Pitfalls of retiring to Spain

When you’re thinking about retiring in Spain, it’s important to know about the difficulties you might face, including the pitfalls of retiring to Spain. Living in a new country can be exciting but also tough. It’s not like going on a short holiday; it’s about dealing with everyday life in a new place for a long time

El Mundo newspaper reports that 47.5% of the spanish society considers bureaucracy a significant daily obstacle. According to CEOE, Spanish regulations exhibit “a high density and complexity,” leading to “a substantial level of bureaucratic hurdles and administrative burdens.” The intricacies of Spanish bureaucracy, including taxes, visa requirements and residency permits, are all essential for a smooth retirement.

Another big challenge is being far from family and friends. While technology helps, it’s not the same as having them close, while some may feel connected through weekly video calls, others may require more frequent contact. Finding a balance that suits everyone’s needs is key. 

The language barrier is also important. Living somewhere where you don’t speak the language can make even simple tasks hard. However, in some places like the Mediterranean, you might find more people who speak English than you expect, which can make things easier.

Despite these obstacles, with meticulous planning, retirement can indeed be fulfilling and rewarding.

Retire in Spain, a dream if you do it correctly

Retiring in Spain offers a multitude of benefits beyond its famed beaches and sunny climate. The country boasts a robust and affordable healthcare system. Additionally, the lower cost of living in Spain, from property prices to everyday expenses, offers retirees financial relief and a higher quality of life.

The diverse range of properties available in Spain caters to various preferences and budgets, from apartments to villas, coastal to inland locations. Beyond its physical attributes, Spain’s rich cultural heritage and relaxed lifestyle contribute to its retirement haven.

Interesting read  Buying property in spain for foreigners

Main pitfalls of retiring in Spain

Retirees considering a move to Spain should be aware of the associated pitfalls of retiring in Spain, including paperwork for property acquisition, taxes, legal and residency requirements, cultural assimilation and financial planning. This awareness is essential to ensure a rewarding retirement experience.

Cultural adjustments, such as new customs, social norms and the way people interact, are also important considerations. Spaniards have a relaxed attitude towards time and often enjoy a leisurely pace of life, which may differ from what retirees are accustomed to in their home countries.

Then there are practical things like dealing with legal and financial matters, the healthcare system, choosing whether to rent or buy a place and figuring out how to get around.

1. Understanding Spanish visa requirements

If you are considering retiring in Spain, Tejada Solicitors recommends seeking advice from an immigration lawyer regarding the residency procedure and requirements.

The applicable procedure depends on your nationality or nationalities.

European citizens intending to retire in Spain for over 90 days must apply for a certificate of registration as a European Union citizen. Initially, this grants temporary residency, which can eventually be converted into permanent status. To obtain this certificate of registration, you would need to complete form EX18, pay the required fee, demonstrate sufficient financial means for your stay in Spain and hold private health insurance.

María Soledad Sala
– Inmigration Specialist Lawyer –

For non-European citizens aspiring to retire in Spain, the best visa for retirement in Spain is the Non-Lucrative Visa. However, if you do not plan to spend more than 183 days a year in Spain, we recommend considering the Golden Visa

Non Lucrative Residency Visa

This type of visa allows stays in Spain exceeding 90 days but does not authorise engaging in professional or economic activities. To qualify for this visa, applicants must demonstrate sufficient financial resources to cover their stay in Spain. This entails providing certified bank statements from their respective financial institutions to prove financial solvency.

The Spanish embassy in the applicant’s jurisdiction of residence is responsible for issuing this visa, which is valid for 90 days. Within this period, the visa holder must enter Spain. Upon arrival in Spanish territory, applicants have one month to apply for the Foreigner Identification Card at the Foreigners’ Office or the corresponding Police Station.

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Golden Visa .

Retiring in Spain through this visa offers the advantage of potentially avoiding taxation on global income in Spain, provided you meet the specified criteria in tax regulations. You have various investment options available:

Investing a minimum of 2 million euros in Spanish government bonds or a minimum of 1 million euros in shares or social participations.

Acquiring property valued at a minimum of 500,000 euros, free from any charges. For couples under a communal property regime, an appealing approach could involve one spouse obtaining the investor visa while the other applies as a family member of the investor.

Initiating an innovative business project in Spain, creating a significant socioeconomic impact, generating employment or making substantial contributions to scientific or technological innovation.

Additionally, the law allows for obtaining the Golden Visa through investment via a legal entity, provided certain criteria are met, such as non-residency in a tax haven and the investor having majority control over decisions

At Tejada Solicitors, our experts can guide you through the entire visa process, including tax and real estate matters. While these areas are regulated differently, they are closely interconnected. We always stress the importance of considering the tax implications of obtaining a visa, as many clients reassess their decisions upon understanding the tax obligations they would face as Spanish tax residents.

Interesting read  Inheritance tax Spain

2. Financial considerations for a comfortable retirement

Retiring comfortably in Spain depends on various factors, including lifestyle preferences and location. In major cities, a monthly budget of €2,000-€2,200 is typical, while smaller towns could be managed with €1,500-€2,000 monthly. Owning property can significantly reduce monthly spending by eliminating rent costs. Non-EU citizens seeking a Spanish retirement visa must prove a minimum passive income of €27,793 annually. Health insurance may also be necessary, which can add to monthly expenses.

Pension and retirement planning demand a comprehensive approach, including assessing current benefits, exploring transfer options and understanding tax implications.

Retirees considering a move to Spain face a multitude of financial considerations that require careful planning. Managing cash flow effectively is paramount, necessitating a contingency fund to cover unforeseen expenses and income fluctuations.

Finally, expatriates must explore banking options offering multi-currency facilities and low-cost transfer fees to optimise banking and currency management.

Rosana Tejada
Authora: Rosana Tejada Crespo

3. Tax system 

The tax implications will vary depending on:

  1. To retire in Spain as a tax resident.
  2. To retire in Spain as a non-tax resident.

In the first case, to retire in Spain as a tax resident, these taxpayers will be taxed in Spain on their worldwide income, and the bilateral double taxation treaties and the Spanish Tax Law will apply.

Article 9 of the Personal Income Tax Law mandates that individuals who reside in Spanish territory for more than 183 days or have significant financial ties to Spain must establish tax residency. Regarding retiring in Spain, the typical tax considerations entail:

Filing an Income Tax Return (Form IRPF 100), with the Spanish fiscal year running from January to December. The filing deadline is published each year on the AEAT

Declaration of Assets Abroad (Form 720): The filing deadline is published annually on the AEAT website.

Informational Statement on Virtual Currencies Located Abroad (Form 721): The filing deadline is published annually on the AEAT website.

Wealth Tax (Form 714): The filing deadline is published

Interesting read  Buying a house in Spain after retiring

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Need a tax consultant in Spain? 

Understanding the intricacies of Spanish tax legislation is a complex matter. Tax law in Spain is dynamic and requires a specialised professional with extensive experience. To retire in Spain, it is essential to have a tax advisor who is well-versed in international taxation. In these cases, the experience of our tax advisors in Spain in the application of double taxation treaties is paramount.

Our duty as tax consultants is to explain to our clients the tax implications in Spain, study their global assets and evaluate how the move to Spain may affect them. Our firm advises clients to research and plan for taxes and relocation dates before retiring in Spain. This proactive approach allows them to save on taxes in Spain.

Many clients from the United Kingdom, Canada, the United States, Ireland and Europe need assistance in understanding how to declare and navigate the Spanish tax system. As an expatriate, it is crucial to understand existing deductions and tax laws in the home country, which may differ significantly from those in Spain. Once permanently residing in Spain, the applicable tax laws will be those of Spain, along with the double taxation treaty.

Although, as professionals, we empathise with our clients, it is not always pleasant to inform them that a tax-exempt product in their home country may be subject to taxation in Spain when redeemed as an expatriate. Nevertheless, there are strategies and planning approaches that can aid in reducing taxation in Spain.

Another common scenario is taxation or potential deductions related to capital gains from the sale of their primary residence in their home country. If the sale occurs while already a tax resident in Spain, they must fulfill their tax obligations with the Spanish Tax Agency, so advanced planning is necessary to meet requirements, apply potential tax deductions and minimise taxation in Spain.

Essentially, the role of a Tax Attorney in Spain is to inform clients about tax implications and provide solid tax planning aimed at minimising taxation in Spain.

4. Navigating Spanish healthcare and legal systems

It is well known that we have one of the healthcare systems recognized as among the best, offering free services to people affiliated with and contributing to Social Security.

For those foreign citizens who are already retired or are going to retire in Spain, in order to establish their permanent residence in Spain, if they are covered by the healthcare system in their country of origin due to receiving a State or Public Pension, they can transfer that coverage to Spain using form S1. To do this, they must present the S1 Form issued in the country of origin at the INSS office in Spain and have previously applied for a residence permit or visa, depending on the specific case.

However, those foreigners who retire but have lost their right to healthcare coverage, and therefore cannot apply for form S1, can obtain medical assistance through private health insurance or enroll in the public health insurance of Andalusia through joining the Special Social Security Agreement, which, once accepted by the INSS, by paying a monthly fee, will give the retired citizen access to the Spanish healthcare system.

5. Cultural and social adjustments

Spanish customs like “la siesta”, a short nap recognized by doctors as a healthy practice, typically occurs between 2pm and 5pm, during which most shops are closed. Spanish schedules tend to be later, shops open for longer, main meals eaten later and bedtime occurring later as well. Going for tapas, enjoying small bites with drinks, is a social habit ingrained in many Spanish cities. Family life revolves around communal meals, with Spaniards often gathering for birthdays, saints’ days and Sunday lunches, typically hosted at parents’ or grandparents’ homes. Expect friendly interactions, including cheek kisses and passionate discussions, which involve not just words, but also gestures and expressions.

In Spain, the queuing system often involves a more informal approach compared to some other countries. Instead of forming a traditional line or queue, people may ask who the last person to arrive was and then wait their turn accordingly. Many festivities in Spain are centred around religious holidays and key dates.

6. Real Estate in Spain 

Real Estate in Spain has experienced steady growth, consistent rise in house prices, making it an attractive choice for investors. It holds particular appeal for those considering retirement in the country. The government offers residency through real estate investment of at least 500k euros via the Golden Visa program or through the Non-Lucrative Visa with income proof. For those interested in purchasing real estate for rental income to supplement their pension, Malaga boasts an average return on investment of 8%, higher than the national average of 7%, which is elevated because of the significant number of tourists Spain receives annually. Naturally, certain locations may offer more favourable investment opportunities than others. Additionally, the real estate market in Spain is diverse, offering many types of properties at various prices, catering to a wide range of people. Spain has been a top-tier destination to retire for quite a while, resulting in large communities and tailored activities for people of all nationalities.

Interesting read     Spanish property Solicitors

7. Living arrangements

When considering retirement in Spain, careful planning of your living arrangements is crucial to enhance your retirement experience. Take into consideration factors such as the number of rooms needed for family visits, proximity to activities if you enjoy an active lifestyle, convenient access to public transportation, affordable housing costs and accessibility, including wheelchair access. Additionally, it’s wise to deliberate on whether you’ll be renting or buying. Testing the waters beforehand can offer valuable insights before making a final decision.

While purchasing a house after retirement theoretically offers greater value for money compared to renting, it’s essential to acknowledge other financial considerations associated with homeownership. These may include market value fluctuations, unforeseen maintenance expenses and insurance premiums. Also, consider the practicalities, such as the availability of lifts in apartment blocks and the accessibility of healthcare services in the area.

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comfortable retirement in Spain

8. Best places to retire in Spain 

When choosing the best place to retire in Spain, consider your preferences, whether it’s a  cultural centre, a tranquil coastal retreat or a vibrant city.  Top options include Malaga, followed by Madrid and Barcelona. Coastal areas like Alicante, Costa del Sol and Palma de Mallorca lead the rankings for coastal properties. Additionally, cities like Seville and Burgos offer unique cultural experiences. While Spain boasts a wide range of properties and prices, availability for sale is limited in high tourism areas.

The importance of having a good consultant in Spain for your retire 

Rosana Tejada and Marisol Sala advise European and non-European citizens who decide to expatriate to Spain through the Spanish residency for Europeans or any visa (non-profit visa, Golden Visa, etc.) to coordinate the visa process with tax matters. Surprises may arise and aligning both aspects is crucial for a smoother transition.

Therefore, it is crucial to contact a law firm specialising in tax planning for expatriates intending to retire in Spain. Only with detailed tax planning can tax optimization be achieved.

We often receive clients from the United States, Canada, the United Kingdom, Ireland and Europe in general, concerned about their tax matters. We always advise our clients to consult with a tax advisor in Spain to make the best decisions before moving

Sometimes, clients modify their initial plans after the initial meeting, either because taxation is higher than expected or because schedule adjustments can reduce their tax bill. It all depends on various factors.

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