-value business owner the same ten years as it does his or her maid on a work visa.
The second catch is that Spain requires that you spend a minimum of six months a year in the country to maintain your residency. If you fail to log at least six months in Spain, your visa will be canceled.
In comparison, the appeal of residency programs in places like Panama and Paraguay is that the government has set a very low (i.e. one day) requirement for you to maintain your residency. While some countries in Europe have similarly low requirements, many of them do not, including Spain.
The final catch is that — conveniently for Spain — the six months required to maintain your residence is also the amount of time needed to qualify you for Spain’s near-US levels of tax compliance burdens; not exactly the best reason to get a second residency.
I was in Barcelona almost a year ago and, though I had never considered Spain as the place to go (and much less for residency) people were asking me about it so I decided to check it out. While there, I paid two different experts to sit down and talk with me about the program and how it works.
Over the course of our conversation, they brought in one person and then another and another to talk about the different aspects of the program. The general message was that it’s not very difficult or expensive to get the Spanish entrepreneur visa, but to maintain it you have to live there and you’re going to have some tax problems if you do.
The benefits of planting flags
Does that mean you can never live in Spain? Of course not. In fact, I would ask, if you want to live in Spain, why do you want to get a Spanish visa? The whole point of planting flags is to make things work independently.
If Spain appeals to you as a place to live, live there. If the requirements attached to the Spanish entrepreneur visa make it unappealing to you, don’t get it.
As I mentioned, not every European residency program will have the same stipulations that Spain has in place. As such, what you should try and figure out is how you can get other European residencies and then go and live in Spain.
Most European countries will allow you to visit for a total of 183 days before you either have to leave or they qualify you for taxation. The majority of the people I know who want to live in Spain are perpetual travelers and don’t plan on living in there for a full twelve months, so getting a residency in Spain makes even less sense.
If you want to live in Spain — but are not averse to traveling to other countries as well — get a residency in a place like Belgium or see if you qualify for citizenship by descent somewhere in Europe, and then go and live in Spain for five or six months each year.
There is no need to commit to a country that will tax you just as intensely as your current country of residence simply because you want to live there.
Not anymore, at least.
Twenty years ago, that may have been the case. For example, back in 1995, my parents wanted to move to New Zealand. To make the move, they determined that they would have to sell their business in the US, close all their bank accounts, pack everything up and move their entire life to New Zealand.
That’s the way people thought about world travel and living overseas back then. The only options you had were to jump from one frying pan to the next. Now, however, you have real options. You have the internet and a hundred different tools that make it so you don’t have to commit to just one place.
You want to live in Spain? That’s great! Just don’t bank in Spain and don’t get your residency in Spain. Simply live there.
That’s the beauty of planting flags: you can diversify and ensure that each aspect of your life is planted where it will be treated best.
Play by the rules
Finally, planting flags is not about cutting corners. You can take advantage of the fact that you can have residency in Belgium and live in Spain for six months of the year, but once those six months are up, you need to move one.
There are some people who assume they can just go to Spain (or any other country) and live there for as long as they want. They figure that if they get caught, they can feed the authorities some planned explanation and be fine. You don’t want to do that. You want to play by the rules.
The European Union is not exactly toothless.
In Spain, unlike in some other countries, immigration and tax departments of the government talk. If you file immigration paperwork saying that you spent X amount of time in the country, that information will get sent right over to the tax department.
If your records don’t match up to your account and you’ve overstayed, the tax department is going to put their hand out and say “Guess what, you are now a tax resident. We tax on worldwide income so we need to know about your bank accounts and all the money you’re making. Oh, and please pay us for that rental property you have in Wisconsin.”
Now, it’s all subject to a tax treaty if you’re from the US or somewhere else, but you will be taxed!
So play by the rules.
The bottom line is that easy doesn’t always mean you should take what’s being offered. Of course, it’s going to be easy to get residency in Spain. They need more people to tax! And of course, it’s not going to be that expensive. That’s how they get you to buy in to their program.
Don’t fall for easy. It’s easy to do a lot of things that are horrible for you. It’s easy to get addicted to smoking. The first one is almost always free! But you know you will more than pay for that freebie in the future. It’s the same with the Spanish entrepreneur visa.
I’m all for lifestyle planning and enjoying your life. I’m going to be in Valencia in June and Barcelona in September, but I’m not going to establish roots. I like Spain. Just understand that it’s not all or nothing. You have options. Use them.