As a US expat living in Spain, you must fully understand your expat tax obligations to pay the right tax amount to both countries. You should also be aware of the available tax reliefs, like double taxation agreements (DTAs), to reduce your tax liability. However, DTAs come with specific eligibility rules and only apply to certain types of income.
In this guide to double taxation between Spain and the USA, we’ll explain how the DTA between these countries works if you’re a US expat. We’ll also outline the types of income it covers and provide information on possible exceptions or special provisions.
What You Will Learn
- Do Spain and the USA have a DTA?
- How do you determine residency to see if you qualify for the DTA?
- How are specific types of income taxed under the Spain-USA tax treaty?
- How does the double taxation treaty in Spain handle social security?
Does Spain Have a Double Taxation Agreement With the US?
Yes, it does—the DTA between Spain and the US was signed in 1990, and it aims to prevent Spanish and US expats from being taxed twice on the same income. The treaty allows US citizens to claim a foreign tax credit for any income taxes paid in Spain, offsetting their tax liabilities in the United States.
However, this does not remove the obligation to file a US tax return and report worldwide income. US citizens remain subject to IRS filing requirements even when residing abroad.
This applies to income that both countries have the legal right to tax, and it includes:
- Real estate
- Movable property
- Shares
- Passive income
- Pensions
US expats who want to claim the relief must fill in Form 1116. However, the amount of credit you qualify for may be limited if some of your income is excluded under the foreign-earned income exclusion.
Spain-US Double Taxation Treaty & Tax Residency
Before you can claim a DTA tax relief, Spain and the US must determine where you’re considered a tax resident. In some cases, you may be a tax resident in both countries, so the double tax treaty between Spain and the US relies on tie-breaker rules to determine tax residency. This includes the following tests:
| Test | How It Works |
|---|---|
| Permanent Home Test | The first test determines whether you have a permanent home in one of the two countries. If you do, you’re considered a tax resident of that country. |
| Centre of Vital Interests Test | If you have a permanent home in both countries—or neither—the treaty assesses where you have closer personal or economic ties to determine tax residency. |
| Habitual Abode Test | If the centre of your vital interests is in both countries or neither country, the treaty will focus on where you live regularly. You’ll be considered a tax resident in the country where you spend more time. |
Although this is a rare case, if you’re a citizen of neither or both of these countries, and the tests fail to determine your residency, Spain and the US will determine it through a mutual agreement, carefully considering your personal circumstances.
Income Taxation According to the Double Taxation Agreement Between USA and Spain
If you’re considered a Spanish tax resident, you have to pay Personal Income Tax on worldwide income—unless the DTA rules apply. You can use the DTA to reduce or avoid taxation on the following types of income:
- Dividends
- Interests
- Capital gains
- Pensions
Dividends
If you’re a US expat living in Spain who receives dividends from an American company, both the US and Spain can tax those dividends according to their taxation laws. However, if you’re a tax resident in Spain, the US can only tax up to 15% of the total dividend amount.
Thanks to the tax treaty rules, you can claim a tax credit in Spain to avoid double taxation up to that 15% limit.
Interests
If you earn interest income from the US while living in Spain, that interest is typically subject to Spanish taxation. In some cases, both countries may tax US-earned interest according to their domestic legislation. If this happens, the US can only tax up to 10% of the gross interest amount if you’re a Spanish resident and the beneficial owner of the interest.
Similar to dividends, a DTA between Spain and the US lets you claim a tax credit (up to 10%) to avoid paying tax on the same income interest twice.
Capital Gains
Both the US and Spain can tax certain types of capital gains. Generally, selling any type of US property, like shares in an American company, is taxable in Spain if you’re its tax resident. However, the double taxation agreement allows you to claim a tax credit in Spain on capital gains like:
- US Real Estate: If you’re a Spanish resident but make a profit from selling US property, both countries can tax these gains.
- Shares: Both countries can tax the gains if you sell shares, rights, or participations linked to American real estate and benefit from them directly or indirectly while living in Spain.
- Movable Property: If you have a business in the US and sell the base of the business or movable property, like equipment tied to that business, both Spain and the US can tax your capital gains.
Similar taxation rules apply to other capital gains, such as the profits from selling royalties and a ship or aircraft used in international traffic.
Pensions
The taxation of your pension under the DTA between Spain and America differs depending on the type of pension you have:
| Pension Type | Explanation |
|---|---|
| Public Sector Pension | If you’re a US citizen and you receive a pension from a government job in the US, you’ll be exempt from Spanish tax, but the exemption will be applied progressively. If you’re required to submit a personal income tax return, the pension exemption sum is considered when calculating taxes owed on the remaining income. |
| Private Sector Pension | If you live in Spain and receive a pension from a non-government job, the pension is typically only taxed in Spain. However, any payments made to the US Social Security regime to a US citizen or a Spanish resident may also be liable for US taxation. In this case, you could apply for a deduction—but this can only be done if the income has been subject to US tax based on factors other than citizenship. |
Additional Spanish Taxes US Expats Should Know
While the Spain–US tax treaty helps mitigate double taxation on income, US expats living in Spain may still face local taxes not covered by the treaty, including:
- Wealth Tax (Impuesto sobre el Patrimonio): Spain imposes an annual wealth tax on the net value of worldwide assets for Spanish tax residents. Expats may be liable if their net assets exceed €700,000, though thresholds and exemptions vary by autonomous community. Primary residences are typically exempt up to €300,000.
- Exit Tax: Long-term Spanish residents (10+ years) may be subject to an “exit tax” on unrealised gains if they leave Spain and relocate tax residency.
- Inheritance and Gift Taxes: Spain levies inheritance and gift tax on both the recipient and the assets transferred, even if they originate outside Spain. Rates and exemptions vary by region.
- Solidarity Wealth Tax (Temporary 2023–2025): This additional national wealth tax, introduced as a temporary measure, affects individuals with net wealth over €3 million. It applies in addition to regional wealth taxes.
It is crucial to consider both treaty provisions and Spain’s domestic tax laws when planning residency, asset holding, or retirement.
How Does the Double Taxation Agreement in Spain Handle Social Security?
On April 8, 2023, Spain and the US signed a protocol updating their original 1988 totalisation agreement, aimed at eliminating double Social Security taxation for cross-border workers.
Under the revised terms, US or Spanish employees seconded abroad may remain in their home country’s Social Security system for up to 7 years (increased from 5 years under the original agreement).
Employees must obtain a certificate of coverage from their home country’s Social Security authority to qualify for exemption in the host country.
The totalisation agreement applies to US and Spanish employees, as well as self-employed workers. Its rules for eliminating double Social Security taxation are:
| Work Status | Social Security Tax Location |
|---|---|
| US Employer |
|
| Spanish Employer |
|
| Self-Employed |
|
What Is a Saving Clause in the US Double Taxation Treaty With Spain?
A saving clause in the Spain–US tax treaty allows each country to tax its own citizens and residents as if the treaty did not exist.
For US expats, this means the IRS retains full taxing rights over your worldwide income, regardless of treaty reliefs available under the DTA.
Some exceptions apply – certain types of income, such as government pensions, diplomatic pay, and student grants, may still qualify for treaty protection.
For example, income from services performed for a government is typically taxed only by the country of that government. However, this exemption does not apply if the individual is also a citizen or permanent resident of the other country, in which case both countries may tax the income.
This guide on expat tax exemptions explains how these mechanisms work and when they apply.
Given the complexity of saving clause exceptions, it is advisable to seek advice from a cross-border tax specialist. At Titan Wealth International, our consultants can help you understand how these rules affect your specific tax obligations.
Book Your Complimentary Cross-Border Tax Planning Call
Navigating US–Spain tax rules as an expat requires expert insight. In your complimentary consultation with Titan Wealth International, you will:
- Learn how to apply the US–Spain tax treaty to minimise double taxation on income, pensions, and capital gains.
- Understand your exposure to Spanish-specific taxes, including wealth and inheritance tax.
- Receive tailored advice on structuring your global finances for tax efficiency and compliance.
Key Takeaway
As a US expat, familiarising yourself with double taxation in Spain and the US will help reduce tax liability and maximise wealth growth while living overseas.
In this guide, we’ve explained how the Spain-US double taxation treaty works and why your residency matters if you want to claim tax relief. We’ve outlined how the treaty can help you eliminate double taxation for specific types of income, focusing on dividends, interest, capital gains, and pensions.
The guide also covered the agreement, which protects you from paying Social Security tax twice and introduced you to the savings clause and its impact on the DTA.
At Titan Wealth International, our professional tax consultants can help you understand double taxation in Spain and the US, ensuring you don’t overpay or underpay taxes. Our tax planning services are designed to provide expert advice to help you navigate your tax-paying obligations across multiple jurisdictions, providing personalised support for your specific circumstances.
