Do I have to pay tax twice if I'm an American living in Spain?
If you're an American living in Spain, you may well have to pay taxes. But do you have to pay in both countries, and how does the system work? If you're a US citizen who has recently moved to Spain or will do soon, you're probably wondering what exactly your tax obligations are and, crucially, whether you have to pay tax twice.
This depends on a multitude of factors, such as how long you spend in Spain, where your money comes from and what you earn, but you'll be glad to learn that there are measures in place to stop people paying tax twice on the same income.
And for those of you hoping to go under the radar, be warned that the American and Spanish governments have tax treaties, share taxpayer information between them, and Spanish banks even supply American account holders' information to the IRS, so trying to avoid paying tax is not advisable.
That's particularly true when there are harsh penalties for tax evasion in Spain.
Fortunately, agreements between the two countries include several exemptions that you can claim to prevent you paying tax twice on the same income.
Do I have to pay tax in Spain?
All US citizens as well as permanent residents are required to submit expatriate tax returns with the US federal government each year, regardless of the country they reside in. This includes a standard tax return as well as disclosing assets which are kept in foreign bank accounts.
How do I know if I'm tax resident?
That depends how much time you spend in Spain. If you are in Spain for more than 183 days a year, or Spain is your main base of economic activities, interests and incomes, you are considered a tax resident and have to pay taxes.
All Spanish tax returns are filed through the Agencia Tributaria, Spain's tax office.
However, even non-residents still need to pay some taxes such as on property owned in Spain.
READ ALSO: How does Spain know if I'm a tax resident?
What is the Spanish tax year?
The Spanish tax year goes from January 1st to December 31st, and tax returns can be filed between April 6th and June 30th. Note that there is flexibility with regards to returning taxes if you are paying in both countries, and extensions can be granted while you wait for the all the right documentation.
Do I have to pay double?
While those who reside in Spain for more than 183 days a year must pay tax in Spain, all US citizens and US permanent residents (wherever they are in the world) are also required to file an IRS tax return in the US and pay taxes.
Fortunately, the double-tax treaty prevents you paying tax on the same income twice.
The way it does this is through a clause that allows for US tax credits to be claimed after a tax return has been filed to the IRS, as long as it's equal in value to the income tax they’ve already paid.
Similarly, for Americans living in Spain with income streams from the US, Spanish tax credits offset the taxes they’ve already paid to the IRS.
This 'double tax' clause, as it's known, is to prevent people paying more tax than the higher of the two countries’ tax rates.
READ MORE: Do I have to register and pay taxes in Spain if I’m a remote worker?
What about other sources of income?
Many people have other streams of income, of course, and the rules are slightly different depending on what it is. Under Spanish tax law, you must declare all 'worldwide' income, regardless of what it is.
Dividends
If dividends are paid by a company in Spain to a resident, it is the other contract state that gets to tax the dividends (the US, in this case) and they can still be taxed in the other country but only up to a limited amount of tax.
Dividends taxation is particularly complex, so it is recommended to be speak with an accountant.
READ ALSO – Self-employed in Spain: What you should know about being ‘autónomo’
Real property income
Article 6 of the United States- Spain Tax Treaty states that income made by a Spanish resident from U.S. property can be taxed in the US, and the reverse would be true too.
Interest
With regards to interest tax, interest earned in Spain which arises from the beneficial ownership for a person in the other contracting state (in this case the U.S) is only taxable in that other state.
Capital Gains
Gains from the sale of stock, participations, or other rights in a company or other legal property of which consists, directly or indirectly, mainly of real property situated in Spain, may be taxed in Spain.
In Spain, capital gains are taxed at 19% on the first €6,000 and at 21% for gains above €6,000.
What if I missed the deadline?
Such a complicated process means that many may fall behind the tax return deadlines as they wait for documents from each tax agency to come through. Fortunately, Americans who find themselves in this situation avoid penalties through an IRS scheme called the 'Streamlined Procedure'.
As with all tax matters, it is recommended you speak with a tax professional before filling out any returns - especially so when figuring out what you need to pay and where.
READ ALSO: A guide to completing Spain's annual tax return
Conclusion
Very simply put, there is no straightforward answer. Do you pay tax twice? Yes, and no. If you are an American residing in Spain, you will have to pay taxes into and deal with the respective tax agencies of both countries.
However, tax credit clauses included in the tax agreements between Spain and the US mean that you can claim it back so you won't actually pay tax twice on a single source of income.
As always, it is recommended to speak to a professional who is familiar with both the American and Spanish tax systems, and the double-tax treaty.
READ ALSO: Americans in Spain - Taxes, investing and cutting through the confusion
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If you're a US citizen who has recently moved to Spain or will do soon, you're probably wondering what exactly your tax obligations are and, crucially, whether you have to pay tax twice.
This depends on a multitude of factors, such as how long you spend in Spain, where your money comes from and what you earn, but you'll be glad to learn that there are measures in place to stop people paying tax twice on the same income.
And for those of you hoping to go under the radar, be warned that the American and Spanish governments have tax treaties, share taxpayer information between them, and Spanish banks even supply American account holders' information to the IRS, so trying to avoid paying tax is not advisable.
That's particularly true when there are harsh penalties for tax evasion in Spain.
Fortunately, agreements between the two countries include several exemptions that you can claim to prevent you paying tax twice on the same income.
Do I have to pay tax in Spain?
All US citizens as well as permanent residents are required to submit expatriate tax returns with the US federal government each year, regardless of the country they reside in. This includes a standard tax return as well as disclosing assets which are kept in foreign bank accounts.
How do I know if I'm tax resident?
That depends how much time you spend in Spain. If you are in Spain for more than 183 days a year, or Spain is your main base of economic activities, interests and incomes, you are considered a tax resident and have to pay taxes.
All Spanish tax returns are filed through the Agencia Tributaria, Spain's tax office.
However, even non-residents still need to pay some taxes such as on property owned in Spain.
READ ALSO: How does Spain know if I'm a tax resident?
What is the Spanish tax year?
The Spanish tax year goes from January 1st to December 31st, and tax returns can be filed between April 6th and June 30th. Note that there is flexibility with regards to returning taxes if you are paying in both countries, and extensions can be granted while you wait for the all the right documentation.
Do I have to pay double?
While those who reside in Spain for more than 183 days a year must pay tax in Spain, all US citizens and US permanent residents (wherever they are in the world) are also required to file an IRS tax return in the US and pay taxes.
Fortunately, the double-tax treaty prevents you paying tax on the same income twice.
The way it does this is through a clause that allows for US tax credits to be claimed after a tax return has been filed to the IRS, as long as it's equal in value to the income tax they’ve already paid.
Similarly, for Americans living in Spain with income streams from the US, Spanish tax credits offset the taxes they’ve already paid to the IRS.
This 'double tax' clause, as it's known, is to prevent people paying more tax than the higher of the two countries’ tax rates.
READ MORE: Do I have to register and pay taxes in Spain if I’m a remote worker?
What about other sources of income?
Many people have other streams of income, of course, and the rules are slightly different depending on what it is. Under Spanish tax law, you must declare all 'worldwide' income, regardless of what it is.
Dividends
If dividends are paid by a company in Spain to a resident, it is the other contract state that gets to tax the dividends (the US, in this case) and they can still be taxed in the other country but only up to a limited amount of tax.
Dividends taxation is particularly complex, so it is recommended to be speak with an accountant.
READ ALSO – Self-employed in Spain: What you should know about being ‘autónomo’
Real property income
Article 6 of the United States- Spain Tax Treaty states that income made by a Spanish resident from U.S. property can be taxed in the US, and the reverse would be true too.
Interest
With regards to interest tax, interest earned in Spain which arises from the beneficial ownership for a person in the other contracting state (in this case the U.S) is only taxable in that other state.
Capital Gains
Gains from the sale of stock, participations, or other rights in a company or other legal property of which consists, directly or indirectly, mainly of real property situated in Spain, may be taxed in Spain.
In Spain, capital gains are taxed at 19% on the first €6,000 and at 21% for gains above €6,000.
What if I missed the deadline?
Such a complicated process means that many may fall behind the tax return deadlines as they wait for documents from each tax agency to come through. Fortunately, Americans who find themselves in this situation avoid penalties through an IRS scheme called the 'Streamlined Procedure'.
As with all tax matters, it is recommended you speak with a tax professional before filling out any returns - especially so when figuring out what you need to pay and where.
READ ALSO: A guide to completing Spain's annual tax return
Conclusion
Very simply put, there is no straightforward answer. Do you pay tax twice? Yes, and no. If you are an American residing in Spain, you will have to pay taxes into and deal with the respective tax agencies of both countries.
However, tax credit clauses included in the tax agreements between Spain and the US mean that you can claim it back so you won't actually pay tax twice on a single source of income.
As always, it is recommended to speak to a professional who is familiar with both the American and Spanish tax systems, and the double-tax treaty.
READ ALSO: Americans in Spain - Taxes, investing and cutting through the confusion
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