What Americans Living in Spain Need to Know About Expat Taxes
- Living as an Expat in Spain
- Spain at a Glance
- What Are Expat Taxes like for Americans Living in Spain?
- Who Has to File Taxes in Spain?
- Who Qualifies as a Tax Resident in Spain?
- What Types of Taxation Does Spain Have?
- Does the US Have a Tax Treaty with Spain?
- Does the US Have a Totalization Agreement with Spain?
- What Tax Forms Do Americans Living in Spain Have to File?
- US Tax Forms for Americans in Spain
- What US Tax Deductions Are Available for Expats Living in Spain?
- What Tax Deductions Does Spain Offer for US Expats?
- Navigating Tax Compliance for US Expats in Spain
Living as an Expat in Spain
Spain’s vibrant culture and easygoing lifestyle have made it a popular destination for Americans living abroad. But when starting a new life in Spain, it’s important to understand what tax obligations you may have.
Let’s take a look at Spain’s tax policies for expats.
Spain at a Glance
- Primary Tax Forms: Modelo 100 (residents) – Modelo 150 (non-residents) – Modelo 210 (non-resident property owners)
- Tax Year: January 1st to December 31st
- Tax Deadline: June 30
- Currency: Euro (EUR)
- Population: 47 million
- Number of US Expats in Spain: 40,000
- Capital City: Madrid
- Primary Language: Spanish
- Tax Treaty: Yes
- Totalization Agreement: Yes
What Are Expat Taxes like for Americans Living in Spain?
If you’re an American living in Spain, it’s crucial to understand the unique tax obligations you may face. As a US expat, you’ll have to comply with the tax laws of both countries. In other words, you’ll be required to file a tax return with the Spanish government and with the Internal Revenue Service (IRS) in the US.
The US has a citizenship-based taxation system, which means that regardless of where you live, as a US citizen, you’re required to report your worldwide income and assets to the IRS. Failure to comply with these requirements can result in severe consequences, including penalties and interest.
Fortunately, there are several tax treaties and agreements in place between the US and Spain that can help reduce the risk of double taxation and streamline the tax reporting process for expats. These agreements aim to eliminate the possibility of paying taxes on the same income in both countries, making it easier for expats to navigate the complex tax landscape.
Who Has to File Taxes in Spain?
In Spain, you will typically have to file an annual tax return if:
- You are employed and earn more than EUR 22,000 per year
- You receive income from multiple sources
- You are self-employed
- You receive more than EUR 1,600 in yearly dividends, interest, or capital gains in a single year
- You receive more than EUR 1,000 of rental income in a single year
If you are considered a tax resident of Spain, you will be taxed on your worldwide income. (Though you can exclude up to EUR 60,100 of income from work performed outside of Spain if you meet certain conditions.)
If you are considered a non-resident, you will only be taxed on income you received from a Spanish source.
Who Qualifies as a Tax Resident in Spain?
You will generally be considered a tax resident of Spain if you meet any of the following qualifications:
- You spend more than 183 days in Spain during a calendar year
- You have a business or economic interests based in Spain
- Your spouse and/or underage children are tax residents of Spain (unless you can prove that you are a tax resident of another country)
If you don’t meet these qualifications, you will likely be considered a non-resident for tax purposes.
What Types of Taxation Does Spain Have?
Tax residents of Spain are taxed on their worldwide income at progressive rates. The exact rates vary from region to region. The highest, in the Catalonia and Andalusia regions, is capped at 49%.
For an example of how the progressive rates are structured, you can see the rates for residents of the Madrid region below. (All amounts are given in EUR.)
|Earnings in Euro (EUR)||Rate Applicable to Income Level (%)|
|1 – 12,450||19%|
|12,450 – 20,200||24%|
|20,200 – 35,200||30%|
|35,200 – 60,000||37%|
Non-residents, on the other hand, are taxed on their Spain-source income at a flat rate of 24%.
Capital Gains Tax
Spain imposes a tax on capital gains. Residents’ capital gains are taxed at progressive rates, listed below. (All amounts are given in EUR.)
|Capital Gains||Tax Rate|
|1 – 6,000||19%|
|6,000 – 50,000||21%|
Capital gains for non-residents are taxed at a flat rate of 19%.
Spain has a corporate tax as well, typically assessed at a flat rate of 25%.
Spain imposes a value-added tax (VAT) on virtually all goods and services. The standard rate for the Spanish VAT is 21%, but certain goods and services deemed essential are taxed at a lower rate of 11%, or even 4%.
A number of Spanish regions levy a tax on wealth. The thresholds and rates vary from place to place, but excess wealth is typically taxed at 0.2%–2.5%.
Spain imposes an inheritance tax, ranging from 7.65%–34%, depending on the amount.
As with the wealth tax, Spain’s property tax is handled at the regional level. Rates tend to range from 8%–11.5%, depending on the location of the property.
If a non-resident owns property in Spain, they will have to report this and pay a “deemed” income tax on the property, even if they haven’t rented the property out. The current rate for this tax is a flat rate of 19% for residents of the European Economic Area and 24% for residents of all other countries, including the US.
Like the US, Spain maintains a social security system funded by contributions from the earnings of employers and employees. The standard rates for this are 6.35% from employees and 29.9% from employers.
Does the US Have a Tax Treaty with Spain?
Yes, the US has entered into a tax treaty with Spain. This treaty establishes rules for which government has the right to tax a given expat on their income, reducing the risk of double taxation.
The treaty aims to prevent double taxation of income earned by US citizens living or working in Spain, and Spanish citizens living or working in the US, by providing clear rules for which country has the right to tax a given individual’s income.
One of the significant benefits of this treaty is that it provides for reduced withholding taxes on dividends, interest, and royalties paid between the two countries. The treaty also provides a mechanism for resolving disputes between the two countries tax authorities and includes provisions to prevent tax evasion and fraud.
Does the US Have a Totalization Agreement with Spain?
Yes, the US has a totalization agreement with Spain to clarify which country’s social security system an expat may be obligated to contribute to. The agreement ensures that individuals who work in both countries are only required to pay into one country’s social security system.
Under the Totalization Agreement, US expats working in Spain are exempt from contributing to the Spanish social security system for a limited period, provided they have paid into the US system. The same rule applies to Spanish expats working in the US, who can be exempted from contributing to the US social security system for a specific time frame, provided they have paid into the Spanish system.
By eliminating the possibility of double social security taxation, the Totalization Agreement helps facilitate the movement of workers across borders and supports the promotion of trade and investment between the US and Spain.
What Tax Forms Do Americans Living in Spain Have to File?
As a US expat living in Spain, you’ll probably have to file multiple tax forms with both governments. Here are some of the most common examples for each.
Spanish Tax Forms for Expats
Expats who qualify as residents must use Spain’s Modelo 100 to report their worldwide income. This form is due on July 30, and there are no extensions available.
In Spain, you can choose to pay all of your taxes when your tax return is due, or you can pay 60% then and 40% by the end of November.
Expats who are considered non-residents for tax purposes must use Modelo 150 to report their Spain-source income. Non-residents generally have to file and pay their taxes on a quarterly basis—specifically, within the first 20 days of January, April, July, and October.
If a non-resident owns property in Spain, they must use Modelo 210 to report this and pay a “deemed” income tax on the property. This form is due on December 31st, the year following the tax year in question.
If a tax resident owns assets outside of Spain valued at a combined total of more than EUR 50,000, they must use Modelo 720 to report it. This form is due on March 31.
When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.
US Tax Forms for Americans in Spain
IRS Form 1040: Individual Income Tax Return
Form 1040 is the standard US individual income tax return. All US citizens are required to file this form regardless of whether they live in the US, Spain, or anywhere else.
Typically, taxpayers must file Form 1040 by April 15th (April 18th, 2023). However, the IRS automatically extends expats’ due date to June 15th, 2023. Taxpayers can also request a further extension to October 16th, 2023.
IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA)
If you own non-US financial assets valued above certain thresholds, you must file a FATCA report. The specific threshold for your finances will depend on your filing status and whether you qualify as a bona fide resident of Spain.
If you do have to file a FATCA report, just fill it out, attach it to your Form 1040, and file them at the same time.
FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)
If you have at least $10,000 deposited in one or more non-US bank accounts, you’ll need to report it by filing FinCEN Form 114, also known as the FBAR.
Unlike the previous forms, you can’t file the FBAR by mail. You must file it electronically using the FinCEN BSA E-Filing System.
The FBAR is technically due on April 15, but if you miss that deadline, it automatically extends to October 15. You won’t even have to file an extension request.
What US Tax Deductions Are Available for Expats Living in Spain?
Because of the US-Spain tax treaty, most Americans living in Spain are already exempt from double taxation. However, the IRS also provides several other potential tax credits and deductions for expats, such as:
Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion, or FEIE, is a tax credit that lets expats exclude a certain amount of foreign-earned income from US taxation. The exact amount you can exclude changes from year to year, but is currently set at $112,200.
If you qualify for the Foreign Earned Income Exclusion, you can claim it by filing IRS Form 2555.
Foreign Tax Credit
Using the Foreign Tax Credit, expats can deduct the income taxes they paid to foreign governments from their US tax bill, dollar for dollar. This helps reduce the possibility of double taxation.
If you qualify for the Foreign Tax Credit, you can claim it by filing IRS Form 1116.
Foreign Housing Exclusion
The Foreign Housing Exclusion lets expats deduct certain housing-related expenses from their US tax bill.
If you qualify for the Foreign Housing Exclusion, you’ll have to claim it using Form 2555, as this exclusion is only available if you also claim the Foreign Earned Income Exclusion.
What Tax Deductions Does Spain Offer for US Expats?
Spain provides quite a few deductions for tax residents on expenses, such as:
- Investments in a principal residence
- Foreign taxes
- Business activities
- Business savings accounts
- Maternity leave
It’s always wise to consult a tax professional to ensure that your Spanish tax bill is optimized for maximum savings.
Spain also offers a special tax regime for resident expats who are on a temporary assignment. If you qualify, you may be able to opt for non-resident taxation, meaning you would be taxed at a flat rate of 24% on only Spain-source income.
Navigating Tax Compliance for US Expats in Spain
Navigating tax compliance as a US expat in Spain can be a complex process. With the unique tax laws and regulations in Spain, it’s important to stay informed and up-to-date to avoid any potential penalties or issues.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.