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As an American expat in Spain, you’ll probably have to file both a US and Spanish tax return. Here’s what you need to know to meet all of your expat tax obligations.
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.
As a US expat living in Spain, you’ll have to file taxes with both the Spanish government and Uncle Sam. The good news is that the Spanish tax system is quite similar to the US system, making it easier for expats to learn than many others.
Here’s an overview.
In Spain, you will typically have to file an annual tax return if:
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.
You will generally be considered a tax resident of Spain if you meet any of the following qualifications:
If you don’t meet these qualifications, you will likely be considered a non-resident for tax purposes.
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, are 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.)
Non-residents, on the other hand, are taxed on their Spain-source income at a flat rate of 24%.
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 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.
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.
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. As with the US-Spain tax treaty, this agreement is designed to ward off double taxation.
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.
Modelo 100
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.
Pro Tip: 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.
Modelo 150
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.
Modelo 210
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 31 of the year following the tax year in question.
Modelo 720
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.
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.
For most US citizens, Form 1040 is due on April 15, but for expats, that deadline is automatically extended to June 15.
Pro Tip: You can also request a further extension to October 15 for filing this form.
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.
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.
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:
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.
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.
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.
Spain provides quite a few deductions for tax residents on expenses such as:
It’s always wise to consult a tax professional to ensure that your Spanish tax bill is optimized for maximum savings.
Pro Tip: 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.
Hopefully, this guide has given you a better understanding of how Spain’s tax policies impact US expats. But if you still have questions, we have answers.
At Greenback Expat Tax Services, we specialize in assisting expats as they manage their tax obligations. Contact us, and we can give you all the information you need. In fact, we can even dive right in and help you file your expat taxes ourselves.
Just let us know how we can help you!
Click here to get started on your expat taxes today.
