Jaime Novoa is today’s JetSetter guest and he sits down with our host Jason Hartman to talk about Spain’s current economy. Jaime runs a blog called Novobrief and in the blog he talks about what the investment landscape looks like and growing new businesses in the Spain market. In today’s episode, Jaime talks about the unemployment rate, why Spain isn’t entrepreneur friendly, Spain’s current exit tax, and more.

Key Takeaways:

2:00 – There’s a big employment gap between the North and South of Spain.
4:35 – The Spaniards are used to being taken care of by their parents well into their 30s.
6:30 – Most young, ambitious Spaniards leave Spain to work in London or other highly-driven countries.
9:30 – Jaime talks about Spain’s exit tax and what that means.
13:40 – If you want to be self-employed, you have to pay a $250 Euro monthly fee even if you don’t make profit.
18:10 – Jaime hopes when young people leave Spain and see the true ambition in other countries that they will want to come back home and make a difference.

 

Tweetables:
“When you look at the unemployment stats among people 30 and younger, it’s like about 50% in Spain, which is outrageous.”

Here in Spain, if you want to be self-employed, you have to pay $250 Euros every month.”

“Until now only 2 political parties ruled Spain, but this is going to change over the next few months.”

 

Mentioned In This Episode:
NovoBrief.com

 

Transcript

Jason Hartman:
It’s my pleasure to welcome Jaime Novoa to the show. He is the owner and publisher of Novobrief nd he recently has done some interesting work on the Spanish exit tax and wanna hear what’s going on in Spain. There’s some, I guess, tumultuous things going on there and we’re here to learn more about it. Jaime, welcome, how are you?

Jaime Novoa:
Hey, Jason. Thanks for having me on. I’m great. How are you?

Jason:
Good, good. Where are you located exactly?

Jaime:
I’m located in Madrid. I’ve been living here for about a year and a half now, but I’m not from Madrid. I’m actually from the North West of Spain, although I’m located in Madrid, I try to travel a lot around Spain for business and pleasure, both.

Jason:
Fantastic. Well, generally speaking, I mean, what is going on in Spain? I was in two parts of Spain, Barcelona and then down to the South about a year and a half ago, I gotta tell ya, I’m not really rosy on the outlook for Spain. Are you feeling that or are you feeling good about it? Tell us what is your take?

Jaime:
I mean, I guess first of all, it really depends on who you talk to. When you look at Spain in terms of economic and financial situations, there’s a big gap between the North and the South. So, if you look at unemployment rates, if you look north of Madrid, unemployment rates are around 10-20%, which is very high in terms of Europe, but when you look at South, Madrid in the southern regions, it goes up to 35-40% and that’s a huge problem that started off when the financial…

Jason:
So, where is the really bad part and where is it better again? The North is bad?

Jaime:
In the North it’s better, it’s much better. Unemployment rates are much lower in the North and mostly you have regions like Catalonia with Barcelona, you also have Madrid, you also have Euskadi, the Basque Country where most of corporation and the industrial part of Spain is based and then South of Spain, there’s a lot of unemployment and a lot of issues.

Jason:
I just couldn’t believe in Barcelona. I think that was my second time there, if not the third, probably the second, but I couldn’t believe the graffiti and it just seemed like a lot of people didn’t have enough to do with themselves. Why is that? Why is the South facing a harder time that the North? Is it the political leadership there or is just the people want to go to the beach or what?

Jaime:
I think people want to go to the beach all around Spain. That’s just the way we are for good or bad. We’re kind of different than other parts of Europe, especially in the North and we just have a different kind of lifestyle. So, when you look at what’s going on in Spain, I think that if you look back to 70s when Spain got out of dictatorship from Franko, that created, the opened Spain to the world and that generation that was born and grew up in those times, they did pretty well in general. The economy blew up and everything was fine and the younger generation and I include myself in that were, we were kind of spoiled I would say. I mean, a lot of people in my age, they never, we never had to fight for anything.

Jason:
Do you care to say what age you are so people have a context for that.

Jaime:
Yeah, I’m 28. I was born in 1986.

Jason:
See, I’m surprised..I’m going to tease you here, by the way. I’m just teasing, but I’m surprised you’re working, you’re only 28! Don’t people wait till they’re 30 to find a job in Spain?

Jaime:
Yeah, exactly or even to finish your degree in university. A lot of people, even my friends, you just don’t have to. We have this sense of being close to your family and we have sense of like your parents paying for most of your bills, sometimes even paying for a small salary or even your flat, your apartment, so for a lot of people, there’s no urgency is going out and finding a job or finishing your degree quickly and that hurts the economy as a whole, not that that’s Spain’s only problem, but it’s one of those, especially among the young population.

Jason:
I mean, doesn’t that culture need to change? Maybe people just need to get a rude awakening and say, look, you know, you can’t have a country or a society that works unless you’re willing to work. I mean, look at Greece! It’s just falling apart and it has been bailed out, it’s been bailed out again. It’s just not going to last forever. The only way to have a sustainable society is for people to do their part and get to work, right?

Jaime:
Yeah, you’re totally right and even when you look at the unemployment stats, like unemployment among people at 25 or younger or I think 30 and younger, it’s like about 50% in Spain, which is outrageous.

Jason:
Differentiate between the North and South on that if you would, dissecting the youth unemployment from the overall unemployment, which is, I mean, it’s extreme. I remember looking at a stat when I was there that said youth unemployment was 54%, I believe, or 56%. I mean, that’s unbelievable. That’s got to lead to big crime problems and just all sorts of things, right?

Jaime:
I think it hasn’t affected much, like the crime situation in Spain. What has really cost is that people around 25 and 30 or people who finish college, most of them they might try for a couple of months to find a job here in Spain and after that they just go to London, to Paris, to Berlin, and I saw some stats this week that said something like over the past year, like over 100,000 people have moved to the UK, Spanish people, most of those people are young people.

Jason:
I mean, if you think of it from their perspective, right, if you’re under 30 and you’re in Spain and you’re just kind of kicking back, enjoying life, as the Italians say, la dolca vita, right, the sweet life. This ideology many parts of Europe, you know, France, Italy, Spain, Greece certainty, and maybe you guys have it right. I mean, we work too hard over here probably. I’m just envious, okay, but it’s not uncommon to think that way. That’s kind of the European way, if you will, to some extent and even in Germany it’s that way, you know, to a lesser degree, but why would they go to London? They’ve got to go to work there. I mean, wouldn’t they just want to stay in Spain and hang out and enjoy the nice weather?

Jaime:
I don’t think so. I mean, I guess you reach a certain limit and you just get tired of like not doing anything at all and you’re just looking for something and you try to build your career and to try and grow up professionally. I mean, I did it myself after finishing college back over here in Spain, I just moved to London and spent a couple of years with my girlfriend trying to find a job, working over there, building my career, and then we moved back here. We’re not doing excellent, we’re not doing fantastic, but we’re doing pretty good. I think that experience of being aboard and trying to fight for yourself and look for a job and look for a house and learn a different language and work in a different culture, I think it really helps and one of my hopes is that all of this young kids that are moving all over Europe that one day they would come back, because most Spanish people really love Spain and the lifestyle here and my hope is that a lot of those young kids when they reach a certain age or maybe when they have spent five or so years abroad, they would come back and try to show here how things are done abroad and try to mix things, which is always good. That’s my hope.

Jason:
Okay, so, the jobs aren’t there, obviously, and that’s why the people are moving away to find work. What are they doing to businesses? The government is trying to stop this, right? They’ve created an exit tax. I call it kind of an economic Berlin wall, if you will. I’ve seen this happening, I mean, California is doing small things like this, because people are wanting to leave California just on a state level, not on a national level, of course, but to move to friendlier states and certainty this isn’t the first time this kind of thing has been tried, but tell us about the exit tax in Spain.

Jaime:
So, basically the government after the financial crisis hit in 2007, 2008, the Spanish government, they saw the big companies were not a source of a lot of income and they needed to build an ecosystem of young companies, so they build what they called ley de emprendedores, which si basically a law that tries to promote entrepreneurship among Spaniards. The thing is that that was very kind of pretty on the political side, but over time the measure were not significant and didn’t change much and one of those measures was one you mentioned, which was the exit tax and basically the exit tax was created by the current government to avoid wealth people moving aboard out of Spain and pay lower taxes in places like Luxembourg or even in some places like the Caribbean and stuff like.

The bad thing is that law affects any kinds of entrepreneur who has a startup and for business reasons, they need to move their residency to the US or outside of Europe and what it causes is that it has certain limits and for example, if you have share of stake in a company and that companies is valued over four million Euros or if you own more than 24% of a company and the company is valid at more than one million, you have to pay taxes based on unrealized capital gains, which is absurd, because you’re paying taxes on something that is not liquid, it’s not unrealized, which puts a burden on entrepreneurs and what we need here is not more burden, but encouragement to promote entrepreneurship and to help people build companies.

Jason:
Sure, so, what people are doing, are they trying to take their entire business out of the country, then? Now a days, governments have really been faced with a difficulty because businesses are no longer manufacturing plants very often, they’re very portable. If you have an information company, a software company, it’s really easy to move it and governments don’t like that, do they? So, what they’re doing basically is this exit tax, so what did the government think they would accomplish by this and when we look at government policy in any country, there’s always this law of unintended consequences, right, and it always seems to back fire these kinds of things, but what do you think the government was thinking and how have they done this wrong, could they do it right, maybe you can speak to that just a little more.

Jaime:
As I just said, they were just trying to stop wealthy people from moving their fortunate aboard, things like that really impact growing companies, so for example I know entrepreneurs who were building startups who went on to raise a significant amount of capital from US-based investors and what often happens is those US based investors would ask you to create a subsidiary or move the company to the US and in those cases the entrepreneur also has to move to the US and move their residency status to the US and with the exit tax, you’re put against the wall. Either you pay 40% tax on maybe some capital that you don’t know that might become some liquid or not or you stay in Spain and your company is not allowed to grow. So, basically what many entrepreneurs did is just changed their residency status to other European countries, for example, Germany or France or Italy to try and avoid that kind of stuff, which is sad, but it’s just, the only way out they have to avoid having to face this.

Jason:
Mmhmm, so what should the government be doing? What should they do to encourage businesses to stay and to grow and to succeed and prosper and ultimately pay more taxes to the government?

Jaime:
First of all, they should allow people over here to become freelancer and to become self-employed and to pay less taxes. So, for example over here in Spain, if you want to be self-employed you have to pay like $250 Euros every month even from day one even if you don’t have any income, which is kind of a bit ridiculous and doesn’t happen in other parts of Europe.

Jason:
Oh my God, that’s unbelievable. I don’t know if that happen anywhere. So, what do you do? Declare yourself as a freelancer and then suddenly the government sends you a bill for a $250 Euros per month?

Jaime:
Exactly. It’s what you have to pay for the social security system to work, which is, it’s very, very hard on the entrepreneur.

Jason:
Oh, yeah. Why would anyone do that? I mean, they are punishing people for being, I mean, it’s kind of like, you’re damned if you do, you’re damned if you don’t. There unemployment rate is very high, the jobs are just not existent very much, there’s not much in the way of jobs available and then if you want to be an enterprising entrepreneur and, you know, work out of the house and be a solopreneur as they call it and freelance and do odd jobs and maybe you can be a contractor or a carpenter or you can be in the information business and provide consulting and coaching on something or do something online, you’re instantly hit with this $250 Euro per month tax, even if you don’t make any money.

Jaime:
To be totally honest, the government created very recently a scheme where would you only have to pay like $50 Euros a month for a bout 6 months or a year, but it’s still kind of, it still doesn’t take into account some businesses are not crash flow positive for years and even if you’re not positive, you still have to pay this, it’s pretty much a tax, you have to pay a tax every single month even if you don’t have any income or you’re not making any money. For one, it makes it harder to create a company and second, it just discourages people from creating their own companies and that’s pretty much what we need here.

Jason:
Distinguish between the entrepreneur and the company. You kind of alluded to that where you talk about like it was meant for companies, not entrepreneurs, when you say entrepreneur, I mean, every company started by an entrepreneur, obviously, but do you make a distinction like by size or revenue or number of employees, how do you do that or is it just sort of a fuzzy, it’s probably kind of a fuzzy distinction.

Jaime:
You mean in terms of the exit tax?

Jason:
Well, you did mention the numbers on the exit tax, which you’re welcome to review those again if you wish, but just kind of the way people think of it maybe, the anecdotal side.

Jaime:
We don’t like entrepreneurs here in Spain. I don’t think so. We have many mom and pop shops which are like family business that are maybe run by two or three people and those people can be considered, I mean, should be considered entrepreneurs. They think that, I think sometimes we lack, what we mostly lack is ambition and trying not to be too relaxed and say, alright, I have a business that’s running, I’m making some money, it’s keeping me alive and I’m making some bucks here and there and I don’t wanna to grow the company, I’m just comfortable the way I am and then though instead of trying to build those companies and trying to like build multinational companies that really create a ton of jobs and create like wealth for the people, we’re just comfortable, probably for cultural reasons, we’re just comfortable with being solo entrepreneurs and having a small business and opening the show early in the morning like taking a break in the afternoon and just after work..

Jason:
A siesta. You’re famous for it, siestas.

Jaime:
I think that’s a stereotype, but we’ll leave it at that.

Jason:
Well, I mean, listen, when I’ve been to Spain, the businesses are closed during siesta time.

Jaime:
Yeah, that’s true.

Jason:
Okay, so you’ve given the prescription, I mean, people need to be more ambitious, you’re saying, how can that be done? I mean, how do you change a culture like that and how do you get people suddenly be more ambitious?

Jaime:
I think it’s very, very hard and I don’t even know if that’s achievable to be honest especially in the short term, but going back to what I was saying, I really hope that when people, especially young people my age, they go to aboard and try to find a job outside of Spain and they see how things work there and they see the ambition. UK businesses or even in the US and that kind of stuff and when they come here, they’re not comfortable with the status quo and they try to change things and they try to change the culture, but as I said, that’s not going to happen over night and it probably won’t happen in the next 5-10-15 years, it’s just, it’s something that’s in our culture and to change that, it has to go through probably a couple of generations for that to take into affect, I would say.

Jason:
Yeah, very interesting. Give out your website if you would and tell us where people can learn more about what you do.

Jaime:
I’ve been covering the Spanish startup scene at my blog which is called NovoBrief.com, so basically what I do is I cover what’s going on with startups and the investment landscape here in Spain and how that affects startups and entrepreneurs in general.

Jason:
Good stuff. You know, just any closing thoughts about the direction of Spain or maybe more broadly Europe, Jaime, before you go.

Jaime:
I think Spain is going to be in the news a lot over the next few months mostly because we have political elections coming up and what’s happening is that up until now only two political parties rule the country, but according to polls like this is going to change over the next few months and we’re going to see probably instead of two parties, like four big parties, and that’s going to change things dramatically. I mean, we’ve never seen that over the past 30 years, so Spain is going to be in the news and hopefully this will spark a new generation of entrepreneurs or business people that can build and scale big companies from here, hopefully. That’s my hope.

Jason:
Fantastic. Well, I hope that happens and thank you for joining us today, Jaime, and tell us a little bit about this and I hope people check out your website. You’re doing a good thing, so keep up the good work. Thank you.

Jaime:
Thank you, Jason. Take care.

Announcer:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email [email protected]. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.