Hiring in Spain vs US

As explained, I have never created a company so I am trying to get a sense for how competitive different countries are if I wanted to set a company there. I guess there are different type of incentives; one can get in addition to these, but let's just go by the standards. I can think of factors when taking that choice like taxes (to your employees, which is likely to limit who you can hire) and of course, to your company (corporate taxes), salaries, costs of running the company (like energy costs if a given industry really needs those), raw materials, leasing, transport...

We look here purely at hiring costs. Looking at this article, we basically have that in Spain:

1. There are 14 or even 15 pays per year, so, easiest is to compute things on annual income.
2. From the salary company pays to the employee, the company pays about 30% on social security related expenses and the employee an extra 6% give it or take. So, for a say, $10k salary, company would pay an extra $3k and employee $600 on social security.

So, say that about 26% of what the company pays goes into medical, retirement, disability, unemployment and paternity benefits.

In US for the equivalent items we find (How much does an employee costs):

1. Social Security/FICA (currently 6.2% on the first $90,000 of salary)
2. Unemployment/FUTA (6.2% on $7,000 of salary)
3. Medicare (1.45% with no salary cap).
4. Workmen’s compensation premiums;will depend on the category of your employee, with clerical at about 0.3% of salary and manufacturing at 7.5%.
5. So, we are looking at 15% (without #4) for someone like an office worker, an engineer... The benefits one may get from this social security may not be as high as full salary coverage that happens many times in Spain, so, companies may throw in 401k contributions which could be like 6% of your salary.
6. Health care costs are apart, depend on plan... but we can say that for an individual is about $6k/year and family about 2x that. It is not a percentage of the salary so, for a $10k salary that would be a lot while for a $100k is about 6%-12%.
7. Short and long term disability insurance would also be apart but an estimate is about 1% of the salary. Things start to get even with Spain specially on the lower salary brackets.

So, "the costs to this point (basic salary, employment taxes and benefits) are typically in the 1.25 to 1.4 times base salary range- e.g. the cost range for a $50,000/year employee might $62,500 to $70,000."

In summary, it looks to me that while the compensation costs beyond salary are equivalent or even higher in the US, the employee in Spain (or Europe in general) gets much better benefits. One could obtain similar conclusion fromcomparing benefits from US and Europe article.

One big difference are the firing costs too, as things may not go out as expected initially). In other words, while it is cheaper (for the same benefits) to hire someone in Spain, not even taking into account the salary itself, letting him go could be much worst.

Please comment if I am missing something :)

Cheers!

Taxes in US vs Spain

[Work in progress]

Top level, I want to compare couple of countries (US vs Spain) which could be considered quite different from social policies, one often cited as extreme capitalism and the other more of socialist nature (who likes to talk about "el estado del bienestar"). I am not an economist or have experience creating a company so I may miss stuff, but let me give it a try. We would like to learn:

1. If you make a given salary, how much you get to keep, depending on the place.
2. And related, what do you get for what you pay on your taxes. Or a bit on the flip side. If you have certain needs in life you have to pay for and the rest of the money you get to keep to enjoy, where is better (assuming you were making the same, which obviously may not be the case).
3. If you are a company, where is cheaper to hire someone. This is more from the perspective of where would you like to invest. Of course, there are other factors, like how easy is to pull out if things go bad (like the cost of laying off people, etc) or what are the corporate taxes...

So, with we dig in both countries and try to make a comparison, which obviously may not be easy. This will be even more difficult if we try to cover a broad spectrum (low and high income, etc). So, we may just want to pick an example. 

I'll put here the summary table once I get it all. For the time being few posts getting the background info:

1. How much is to hire someone in Spain?
2. Income tax brackets in Spain
3. Income tax brackets in US
4. Paying taxes in Spain (II): taxes on your wealth.

Cheers!

Paying taxes in Spain (II)

To continue with the tax topic comparison across places we look at couple more taxes that you may want to be careful with as are not standard across countries but can add up. For this, we look again at Spain, which looks like is going a bit nuts with the taxes (specially when you add all other ones, I need to do a summary comparison):

• Wealth tax (Impuesto del Patrimonio), i.e., tax not only the income but also the overall wealth (even after one already paid taxes on). If you live in the country, all your wealth across the world is included. If you are not resident, then only the wealth in Spain is counted. (Check retirement plans as you may be able to exclude those, like 401k). This is actually not only for high wealth individuals and it applies on anything beyond ~$500k for any resident of Spain (spends there more than 183 every year). On top of that, it is not homogeneous across communities... Here is a breakdown for communities. To see the difference, having 4M Euros would cost you 0 in Madrid but ~40k in Catalonia. Note: this is currently (as of 2018) a temporary tax that is extended yearly by the government. One day they may not but I wouldn't count on it for many years plus there is always the risk of being brought back (it has been extended yearly for already 7 years or so...). For instance, as mentioned, on Madrid is zero, but it is almost a given that a change on local government (from right to left) would immediately increase this. 
• The way to compute it in Catalonia is:
• Add all your wealth
• Subtract up to E300k for the value of your permanent residence
• Subtract E500k (exemption rule). In other parts of Spain is E700k but in Catalonia...
• Apply the following table:
  
• So, for instance, say you got E2M and live in a E200k place. The "Base Imponible" is 1.8M, but in Catalonia the first 500k are exempt, and as such, the "Base liquidable" is 1.3M. Looking at the table above, the first 668449.75 pay 2632.21 and the rest (1.3M - 668449.75 = 631550.25) pay at 0.945% = 5968.15. Hence, you got to pay a total of E8600 that year.
• Important: there is a note saying that there is a cap on how much you pay on taxes in relation to your overall income "Exclusivamente para los sujetos pasivos sometidos al impuesto por obligación personal, la suma de la cuota íntegra del Impuesto sobre el Patrimonio conjuntamente con las cuotas del IRPF (cuota íntegra general y cuota íntegra del ahorro) no podrá exceder del 60 por 100 de la suma de las bases imponibles, general y del ahorro, del IRPF." Examples:
• Say that, following with the example above, you make 50k/yr and pay 10k on taxes on that money. 60% is 30k. As (E8600+E10k)<30k, you got to pay the E8600 for patrimonio (full amount).
• Say that you make only 10k and that falls below the tax line, so, no tax pay. 60% of 10k is 6k < 8600 so you are paying 2600 more than you should. So, you got to actually pay E6000. 
• There is actually a limit on how much you can deduct from that tax. For instance, say that you made zero Euros that year. Then you would be paying 8600 too much, but they don't allow you to avoid paying all those. You can only remove 80% of the 8600 = 6880E. I.e., you still have to pay E1720.
• There is also a tax on real state if you are not living on it and has no rental gains either (say that you keep the place there as second residence): https://www.strongabogados.com/impuestos-no-residentes.php That's actually my case (where I own a condo in Barcelona). Looks like I got to pay for the condo 24% of 1.1% of the value of the place (if it was reviewed in the last 10 years, which it was). The good part is that the official value of the place ("valor catastral") is usually not as much as the market value of the place. And yes, that includes the parking spot. (you got to file twice, one for the flat and one for the parking spot):
• Use form 210. Most of it is straightforward. Remember to pay only for the days that you were owner of the place. For instance, if you buy the place on March 23, then declare 284 days out of 365. For instance: 284*88749.24/365 = 69054. 
• To fill the form 210, follow these instructions. The form is in here (under "predeclaracion" as you fill that and then take it to the bank). It's filled on the browser and then generates a pdf to bring to the bank. You can actually export it and next year you just import it, change the dates and generate a new one. Also when you take it to the bank, you can print double sided. The bank will give you back one of the forms stamped for your records.
• For those who think that I could put it as AirB&B, actually you can't without a municipal license, which the city doesn't give anymore.
• Beckham Law: a bit of good news... this is a regime within the Spanish tax law for foreign hires, which applies for the first 5 years a similar tax structure to the non-residents: flat income tax at 24% (applies only to Spanish income) and excludes overseas wealth tax. In fact, you don't even have to submit the 720 (declaration of overseas wealth). See more here and here.

Overall I do believe that wealth unbalance is a bad thing. Unfortunately, these laws seem to be less about balancing wealth (given the relatively low limits they are applied to) and more about getting more money into the coffers of the government (which honestly, is extremely wasteful... that would be a different post). Certainly those individuals, specially those with no ties to Spain, may want to take this into account when looking for places to invest or to retire to.

Cheers!

PS.: US-Spain tax treaty explained

PS2.: If you are a Spain resident, don't forget to declare your goods outside the country with model 720.

Health care and retirement coverage in Spain

This post is mostly looking into the situation of Spaniards living abroad but eventually planning to go back to Spain.

For healthcare covered by taxpayer pocket, the governing law is really wide and covers almost everybody. Some that fall outside could be a resident that makes more than 100k Euros but doesn't pay Social Security (which includes Health Care). Or a Spaniard that is not resident. Nevertheless, if the Spaniard is visiting, he is still covered as long as nothing else does:

• "Los trabajadores por cuenta ajena españoles de origen que no residan en Estados miembros de la Unión Europea, ni en Estados parte del Acuerdo sobre el Espacio Económico Europeo ni en Suiza que se desplacen temporalmente a España tendrán derecho a la asistencia sanitaria en España, con cargo a fondos públicos, a través del Sistema Nacional de Salud cuando, de acuerdo con las disposiciones de Seguridad Social española, las del Estado de procedencia o las normas o Convenios internacionales de Seguridad Social establecidos al efecto, no tuvieran prevista esta cobertura."

I guess that integrates de-facto such a Spaniard in the coverage, although there is a doubt about treating not urgent cases ("go back home and take care of it there").

How about retirement?
Wikipedia, as usual, is a good reference but I think only shows the old regime (which somehow you can choose, if you want?). In the new regulations, it seems that to compute the base of what you get paid you use the last 25 years of data. The formula is tricky and it never gives 100% of your pay (you divide by 350, but there are only 300 months in 25 years). But you can actually start getting paid after paying only 15 years. The kick is that then you get only 50% of the base. The percent increases by 0.19% every month, the first 248 months and then by 0.18% the rest, to cap at 100% after 300 months (25 years). Notice that if you only worked 15 out of 25 years, the first 10 are included on the base but at much lower rate (not zero, though, but minimum salary type stuff). So, if it was zero it would be 50% of 15/25 = 30%, but it'll be a bit higher (as again, it is not zero...) on one side, but lower as you actually owe to compute the base by dividing by 350, not 300 (25 years).

I guess I can decide soon if it is worth... How much is the payment?
A friend suggested to sign up as self-employee (autonomo). To compute how much you would pay, you would choose your salary from a range (between 893 and 3642), and then apply a rate (29.8%). So, say that you want to have the maximum salary at retirement but start paying when you are 52 (15 years before the 67 years of retirement age). You would pick the 3642x29.8%=1085 Euro/month. Nevertheless, you have to make sure you are paying that by the time you reach 47 or otherwise the maximum is limited to 1900. Anyhow, if I am thinking this right, notice that you pay about 1/3 of what you claim to make (which becomes the base eventually). So, when you start getting paid back (after retirement) you actually make about the same per month (in the scenario where you only paid for 15 years). Looks a bit like a break even deal (as you don't know if you are going to live past 67+15=82 years).

The kicker is that my friend was considering doing that while he was actually working on a foreign country (non-EU) so, probably was not legal (?).

Cheers!

ESPP

When one sells stock purchased through the Employee Stock Purchase Plan (ESPP), there are couple of things to take into account. The main one is that folks usually forget is that there are two part to the benefit/loss, the discount portion and the earnings/losses portion beyond that. How are these taxed depends on how long one held the stock.

From the TaxAct help:

"Qualifying vs. Disqualifying Disposition

A qualifying disposition means both of the following are true regarding your sale:

• It is more than a year after the purchase of the stock.
• It is more than two years after the grant date. This would be the first day of the offering period, sometimes referred to as the enrollment date

The compensation income for a qualifying disposition is the lesser of two amounts. The first amount is the discount allowed on the purchase of the stock. This would be the difference between the fair market value (FMV) of the stock on the grant date and the actual amount you paid for the shares. The second amount is the difference between the FMV of the stock when you disposed of it and the actual amount you paid for the shares.

For a disqualifying disposition, the compensation income is calculated as the value of those shares on the date of purchase minus the amount you paid for them. Generally, this would be the discount you received on the stock purchase."

Although seems common sense, it is actually quite more tricky than it looks. See Fidelity's detailed explanation

Actually I took guidance from the UBS document that had an example. I can't go here through all the combinations but just let me highlight the major difference. On non-qualifying disposition, the whole discount goes into income. In qualifying, truth is that it is not much different. The income ends-up being in many cases 15% of the FMV at start of offering. If the stock went up during the contribution period, then that 15% is better (lower). In my case the discount is always on the exercise date, so, if it goes down in price during the contribution period, then you end up paying the same as non-qualifying... In the case of losses, I believe there is an advantage for qualifying (see links...).

Cheers!

Taxing mutual funds

Man, one more year where my mutual fund barely moves but I get a letter from the fund company telling me that I made $3k!?! So, pay tax for that... Anyhow, to understand how to account for this, read this good explanation.

Basically, when the fund manager sells a winning stock, you pay tax for that. As long as he/she doesn't sell the losing ones, you can see the fund lower with a bunch of unrealized losses (same as would happen if you held the basket of stocks).

So, sure, pay year by year, but keep track of that, so, that in the end, the earnings that you pay tax for become part of the investment capital (!). So, when you finally sell it and realize the losses, your investment is higher than it was, and your losses are higher than they look like if you just looking at the price you paid for the mutual fund at the very beginning.

Basically, avoid double taxation... The link above gives an example where you actually made money overall, but it is the same concept...

Cheers!

HSA reporting

One more year filling in the taxes and this year, I happen to have an HSA. So, this is how I entered the info (disclaimer, not sure if right or wrong):

• In the W2 the employer puts all contributions (employer and employee), although they call it in the wording "employer contributions". Kind of distracting...
• You also should have got
• Then you got to fill in form 8889. In my case, very simple, single, etc... I had to put:
• Box 3, 5, 6 and 8: $3250. Basically max I could contribute.
• Box 9, 11: what was showing on the W2. Contributions from your employer (which include yours done directly from payroll). In my case $2500. Check the form 5498-SA that you should have received from your broker.
• That makes box 12 $750. I.e., that's what we could have contributed but we didn't.
• And then on distributions (what you took from the HSA) I had 14a, 14c and 15 as $727. All mine are qualified medical expenses... You should have got form 1099 from your HSA broker. Just look it up...

Basically straightforward stuff. Do not duplicate the stuff on your W2. It is weird because somehow, I put $2k out of the $2.5k contributed, but I didn't have to write this anywhere... So, did the $500 from my employer also give me a tax break? I think basically so. As all this comes from the employer, it is already accounted for on the W2. Notice that on the 1040 nothing shows up on box 25... This box is only for contributions other than employer contributions.

One thing to notice is that as you fill in stuff in TaxAct or TurboTax, it considers the HSA contribution as income. Then, when you enter finally the HSA form, it removes them, giving you a break on the amount of tax your owe.

HSA FAQ
Other link...

How to deal with RSUs

RSU stands for Restricted Stock Units.
Tons of details here.

To the point... Imagine I got 167 Awards/Units Granted. At the vesting date, employer uses 52 to pay the tax and I get to keep the rest, 115 "total shares available (delivered)". In governments eyes, you got 167*$32.18 (share price at vesting)=$5374.06. So, this shows up in your W-2. The brokerage already took some of those shares and sold them to pay for the tax (52*$32.18=$1673.36) and the rest (115) are now real shares at the account, which figure like if they were bought that day (remember this day for the time you sell them). Basically, this is called a Sell to Cover. Probably best would be Same Day Sale but anyhow:
http://thefinancebuff.com/restricted-stock-units-rsu-tax.html

Basically this is like the company giving you the cash at the date of the vesting, so, ordinary income. As this happens in the brokerage that your company has chosen, the whole earnings/taxes are already included in the W-2. So, you got to do nothing, not even enter a fake line with buy/sell for the same price! You should see in your W-2, under the box 12, a "V" case declaring the total amount (all the shares x price at vesting):
http://thefinancebuff.com/restricted-stock-units-rsu-sales-and.html
http://thefinancebuff.com/rsu-sell-to-cover-deconstructed.html

Of course, keep track of the purchase price. Now it is like any other stock purchased at that price and date. You'll have to pay/get tax/loss depending on when you sell and the price at the time. Notice that according to this one can't use 83b trick for these.

IRS Penalty for underpayment

So, one day before paying my taxes, I realized I had to pay a bit more than expected and afraid of penalties, I checked the rules. Quite frigging cryptic the first time you read them, but here is an example for future reference. Say that your tax withholding (what you had paid so far in taxes) was $8000 but that what you should have paid was $10000. The IRS wants you to pay penalty if you make a mistake by "too much".

1. The first cut is an absolute number. Basically, something that says "don't worry if you just underpaid by this much...". And that limit is set at $1000. So, with an underpayment of $2000, we are way past that.
2. The 2nd is if you should have imagined that you had to pay more than you paid. I.e., with what you had made, should you have realized that your error was too big... For that there are 2 cuts:
1. The first is very similar to the "first cut" but instead of absolute quantity, it's a relative. Here they are saying: "if you paid in a range of 90% of what you were supposed to pay, you are fine". 8k is less than than 90% of 10k (9k), so, we can't say that we are fine... The error is considered "too big" by the IRS
2. The second is saying "you even paid less than what you paid in 2009 moron!". So, say that you paid in 2009 $9500 of taxes (check line 60 of the 1040). This year you paid only $8k. I think you got no excuse. But if last year you had paid only $7k of taxes, then you would be fine. In other words, if you pay in withholdings along the year more than the total tax you paid the previous year, you are fine. You got an "excuse" :)

More examples/explanation here: http://www.taxationlawfirms.com/resources/tax/tax-penalties/2010-tax-underpayment-penalty.htm

Disclaimer: I have no clue about tax reporting. Follow the above at your own risk. Just trying to help :)