If you are a U.S. citizen residing in Spain or have financial interests in both countries, understanding how the Spain-U.S. Double Taxation Treaty affects your tax situation is crucial. This treaty prevents double taxation on the same income and establishes rules on tax residency, taxation of salaries, pensions, investments, and capital gains.
📌 At Lextax, we specialize in international taxation and assist U.S. citizens in Spain in optimizing their tax burden and avoiding penalties.
In this guide, we explain:
✅ How to avoid double taxation between Spain and the U.S.
✅ Which taxes you must pay in the U.S. and Spain
✅ Tax strategies for expats and residents
✅ Key tax obligations based on your situation
Additionally, if you have interests in Canada or the UK, you may want to learn about the Spain-Canada and Spain-UK Double Taxation Treaties.
What Is the Spain-U.S. Double Taxation Treaty?
The Double Taxation Treaty (DTT) between Spain and the United States is a bilateral agreement designed to prevent individuals and businesses from being taxed twice on the same income in both countries.
🔹 Key benefits of the treaty:
✅ Prevents double taxation on income, pensions, investments, and properties.
✅ Clarifies tax residency, determining where taxes must be paid.
✅ Allows deductions and exemptions to optimize tax burden.
✅ Encourages investment and trade between the U.S. and Spain.
Tax Residency in Spain for U.S. Citizens
Determining whether you are a tax resident in Spain is crucial for knowing where you are required to pay taxes.
📌 You are considered a tax resident in Spain if you meet any of these conditions:
✔️ You live in Spain for more than 183 days per year.
✔️ Your main economic interests are in Spain.
✔️ Your spouse or minor children reside in Spain on a permanent basis.
If you are a tax resident in Spain, you are taxed on your worldwide income, including income from the U.S..
🔗 If you have assets outside Spain, you must be aware of Modelo 720, a mandatory declaration for residents with foreign assets exceeding €50,000.
Tax Obligations for U.S. Citizens in Spain and the U.S.
1. Taxes to Pay in the U.S. if You Reside in Spain
Unlike most countries, the U.S. taxes its citizens on their worldwide income, regardless of where they live. This means that even if you live in Spain, you must still file a tax return with the IRS.
📌 Main U.S. tax obligations for citizens in Spain:
✅ Form 1040: U.S. tax return for citizens and permanent residents.
✅ FBAR (FinCEN Form 114): Required if you hold bank accounts in Spain exceeding $10,000.
✅ FATCA (Form 8938): Mandatory reporting if you have foreign financial assets over $200,000.
2. Taxes to Pay in Spain if You Are a Tax Resident
📌 Key taxes in Spain for U.S. residents:
✅ Personal Income Tax (IRPF): Taxed on all worldwide income.
✅ Wealth Tax: If your Spanish assets exceed €700,000, you may be liable for this tax.
✅ Modelo 720: Mandatory declaration for foreign assets over €50,000.
How to Avoid Double Taxation Between the U.S. and Spain
The Spain-U.S. Double Taxation Treaty provides mechanisms to ensure that a taxpayer does not pay taxes twice on the same income.
📌 Key solutions to avoid double taxation:
1️⃣ Foreign Tax Credit (FTC) in the U.S.: You can deduct taxes paid in Spain from your IRS tax return.
2️⃣ Foreign Earned Income Exclusion (FEIE): If you meet specific requirements, you can exclude up to $120,000 of foreign-earned income from U.S. taxes.
3️⃣ Specific deductions and exemptions: Depending on the type of income, the treaty defines which country has the primary right to tax it.
💡 At Lextax, we help you apply these benefits correctly to avoid overpaying taxes.
Strategies to Optimize Taxation for U.S. Citizens in Spain
If you are a U.S. citizen living in Spain, these strategies can help you legally reduce your tax burden:
🔹 1. Take Advantage of the Beckham Law
If you are a highly qualified expatriate, you may qualify for the Beckham Law, which allows you to pay a flat 24% tax rate instead of Spain’s progressive tax system. Learn more in our Beckham Law guide.
🔹 2. Plan Your Tax Residency
If you stay in Spain for less than 183 days, you may avoid becoming a tax resident and only pay taxes on Spain-sourced income.
🔹 3. Optimize Investment Taxation
Capital gains and dividends may benefit from exemptions and tax treaties, reducing your tax burden.
🔹 4. Consider Alternative Tax Structures
Depending on your income sources and business activities, setting up a company in Spain may be more tax-efficient than paying personal income tax.
📩 At Lextax, we guide you in structuring your tax situation efficiently and avoiding penalties.
Conclusion: The Importance of a Specialized Tax Advisor
The Spain-U.S. Double Taxation Treaty is essential to avoid paying taxes twice and optimize your tax burden if you are a U.S. citizen living in Spain.
📌 Key takeaways:
✔️ If you live in Spain for more than 183 days, you are a Spanish tax resident and must pay taxes in Spain.
✔️ You must continue filing U.S. tax returns, even if you reside in Spain.
✔️ Use treaty deductions and exemptions to prevent double taxation.
✔️ Implement tax strategies to minimize your tax liability legally.
📞 Need tax advisory services in Spain or the U.S.? Contact us for a free consultation and avoid costly tax mistakes.
🔗 More information on international taxation:
✅ Spain-Canada Double Taxation Treaty
✅ Spain-UK Double Taxation Treaty
💡 With Lextax, your taxation in Spain and the U.S. is in expert hands. ✅