Thursday, December 30, 2010

Spoilt for choice - the next bubble to burst

They say hindsight's a wonderful thing but actually, particularly when it comes to money matters, it mostly leaves you rueful and feeling slightly foolish. How come you didn't see that great looming disaster when all the signs were staring you in the face? For example, did you see this last recession coming? The various property crashes we've had in the UK over the years? The dot com boom turning to bust? Or did you spot before anyone else that Japan was going to fall from economic star to the land of the permanent slump overnight? Maybe you did. Because none of these things came out of the blue; there were plenty of warning signs and sceptical voices pointing them out.

It occurs to me that there are some great crashes in the making at this very moment. There are certainly plenty of booms going on. Surely some of these are going to come to a juddering halt and go into reverse causing mayhem. So as we turn towards the last week of 2010 what would you nominate as the most likely boom-to-bust story in the making? What will we be talking about in the next few years like we talk about Greece and Ireland or the Sub Prime crisis? Here are some candidates:
China -

A bit like Japan in the 80s - the turbocharged economy that just continues to move astoundingly upwards and the country that everyone thinks is the future. There are apparently 65 million empty unsold properties in China, making Spain´s million or so property overhang look pretty puny. This article is typical of the sceptical view The China Syndrome - A Building Bubble
Gold -

Up more than 500% in less than a decade. Dinner party conversations about how much Cash4Gold gave you for granny's locket. I don´t see it myself but many people are calling a gold bubble e.g. 11 signs that gold is in a bubble

US Dollar -

A more or less permanent and enormous trade deficit. A massive fiscal deficit and a central bank that prints money for fun. The mother of all bubbles? Scary YouTube video says yes The Dollar Bubble
Government Bonds -

Government bond yields in most countries like Japan, Germany and America have slid and slid as a decades long bull market in sovereign debt has barely paused for breath. Cracks are appearing now though surely?
The Euro -

Sceptics have called this a disaster in waiting since its birth but it hasn't fallen apart yet. Matter of time?

Oil and other commodities -

A two year high for oil - 93€ Are they having a laugh? That can't be sustained with the weak recovery we are having.

Or maybe you think none of the above; everything is cool. Of course, with the possible exception of the Euro which is very much a political issue, these bubbles - if that's what they are - are all related. A super dollar bubble that has been blowing ever bigger since the 70s.

For what it's worth I think the Euro will avoid mayhem and destruction because the politicians will do whatever it takes to avoid a collapse however much it costs their taxpayers. I don't think the high gold price is a bubble even though, short term, there is a risk of a correction as interest rates rise next year. Oil and commodity prices merely reflect the inflationary consequences of the policy choices made by the US and China which lie at the heart of the whole show. The question is not "will it all end in tears?" but when and who will start blubbing first. I am not even going to hazard a guess though I can easily see the US Treasury market unravelling before the great China crash.

Latest article on the Advoco website covers these sort of themes in a review of the prospects for investors in 2011 What Should You Do With Your Savings in 2011
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Sunday, December 19, 2010

One Great Idea

It's one of this little irritants of modern life - the ban on taking liquids through airport security. Unless you want to shrivel and dry up on your journey, it's a choice between buying a bottle of water from one of the shops on the departures side or seeing what those nice people from Ryanair (or whomever) are charging these days for a bottle of water.

Choosing the former option the other day as I waited to board my flight to Spain, I stumbled across the option of buying One Water from the Duty Free shop. It's spring water from Wales and, besides being considerably cheaper that the French stuff on offer from WH Smiths, all of the profits from its sale go to clean water projects in Africa. Specifically funding Playpumps - these are pumps driven by the power of a children's roundabout which deliver clean water from underground aquifers. A look at the website explained a bit more about the company and it's quite a story. Since it's been going since 2004 you may well have heard of it so I won't repeat the facts which you can read on the website, but a couple of things did occur to me:

- more and more charity, particularly relating to developmental and environmental issues, is getting interwoven with business. As an example look at the plethora of Fair Trade type logos you see in the supermarkets; this is straightforward commerce but with an ethical twist. The time when all green and anti-poverty campaigning groups used to instinctively line up against "big business" and hated multi-nationals seems to have passed. They have seen the benefit of harnessing the power of capitalism for their own ends. Good to see for someone like me who is a free market capitalist through and through but is also acutely conscious of environmental and poverty issues.

- as a general rule I find bottled water annoying and in fact somewhat immoral. I cringe at the amount of money and resources that is wasted on packaging, advertising, transporting stuff that is no better than tap water. Certainly anyone with any pretensions of caring about the environment or global warming should not buy bottled water. Maybe I am missing something but it's a view I have always held. Now that I have found a bottled water which grew out of a great idea and supports a great objective I can soften my opinion. I will still only ever buy a bottle if I have to, but I will always look for the One label. You can like One water on Facebook too

Latest article on the website - Spanish pension benefits Full list

Tuesday, December 14, 2010

EU bonus curbs are bad for Britain

Banker-bashing - it’s become a December ritual to rank up there with carol singing and Christmas lights. Investment banks announcing big bonus pots inevitably attract criticism of the “greedy casino capitalist fat cat” variety, particularly from politicians perhaps keen to deflect critical reviews of their own performance and economic management.

This year the EU has weighed in with some new rules limiting the amount of bonus that can be paid in hard cash and also restricting the right of the recipient to cash in all of their bonus for several years. It’s an easy sell for the Eurocrats politically – few voters are keen to see bankers getting big bonuses, particularly when they amount to rewards for failure (AIB which almost bankrupted Ireland tried to pay out €40 million in bonuses).

But nevertheless the new restrictions are a clear erosion of freedom – the right of private organisations to pay their staff how they see fit – and deserve some scrutiny. The excuse for their introduction is the “systemic” risk posed by banks; the idea that if banks pay their staff big cash bonuses, this will encourage excessive risk taking and sow the seeds of future bailouts and crashes.

However many studies into the subject have failed to find a link between bonus systems and risk taking at banks. I just read a great book about the collapse of Lehmans (“A Colossal Failure of Common Sense”). It is scathing about the bank but doesn’t mention anything about cash bonuses being the problem – in fact Lehmans always paid its bonuses mostly in shares, just the like the new rules propose. If it is felt that banks pose a systemic risk this should be tackled (and is being tackled) in the right way – requiring they put up a bigger capital buffer as a requirement of doing business – not in a politically motivated attempt to stigmatise bank employees.

There is of course a hidden subtext behind the unjustified attack which will undoubtedly contribute to an erosion of the City’s competitive position as a financial centre. Our European “friends” have long been envious of the power of London which was supposed to decline when the Euro came in but actually thrived. The financial crisis has been a great opportunity for left-leaning, anti-capitalist and unelected Europeans to lay into one of the UK’s main strategic industries. The British government should be doing everything possible to delay and block these new rules.

Latest article on the ADVOCO website Calculating the autonomo tax burden

Monday, December 6, 2010

‘Tis the season to pay Spanish taxes

A rather dull topic this week but an important one for anyone with property in Spain, because the deadline is looming for declaring non resident taxes. All Spanish income tax declarations for non residents (modelo 210) have to be in by 31st December. The tax is collected either directly from the taxpayer’s bank account on the last day of the year or it can be paid in cash at the bank, with the completed modelo 210.

Resident property owners don’t have to pay this tax but it is worth noting that the Spanish tax office will not consider you a resident unless you have registered as such and filed at least one tax return (even if it is a “nil” return with no tax paid).

Also be aware that the system for non resident property owners who rent out their Spanish homes has changed. As in previous years the annual modelo 210 is not appropriate if you actually earn rental income – you are supposed to file quarterly form 215s. The change is that this year, for the first time, expenses “exclusively relating to the rental” can be claimed against the gross income. Rates (IBI), agents’ fees and advertising costs would fit under this category.

Back to the modelos 210 which non resident property owners have to declare if they don’t rent out. Full chapter and verse on the tax can be found on our website which has a special page (Spanish Tax Form 210) explaining all about it and giving details of our service where we will do it all for you for 30€.

Alternatively you can do it yourself - it is not a particularly complicated form to fill in and you can download it from the Agencia Tributaria’s website here. Remember that you have to register first before you declare (modelo 30). You pay it at the bank, but you will need to fix Agencia Tributaria identification stickers on the form before the bank will accept it. These stickers can be obtained from the Agencia Tributaria offices simply by showing your NIE (once you are registered with them).

The advantage of our service is that you can do it all online / by email even if you are not in Spain, and that includes the registration process. We even allow clients to settle our bill in pounds to a UK bank account.

Monday, November 29, 2010

Zapatero gets the message

If he means what he says (a big if since he is a politician) it seems like the Spanish PM, Jose Zapatero, has finally got the message. At a meeting with business leaders to discuss reforms this week he said all the right things:

He's talking about reforming pensions by February and restructuring the weakest savings banks by Christmas. In addition he says that regional governments, who account for about half of Spain's public spending, must start reporting their deficit-cutting progress every quarter.

Up until now he has dragged his feet on reforms, mindful of how unpopular they are on the left of his party and indeed with the electorate as a whole who I suspect mostly don't accept that things need to change if Spain is going to survive and compete. Now Zapatero talks about "accelerating reforms to the max" ... "whatever the personal cost". His new-found zeal as a reformer presumably owes its origin to the Irish crisis and the widespread view that Spain could go the same way ("The difference between Spain and Ireland is timing").

Another reason for urgency is the need to restore some credibility ahead of the first 4 months of 2011 when, according to Barclays, Spain and its banks need to raise 70bn€ in the bond markets, which they think will lead it to ask for a bail-out next Spring. Sounds plausible if you think Zapatero' reforms are too little too late, the Spanish banks are in worse shape than they admit and that austerity measures announced so far will push the economy back into recession. In this case now would be a good time to reduce your exposure to the Euro (or even short it if you are feeling brave) because this will be a calamitous bail-out too far for the currency to bear. On the other hand European leaders know this and may have a few tricks up their sleeves to ensure Spain pulls through e.g. I could easily see the ECB printing money to buy Spanish government or bank debt. Whatever happens it's going to be an interesting 2011.

Latest articles on our website: Spanish autonomo tax burden

Monday, November 22, 2010

The difference between Spain and Ireland is timing

So Ireland finally caved in and went to the EU and the IMF for a loan. The point for Spain though, is will they eventually be brought down by the same pressures that did for the Irish?

The consensus appears to be no it won't. The markets and most commentators seem to accept that Spain is a different proposition and can pay its way. At an important bond auction last week, in the midst of the Irish uncertainty, Spain did manage to sell its latest batch of debt for an acceptable yield (10 year funding cost them 4.6%). There are good reasons to think that Spain is in a much stronger position:

Ireland's economy has shrunk more than any other in the EU economy during the crisis, shows no sign of recovering and the fiscal position of the government (excluding bank bail outs) is getting worse. Spain's economy has at least stabilised in 2010 and is at least not shrinking (Q3 GDP Spanish growth was 0%). The government's deficit as a % of GDP is narrowing to single figures and the government has set up major public spending cuts and tax rises to bring it down further.

Ireland was sunk by its banking sector more so than its public sector debt. In 2007 the Irish public sector deficit was the lowest in the EU at 25% of GDP and even with the crisis had only risen to just over 60% this year. However in 2010 the Irish deficit has ballooned to a remarkable 32% mainly as a result of the cost of bank bailouts, principally the AIB and the Bank of Ireland.

The markets just did not accept that the Irish could afford the guarantees given to these banks - the government had guaranteed 100% of their deposits and made some commitments to the bondholders of backing these bank. Ireland could not afford a bank bailout and get its deficit under control at the same time.

So, Spain in the clear? Not quite. There are some worrying similarities between Spain and Ireland's predicament:

- both economies are stagnating even before austerity cuts and tax rises have started to bite. Neither have the option of devaluing their currency to boost exports as they are stuck in the Euro.

- both not only had massive house price booms and bust they are both (unlike say the UK) still suffering the aftermath in terms of mountains of unsold properties dragging down prices

- Spain has its bank problems too. See Spain's economic crisis turns nasty

- Spain and Ireland have both lost control of their monetary policy so cannot engage in Quantitative Easing policies like the UK and US have done

- Spain is struggling to make its budget deficit-narrowing plans work (partly because tax revenues are stagnating and partly because the autonomous regions are not cutting spending to plan)

- if it were to suffer a double dip Spain would have nowhere to turn. In 2008/9 the government was able to spend its way to prevent the worst of the recession and even then it was pretty awful.

So if both economies are in the same predicament - deficits, austerity, stagnation, stuck in a Euro straitjacket - what sets Spain apart? The markets seems to accept that the scale of the Irish banks' problem set it apart. But I have my suspicions that Spain is more vulnerable than it appears on this front. The banks avoided much of the pain of the housing market crash by dodgy accounting and putting off foreclosures. They have in any case become the most reliant in Europe on borrowing cheaply from the European Central Bank. Another spiral down in house properties and an increase in repossessions - hardly outlying propositions - and the game could be up. Ireland today, Spain tomorrow? Watch the housing market.

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Calculating the autonomo tax burden

Monday, November 15, 2010

Autonomos retain their expenses allowances

I spotted this news article in the Spanish press:

In essence the message is all in the title and the article doesn't add that much: the government keeps the 5% deduction for small and medium-sized enterprises (SMEs) and autonomos (self-employed) for 2011. This refers to a rule that can save autonomos money if they do their quarterly "modelos" correctly i.e. return a simplified "objective" declaration of their business profits rather than the full version. This allows them to report a taxable profit equal to income minus allowable expenses minus a further 5% of net income as an additional expense allowance. The idea is that the small business will have expenses which they cannot easily claim because of a lack of receipts or justification and this allowance makes up for it.

In a sense it is more than necessary because otherwise the system of what is and what is not deductible in terms of business expenses is quite harsh particularly when compared to the UK. There is a full guide on our website (autonomo expenses guide) but as examples :

- if a self employed businessman flies to London on business the flight can only be claimed as an expense if it is demonstrably 100% business-related. If the spouse travels or there is any day spent away from business then the whole cost of the trip is disallowed. The assumption is that the trip has been at least in part for pleasure.

- it is routine in the UK to claim for business lunches and entertaining but practically verboten in Spain

Reading the article, the authorities are making it sound like retention of the 5% deduction is a temporary measure because of the crisis. It could be removed when (if) things pick up for the Spanish small business sector. With Spanish GDP growth coming in at an invisible 0% for Q3 it looks like business needs all the help it can get.

Monday, November 8, 2010

QE2 and the soaring cost of fine wine

If you think that the US Federal Reserve's announcement of a $600bn second slug of quantitative easing (QE2 as it has been dubbed) is just what the US and World economies need right now, think again. It is rare that mere monetary manipulation is the springboard for a solid and lasting cycle of productive economic activity. I will allow that an economy that has suffered a shock fall in its money supply, because of major banks going under say and taking depositors's cash with them, could do with an infusion of cash from the central bank. But the US and most of the World is not in such a position.

Bank bail outs and the last lot of QE have stabilised the banking system, at least for now. No depositor in the US or UK lost a penny. Money supply and the velocity with which it has been circulating round the economy, have been growing briskly on both sides of the Atlantic after an understandable slow down in the aftermath of the crisis, caused by a reluctance to lend, borrow, invest and consume in the private sector. Retail price inflation is positive and rising in the US (about 1%, much higher in the UK). The economic recovery is slow but what would you expect if the private sector is working off its excessive debts and banks rebuilding their capital?

So the new money is not filling a hole in the money supply, or warding off the supposed horrors of deflation or needed to refloat the financial system. The Fed chairman justified the extraordinary move by claiming prices are not high enough - he wants high consumer inflation and higher share prices.

“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending," Ben Bernanke

So the Fed is printing 600 billion to buy US government debt on top of the 1,700 billion it has already printed to make sure its citizens pay more for what they need to live on and in the hope of a trickledown effect from booming stock markets. But what will happen in practice?

A clue was to be found this week in news reports of a boom in fine wine prices and a new world record for a single bottle:

An 1869 vintage wine of Chateau Lafite-Rothschild was recently sold at auction in Hong Kong for a record 147,020 pounds, leading experts to warn that fine wines could soon become unaffordable. (CityAM)

And this is before QE2. The free money, printing press economics that are being followed by our monetary masters around the globe are predictably fuelling inflation, even though the main consumer indices are reasonably becalmed. The money is finding its way through to speculative property deals, emerging markets, takeovers, precious metals, rents, commodities, luxuries, art - the price of anything that isn't being held down by the deadweight of unemployment misery and industrial ruin.

A tidal wave of money has been unleashed supposedly because we are all suffering from low prices at a time when energy prices are rising sharply and food basics like rice, sugar and wheat are soaring in price. The fact that emerging markets and speculative investments are booming suggests that the excess liquidity is not being invested in real investment in the Western economies but is simply flowing abroad, jacking up the prices of essentials and causing chaos.

I think there is some sort of recovery taking hold in some of the Western countries and am not unrelentingly doom and gloom, but this latest piece of economic policy making beggars belief. I hope the UK doesn't follow suit. And I certainly don't expect a healthy round of balanced economic growth any time soon.

Latest article on the main website: Prospects for the UK state pension

Sunday, October 24, 2010

More coffin nails for the Spanish economy?

Spain has always been a long way behind when it comes to making efforts to ban smoking from public places. When I first started to live here I was amazed to find bank tellers and government officials smoking while they attended you. I was outraged when I went to register the birth of my first child and found the Registro office so smoky that my 2 week old baby had to be kept out in the corridor while we attended to the paperwork. A year or two later when I helped set up a play centre in the local town, I had to accept that smoking would be allowed in the café or “no one would come”. But it seems this is about to change and Spain is about to get some of the toughest anti-smoking laws in Europe.

After a botched and watered down attempt at a ban on smoking in bars and other public places a couple of years ago, this new “antitabaco” law looks like the real deal. The new law would, from 2nd January 2011, ban smoking in all bars, restaurants and other enclosed public spaces with very few exceptions. Also some outdoor places like the grounds of health centres and playgrounds are included in the ban. Terraces attached to bars which are not enclosed by three or more walls will be exempt. There are exceptions for some private clubs and certain proportions of space in hotels and prisons.

Another victory for health campaigners then and, despite not being militantly anti-smoking myself, I think on balance these kinds of laws quickly become accepted as the norm and the vast majority of people – smokers included – find them an improvement after a short time. The issue though is less about smokers’ rights and more about the effects on business, specifically the large and vitally important catering and hospitality industry which has been lobbying against the ban. Some people also think tax revenues from cigarette sales will hit the government’s finances and tobacconists are expected to suffer.

"The new law enrages barowners "

There could be something in these economic warnings. The Spanish economy and the government’s finances are in a precarious enough state and the UK’s experience that banning smoking, however desirable public health grounds, has had a negative effect on takings at some types of premises. I haven’t heard restaurants or hotels complaining about the smoking ban but pubs and clubs have certainly seen revenues decline over recent years. Not all their woes can be blamed on the new legislation: social trends which go back decades have left traditional pubs and places like working men’s clubs and bingo halls losing market share. The recession has taken its toll. We have been drinking less and less beer as a country for years. And there is more competition, including websites and the lottery in the case of bingo and supermarkets in the case of pubs. Some pubs, like the Wetherspoons chain, have taken on the decline and changed their offerings to, for example, capture the breakfast and coffee crowds.

What does all that mean for Spain? I think the effects could be quite significant. The small café and bar is a staple of Spanish life as, sadly, is unabashed smoking in front of other people. I can see the firm ban hitting business and shutting some of the weaker establishments. This is not a justification for putting off doing something that could save lives and set a better example for children but it’s one more reason to think 2011 won’t see any kind of rapid turnaround in the Spanish economy.


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Sunday, October 17, 2010

Is there such a thing as an autonomo free lunch?

Going self-employed in Spain - "autonomo" in the local parlance - has many attractions for foreigners living here, not least of which is that good paying contracted jobs are in short supply, particularly for foreigners without much Spanish. Many foreigners in Spain run their own business, er, "informally" without registering or paying any tax but would prefer to be legal either because they fear investigation and prosecution or because of the limitations of working in the black economy e.g. not being the equivalent of "VAT registered" and being able to issue proper invoices or not being able to sign a lease, take a loan or employ people.

That all points to registration and formalising your business but many people are put off by the taxes and social security. Without going into massive detail (there is a guide on the firm's website which covers all of this - Autonomo Guide) the main sticking point is social security for most people. It is a minimum of 251€ per month and can be more if certain unemployment, sickness insurances are taken in addition to the basic cover. Even if you don't make a profit (or make losses) this monthly payment never goes down, although younger autonomos can get a 30% discount for their first 15 months registered.

The "solution" if you want to register as autonomo but don't fancy this hefty outlay is sometimes touted as opting out due to low earnings. Spain has a national minimum wage and theoretically autonomos who earn less than it can apply to opt out of social security. But there are conditions which make it only applicable to a minority.

- you must always earn under the minimum wage so anyone earning irregular amounts which sometimes exceed the minimum could not apply

- you must be working occasionally - if you are doing a regular contract or regular work you cannot apply

- you cannot have a permanent place of business

This is why the bulk of people continue to have to pay social security if they are self-employed in Spain. Besides unless you pay into the system you cannot apply for the benefits, mainly health and pensions related which could ultimately be worth hundreds of thousands of euros (see article Spanish pension benefits )

Saturday, October 9, 2010

When will the Spanish pensions system collapse?

You might notice my deliberate and provocative use of the word "when" in the title rather than "might" or "if". I have just been doing an article for my website about Spanish pensions ("Spanish Pension Benefits") and was shocked by some of the figures I found during my research.

The article talks about how much someone in Spain can expect to get by way of a state pension, the answer being somewhere between 340€ a month up to nearly 3.000€ a month if you have made the maximum contributions. The majority will I guess be retiring on something between the minimum and double that, and bear in mind that in Spain you get 14 monthly payments (double at Christmas and Summer holiday time which is a nice system I think.

Not overly generous then but as everyone knows there is a pensions timebomb ticking in every developed country due to population ageing. Spain's ageing profile was what really surprised me and it is this and not the generosity of the payments that will sink the system. These are some UN figures comparing the ratio of working age Spaniards with oldies in 2050 with the ratio at the turn of the century:


Spain Working age (15-65) 27 million

Spain retirement age (65+) 7 million

Spain ratio - 4 workers to every pensioner


Spain Working age (15-65) 16 million

Spain retirement age (65+) 12 million

Spain ratio - 1.4 workers to every pensioner

(source UN Ageing Report

So, Spain has an 11% public sector deficit now ( ie is borrowing to pay current pensions) and that is barely 10 years into this dramatic demographic shift. It seems inconceivable that Spain will be able to finance state pensions with 11 million fewer workers and 5 million more pensioners. It just can't happen. So what will happen?

A big shift towards encouraging rather than deterring immigration? That may partially happen but the problem is rich countries tend to attract the poor and unskilled who may not exactly be an unmitigated economic boon.

Cuts in benefits and later higher retirement ages? For sure and these are being talked about at the moment with a report from 100 economists suggesting reforms along these lines ( but the reforms seem quite timid, with a rise of only 2 years in the retirement age and an increase of 5 years in the number of years' contributions required to get the maximum pension (it is now 35). Hardly enough to rescue the system you would have thought.

Essentially the government is making promises it cannot keep and cannot renege on explicitly for fear of a political backlash. The outcome will eventually be a default on its pensions promises by stealth - pensioners will get the nominal pension they have paid for but the government will borrow and print the money to pay for it so inflation erodes its effective value. At some point in the next couple of decades 70s style inflation will wipe out much of the real value of state pensions.

Other recent articles: Spanish non resident tax

Thursday, September 30, 2010

10 reasons you've got to love the internet

It's funny how it was only after the Dot Com bubble that the internet really took off for ordinary people. Lots of crumby online businesses came and went (bankrupt) and we were mainly left with Amazon, eBay and online travel booking. A lot of the good stuff has only really become ingrained since broadband became ubiquitous in the last 5 years. I couldn't believe it when I read YouTube was only 5 years old the other day; it seems to have been around forever. That site is one of my top ten reasons why the net is now ingrained into my life and doing without a connection would be unthinkable, like losing water or electricity. Here's my list (in no particular order) of 10 reasons the internet has made life better:

1. TV on demand
A really recent one this because it was unthinkable just a couple of years ago when there wasn't enough bandwidth to contemplate everybody streaming TV shows over the internet, but now with 4OD, iPlayer and countless others, it is routine to get almost any viewing you want, when you want. Now that these services are being improved and built into TV sets (Virgin already do it) you can never complain again that "there's nothing on". Annoyingly much of the UK material is not streamable in Spain.

2. Settling arguments
There used to be a time when petty arguments over silly things could fester unresolved indefinitely but now the ultimate resolver of disputes is on hand to hand out judgement. I once had a passionate dispute with someone who was convinced that 9/11 occurred in the 90s and it was only when I brought up (several) news reports that they backed down. I have lost plent of arguments in a similar way.

3. Travel
When did you last go to a travel agents? How about checking in online? How much do you think flights would cost today if the internet hadn't happened.

4. Business
The 1980s and Mrs Thatcher did a great deal for small business and entrepreneurs. The internet has done a lot more.

5. Music
The reason I love YouTube so much is purely for music. Think of any song by any artist in any era and it will be there. You can save your favourites and use it like a radio. There's also a ton of music you can download legally and freely. It used to be to discover new music you had to listen to the radio; now you can browse countless sites and see your favourites as well as hear them. And you can listen to any radio station you want.

6. Shopping
My sister has just published a book. It is fantastic and full of recipes for the sort of (mainly) British favourites that I used to enjoy as a kid. I thought I would buy several copies to give away. Problem - the list price is 20£ (it's a big glossy hardback) and the discounted price on Amazon around 13£ I think. But a quick search using Google's Shopping results section and a 7.99£ offer inlcuding delivery popped up. I bought three and they threw in a free book because of a special offer. The book is called Ramblers Rewards and the cheap bookseller TheBookPeople.

7. Blogging
Writing and reading other non-professional opinions is one of the ways the internet has made life more democratic.

8. Reviews
You never have to take a chance on anything these days, be it book, film, product, holiday destination etc. They are all exhaustively reviewed online.

9. Facebook
Say what you like about social networking but it is amazingly easy to keep in touch and make new connections using sites like Facebook.

10. Information for life
Well, of course, I couldn't go without mentioning sites like our's which provide the information you need for doing anything from paying your taxes to fixing your computer to diagnosing that funny pain you've been feeling in your big toe.

That's my list but I am sure everyone will have their own particular ways that the internet works for them.

Friday, September 24, 2010

Talking rubbish

There are a few things about living in Spain that turn me from a mild mannered accountant into the most Meldrew-ish of Grumpy Old Man in a flash. Usually the bugbears relate to breath-takingly bad customer service (e.g. see Will Spanish Business Ever Get the Internet?) or something car-related (does anybody use indicators any more?). Recently though I think it is rubbish that has wound me up the most. Specifically the laziness of people when it comes to its disposal.

It seems that Spain had no equivalent of the Keep Britain Tidy campaign that I remember from my childhood. Chucking takeaway cartons onto the street, leaving bags and cans on the beach and throwing rubbish out of the car, seem to be perfectly accepted disposal techniques.

But what really winds me up is the people who either make no attempt to recycle or leave their rubbish on the road next to, rather than in, the bins. If you have some papers or plastic bottles is it too much to ask to throw them in the right container which is right next to the green bin?

What I find especially infuriating is the people who have gathered up their recycling (say bottles) in a bag and who, because the particular rubbish stop they have parked at does not have the right container, leave it by the side of the bins. It's like they are say "look I've done my bit collecting the stuff but do you really expect me to go to any trouble finding the right container".

And what of people who leave cardboard boxes beside the blue paper bins rather than crushing them and actually putting them in the bin. Are they that busy or feeble that they can't finish the job. I DON’T BELIEVE IT!

I really must take a lie down and stop getting so worked up.

Recent articles on the Advoco website:

Contracting in Spain

Monday, September 20, 2010

How to save money on your Spanish non resident tax declaration

The downside to owning a place like this ...

Judging by the increased demand we have recently experienced for our Spanish Tax Form 210 service, holiday home owners are starting to think about their tax returns. There's plenty of time as the declarations for 2009 are not due until the end of the year. For those Spanish property owners who don't anything about their tax obligations, I have pasted in an extract from the Spanish tax office website describing what has to be declared for non residents who DON'T rent out their properties.

For those that do understand that there is income tax to pay and wish to ensure they are on the right side of the law, how can the declaration be made as cheaply as possible? Well unfortunately there is no way (that I know of at least) of reducing the tax burden itself because it is based on a fixed percentage of the property's rateable value (see details below) without allowances or deductions. However if you have or intend to get a tax adviser to make the declaration for you there could be savings to be made.

Many people who do pay the tax use a paying agent to do the paperwork but that can prove costly if you haven't shopped around for a low fee option. This may be the case if you are using the lawyer who handled the original property purchase. How much should you pay? Advoco charges 30€ (upwards) and some other services are being advertised for not much more.

Or why not do it yourself? It sounds a bit radical but it is not so hard particularly after the first year invested in getting yourself organised. There is info on our site (Spanish non resident tax) and others including the government's - see below. If you have any questions posting a question on one of the Spanish forums will usually yield an answer.

Extract from the Agencia Tributaria website explaining the non resident tax charge:

The amount to declare will be that resulting from applying the following percentages to the assessed value of the property as shown on the Property Tax bill (IBI):

· In general, 2%.

· In the case of properties where the assessed value has been revised or modified since 1 January 1994, the percentage will be 1.1%.

This yield is calculated once per year, on 31 December.

If you have not been the owner of the property during the whole year, or if it has been rented for any period, only the proportional part of this amount is declared.

· Tax Return Form: 210, using the general section 210-A and entering 02 as income type.

· When to file the tax return: During the whole natural year after the date of accrual.

· Where to file the return: With the Branch of the Tax Agency or Administration belonging to the Tax Agency responsible for the area where the property is located.

· Tax rate: 24%.

Saturday, September 11, 2010

Telefonica to call time on "All You Can Eat" internet access

It seems like the telephone companies are starting to regret the way that internet access has always been charged. Since dial-up faded away and broadband came in, it has been charged at a flat rate by the Internet Service Providers regardless of how long the user is online or, more importantly, how much data they download; the "all you can eat" buffet model.

It does seem kind of ridiculous now that heavy users, streaming movies and downloading music and games 24/7, pay the same as the occasional user who is just sending a few emails. Particularly given that the latter may be adversely affected by the former i.e. light users subsidize heavy users but everyone suffers equally when the network runs slow at peak hours. From my experience this is early evenings with my Telefonica connection when I imagine a lot of kids are downloading stuff after school and people are illegally putting movies in their memory sticks for the night's viewing.

Telefonica's CEO Julio Linares has called the current situation "unsustainable" quoting figures that 5% of mobile internet users produce 75% of the traffic -

Telefonica wants to charge more to customers who connect more

It will be difficult to change the status quo however sensible some kind of metered charging appears to be in theory. People have got used to paying a flat rate and will not take kindly to feeling like they have to watch every minute they are online or, more likely, pay for every Byte they download.

It might be OK if the majority of light users got a big benefit from the new regime i.e. monthly bills halved (Telefonica's ADSL charges are very high when compared to the UK) but I suspect they won't. If they can get away with it the ISPs will be looking to increase overall revenues and only they will benefit (both from lower usage of their networks and increased charges from heavy users while light users pay about the same). We'll see but enjoy the free, all you can eat option while you can.

Saturday, September 4, 2010

New corporation tax rate in Gibraltar

With talk of austerity and budget deficits in most parts of the world, it is refreshing to be able to report on some good tax news. Being based on the Costa del Sol, my firm of accountants and tax advisers naturally has a lot of clients with interests in Gibraltar so we have to keep an eye on what is happening on the Rock. This Summer a new Income Tax Act has come into force.

The Act is available for download on the Gibraltar government website

For companies the news is pretty good, because the long-heralded reduction in corporation tax has come into force and at an even lower rate - 10% - than had been anticipated. The basis of taxation has also changed from prior year assessment to self-assessment and payment after the company's year end. Gibraltar companies are expected to file accounts and estimates of their liability to tax within 6 months of their year end and pay the tax at the same time.

Most importantly for companies who are not run in Gibraltar or active there, the scope of corporation tax is only on profits "accrued in and derived from" Gibraltar itself. So if the company is based on the territory or makes money there, only those profits are subject to the new corporation tax regime. In addition interest, royalties and capital gains are not taxed.

Gibraltar used to be a popular place for foreigners resident in Spain to set up companies because of the existence of "non resident" companies which did not pay any tax at all. These have been abolished and all Gib companies are subject to the new regime wherever they are managed from or where they generate their income. But provided the company has no Gib activities ( or these are incidental - less than 22 days a year) or locally generated income, the profits of Gib companies can still escape tax. For individuals with international activities and income that can be booked through companies based anywhere, the low tax rate and the exemption of non-Gibraltar income make the Rock look an attractive option.

In Spain and need tax advice for a company or business (or thinking of setting one up)? Check out our website which has a lot of useful articles like Contracting in Spain and Autonomo Guide (self employment in Spain)

Friday, August 27, 2010

Praising Telefonica is simply not worth the risk

I have always considered Telefonica as part of the enemy i.e. one of the organisations or systems in Spain which serves to make and otherwise peaceful and idyllic life so difficult and frustrating at times. Along with the banks, utility companies, tax office, certain shops and tradesmen, garages, public sector bodies and officials, they are the ones that drive you mad with their inflexible bureaucracy, third world service standards and unresponsive staff, while you should be relaxing and sipping a glass of wine in the sun.

I have had all manner of complaints with Telefonica (now rebranded Movistar as their mobile division seems to have become all important) in the past to do with billing, line faults and installation. Probably my fault for moving about and needing their services quite a lot. They seem to be typical of an ex-monopoly that hasn't quite shaken off the worst features of being a cosseted state giant.
That was until recently. I had begun to notice a change in their service. Two or three times they have been right on the ball getting things done quickly and efficiently. They even rang up to offer a reduced tariff which didn't seem to come with strings attached.
I was right at the point of writing a blog post praising the turnaround and to see if anyone else had noticed a leopard changing its spots. And then ...
They cut me off! Not out of the blue - I had asked for the line to be deactivated at the end of the month, repeatedly stressing the date - but nevertheless my office line has simply ceased to be. Many confused and annoyed clients with me trying to make do with Skype (internet is so far mercifully available). Well, by their past standards it wasn't a major crime but I did feel the familiar Telefonica rage welling up inside me. I am only glad I didn't give them a glowing write-up on the blog last week. They still have a way to go to get themselves in my good books.
From the Advoco website -

Thursday, August 19, 2010

Spanish tax strategies for married couples

A little while allow the firm's website published a guide to the calculation of tax for married couples (Spanish Taxation of Married Couples) and it has prompted quite a lot of couples - or at least the half of the couple who do the tax stuff - to send in their queries.

Apart from the mechanics of the calculations, there have been a few proposals for cutting the overall tax bill by some restructuring of the couple's fiscal affairs. Often the question is "I've had this idea for reducing our tax bill; will it work?". People can get quite creative. I just wanted to comment on a couple of ideas:

Income sharing - often a retired or semi-retired couple will have a very uneven skew of income with one spouse earning almost everything. If some of the income could be shifted to the other spouse then that could save tax either by using up more of their personal allowances or shifting some of the couple's income out of higher rate tax. Obviously some sources of income are very specific to the person - like a pension or salary - but some deposit accounts and investments could be put in both names to divide the resulting income up between spouses.
Similarly couples where one spouse owns a business may be able to legitimately transfer some income to the other either by employing them in some capacity or, in the case of a limited company, paying a dividend to them.

A very specific idea I came across was the proposal to form a Spanish business partnership - Sociedad Civil (description of legal form here) - to take the place of a simple autonomo set-up. The husband was self-employed and earning a high and regular income; the wife earned nothing. The idea was that if they formed a partnership then they could say the partnership earned the money and then divide the proceeds between them as income. This could work, with two provisos:

- the partnership will cost more than a single autonomo to run thus taking away some of the tax savings from increased use of allowances and less higher rate tax. Primarily this is because both husband and wife will have to sign up for autonomo social security ( see Autonomo Guide) and also because there is more reporting to do. While a Sociedad Civil only has to submit one IVA declaration, each of the partners has to do quarterly income tax returns.

- the partnership has to be legitimate or at least not demonstrably illegitimate. For example if a lawyer sets up a partnership to practice law with his wife, who is not a lawyer, then that would clearly not be acceptable. If, on the other hand, the couple is doing an activity which both could plausibly be contributing to then setting up a Sociedad Civil is a perfectly acceptable route to follow. But the tax savings would have to be considerable to make it worthwhile which is probably why it is still quite rare.
New guide on our website - Spanish non resident taxes

Thursday, August 12, 2010

Will Spanish business ever get the internet?

Anyone who has ever lived in Spain (or owned property there, or done business there, or even been on holiday there) will know that generally levels of customer service leave much to be desired. During my family's 8 years in Spain we have had all sorts of problems with all kinds of private sector organisation from the local shops to nation-wide corporations. Not only can service be slow and erratic but outright deception seems to be a common and accepted tactic among those employed to deal with the public.

This is hardly news but I would just like to comment another twist to this sorry record of bad service - the 'net hasn't changed much. On the surface of things Spanish business seems to have embraced the internet, not to the extent of the US or Northern Europe, but at least most reasonable sized businesses have a web presence and offer some options for online service. However dig below the surface, i.e. start making orders, enquiries, complaints etc online, and you will find that the same poor service culture exists online just the same as offline. Many times I have used an email for enquiries, quotes etc and not received a reply. The attitude seems to be 'out of sight, out of mind' and the online message is often. You need to get on the phone (if you can get a response there) or go down to see someone face to face.

As an example I needed 4 new tires for our car and decided to save money by getting a deal online (my local tire changing garage charges at least twice as much as they should). There are a lot of options once you do a search and I got what looked like a good deal from and all seemed well on the surface with automated payment, email confirmation etc I then arranged a garage to do the fitting again finding one with a website and all the trappings of modern service and communications. Without boring you with the details needless to say I soon got bogged down in a host of problems and it has taken me 2 weeks of chasing, unreturned phone calls and broken promises to get the job done.

Advoco has written before about how Spain can lift its economy out of recession and focused on a better deal for autonomos and employers. Maybe businesses need to start getting serious about service culture. It can be changed. Pre-Thatcher Britain used to be equally rubbish but now I would say most businesses are good on service because they have to be. Even in Spain I have noticed that Telefonica (or is it Movistar) seemed to have improved their previously appalling customer service record of late.

Related article at - 30 ways to market your business in Spain

Friday, August 6, 2010

Latest Costa murder was made in England

A 40 year-old Irishman was shot dead outside Coco's Bar in Benalmadena on Wednesday and police are seeking fugitive Darren O'Flaherty (pictured) in connection with the murder. If it was this guy then there should be some heads hanging in shame in Britain right now. Specifically I would like to hear from the judge who let him out on bail in 2006, despite the fact that he was facing charges of robbery and kidnap at knifepoint. He subsequently jumped bail and fled to Spain. Heaven only knows what hideous things he's been doing between then and the murder.

Perhaps you think the judge was being reasonable to let O'Flaherty walk free while the knife case was prepared? Innocent until proven guilty and all that. Then gain maybe not when you consider his previous history:

- 1995. Liverpool. Stabbed a man 9 times and given 5 years in prison. Let out early.
- 1999. Inflicted serious head injuries on a police officer and sent to prison again.
- 2006 - held a lorry driver at knifepoint for several hours before robbing and setting fire to the lorry

In amongst all this, also charged with dangerous driving "with intent" (!) and gang membership. Quite clearly someone who was dangerous and had no intention of mending their ways. What does it take for the courts to actually take someone off the streets? Once arrested for the kidnap case that should have been it for this guy - never see the light of day again. I can accept people being given one chance but not a string of them.

It reminds me of the Tony King "Costa Killer" case when a London man was finally arrested for killing two girls. He had a past in England involving 5 serious violent sexual assaults for which he served only half his sentence (5 years) before going onto rob a woman at gunpoint. Naturally he was turned lose again and fled to Spain where he changed his name. Now two young girls are dead because he wasn't stopped.
Almost every time there is a murder or serous assault in the news, a similar story emerges. They have committed a string of offences and either been let out early or on bail thus reinforcing their contempt for the criminal justice system. The guy shot dead on Wednesday would be alive today if some English judge had had the nouse or the guts to recognise this piece of scum for what he was and put public protection as the top priority.

Saturday, July 31, 2010

Modelo 30 and other Spanish tax forms

My firm has just published a major new guide on its website:

For anyone living in Spain or with fiscal interests there, should consider bookmarking it for future reference. Besides explaining what all of the most commonly used Spanish tax forms (modelos) are for, it also has links to their downloads.

The first one covered in the guide is the Modelo 30 which is the most commonly used of all the forms, for private individuals - as opposed to businesses - any way. As the guide says this is the form you use to sign up for Spanish tax in the first place. If you become liable to tax in Spain or think you may be due a tax refund (see Getting a Spanish tax refund) then it is necessary to register using this form. The same form is used if you become liable to Spanish NON resident income tax, which all foreign owners of Spanish property or assets probably are (unless they are residents).

A lot of people expect that if they are liable to tax in Spain they will find out soon enough i.e. they will be sent a tax return or demand and take action accordingly. Others think that by obtaining their NIE number or residency certificate, that identifies them to the Spanish tax authorities. Neither is true - the modelo 30 is the only way to register for Spanish tax.

Luckily it is an easy form. We process these for clients but you could do it yourself easily enough. Go to your local Agencia Tributaria and you will see a desk somewhere near the entrance where they hand out tax forms. Ask for a modelo 30 and fill it in there are then. It is relatively untaxing information like name and passport number. One tip is that if you are registering as a couple, you use one form and put a cross in both boxes 101 and 102 on section 1 (the other half is the "conyuge') . Then you fill in one spouse's personal data in section 2 and the other in section 3. Both sign at the end. Simples.

Note that the modelo 30 is also used to modify any aspect of your tax status and it is an offence not to do so. Things that would trigger a modification:

- change of adress (Spanish)
- change of residency status e.g. becoming a resident after previously paying non res taxes
- end of residency e.g. you are leaving Spain and are no longer liable for tax
- change of marital status

Monday, July 26, 2010

Trouble down at the Ayuntamiento

We have all heard about Spain's debt crisis at a national level and the proposed austerity drive, but I have been reading an interesting article in The Telegraph which suggests things may be even worse locally. According to this article - Spain Relying on Short Term Funding as Councils go bust - there is trouble brewing down at the Ayuntamiento (Spanish town hall) in the form of:

- tax revenues down 30% because of the property bust

- 20% cuts in central government funding for municipal councils
- 400 councils across the country not paying water, electricity or phone bills
- "most" councils in Andalucia bankrupt or surviving day to day

A mayor was quoted as saying:

"I am deeply ashamed to know that I won't be able to pay our staff. They have got mortgages, children. What am I supposed to do? We were not able to cover our payroll in June. Neither I nor our councillors have received anything for two years. I've had two heart attacks. My health is cracking. If we cannot solve this, I'm resigning."

Not only are council staff living in fear of not getting paid they are having more work to do. Once council (San Sebastian) has seen a 68% jump in applications for financial assistance in 4 years. Managers are calling for more resources and staff although everyone else is calling for councils to shed staff and costs as part of the solution.

Little surprise then that the councils have their begging bowls out. FEMP (the local government association) has demanded 3 billion € from the government to see cash-strapped authorities through. This would be in the form of easy credit. Councils already had racked up debt of €35 billion by the end of 2009.

Is debt the Spanish national disease? Or is it an addiction that is proving painful to kick? The truth is that Spain's position is similar to most of the rest of the Western world from Washington to London to Tokyo. The "solution" to the original economic crisis was more borrowing at national level, and we now seeing this false comfort slipping away.

latest article at
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