The United States

Tax residents in Spain with income from the United States

(The content of this document is merely informative and has been prepared for informative purposes. For more information, please consult the Spanish American Convention on Personal Income Tax (IRPF) directly to avoid double taxation.

I.- Tax residence

An individual is a resident in Spanish territory when any of the following circumstances occur:

• That it remains more than 183 days, during the calendar year, in Spanish territory.

  To determine this period of permanence, sporadic absences will be counted unless the taxpayer proves their tax residence in another country (by means of a tax residence certificate issued by the tax authorities of that other country). In the case of countries or territories of those classified as tax havens, the Tax Administration may require that the permanence of the tax be proven for 183 days in the calendar year.

• That it shows the main core or the basis of its activities or economic interests in Spain, either directly or indirectly.

• That the non-legally separated spouse and children under the age of this individual are usually resident in Spain. This third case allows for proof to the contrary.

II.- Personal Income Tax

If an individual, in accordance with the above, becomes a tax resident in Spain, they will be a tax payer on Personal Income (IRPF) and must pay tax in Spain for your global income , i.e. you must declare in Spain the income you obtain anywhere in the world, without prejudice to what is available in the Agreement to avoid international double taxation between Spain and the country of origin of the income.

The agreements list certain types of income and have, for each of them, the tax authorities corresponding to each signatory State:

• In some cases, exclusive authority for the taxpayer's country of residence,

• In others, exclusive power for the country of origin of the income and,

• Finally, in some cases, the power shared between both countries may both tax the same income but with the obligation for the taxpayer's country of residence to arbitrate measures to avoid double taxation.

  The Agreement to avoid double U.S. Hispanic taxation contains a "reservation clause" under which the United States reserves the right to impose on its citizens and residents as if the Agreement were not in force. The tax paid in the United States by a resident of Spain on the basis of the criterion of citizenship does not give the right in Spain to apply to the deduction for international double taxation. If the United States taxes an income by using the "reserve clause" established for its citizens, double taxation is to avoid it for the United States.

The Personal Income Tax tax period is the calendar year. A person will be a resident or non-resident throughout the calendar year as the change of residence does not mean the interruption of the tax period.

The income tax return of natural persons resident in Spain is presented in the months of April, May and June of the year following the accrual date. The Personal Income Tax regulations govern certain limits and conditions that determine the obligation to file the tax return, which must be consulted every year. Exempt incomes are not taken into account to determine the obligation to declare.

Example : taxpayer, tax resident in Spain, whose only income in 2019 is a pension from the United States, caused by having worked in a company in that country. (Spain has the power to levy a pension derived from a previous employment in the private sector. the treatment in the Agreement is explained below). if the pension exceeds the amount of 14,000 euros per year, taking into account the limits and conditions of the obligation to declare in 2019, it would be obliged to file a Personal Income Tax return corresponding to 2019, since the the payer of the US pension is not obliged to make withholdings on account of Spanish Personal Income Tax.

Spanish-American Agreement

(The text of the Agreement can be viewed at https://sede.agenciatributaria.gob.es on the following path: Home > Regulations and interpretative criteria > International taxation)

In a simplified way, taking into account the provisions of the Agreement between Spain and the United States of America (CDI), the taxation for tax residents in Spain of the most commonly obtained US source income would be:

Pensions:

Understood as remuneration that has their cause in a previously exercised employment, they have different treatment as granted for the purposes of services provided in the public or private sector.

• Pension received for the dependent work provided to the State, political subdivision or local entity (article 21,2 of the Spanish Tax Act). Its treatment is:

  1. In general, these pensions would only be taxed in the United States.

     In Spain they would be exempt, although there will be an exemption with progressiveness. This means that if the taxpayer is obliged to file a Personal Income Tax return for obtaining other income, the amount of the exempt pension is taken into account in Spain to calculate the tax applicable to the remaining income.

  2. However, if the beneficiary of the pension resident in Spain has a Spanish nationality, the aforementioned pensions would only be taxed in Spain.

• Pension received for reasons of previous employment in the private sector (article 20 of the Spanish Tax Act).Its treatment is:

  1. In general, these pensions will only be subject to taxation in Spain.

  2. However, payments made under the United States Social Security regime, to a resident of Spain or a citizen of the United States may also be taxed in the United States, in which case the resident taxpayer would have the right to apply in Spain in Personal Income Tax the deduction for international double taxation, provided that this income has been subject to taxation in the United States on the basis of criteria other than citizenship.

Income derived from real estate (article 6 of the Spanish Tax Act):

Real estate income in the United States may be subject to tax both in Spain and the United States. The resident taxpayer would have the right to apply the deduction for international double taxation in Spain in Personal Income Tax.

Dividends (article 10 of the ILC):

Dividends from the US source can be subject to tax in Spain in accordance with its internal legislation. These dividends can also be subject to tax in the United States, if it is the country where the company that pays the dividends and according to the legislation of that State, but if the actual beneficiary of the dividends is a resident of Spain, the tax thus required will have a maximum limit of 15% of the gross amount of the dividends. The resident taxpayer would have the right to apply the deduction for international double taxation to the Spanish Personal Income Tax until that limit.

Interest (article 11 of the ILC):

Interest from the United States may be subject to tax in Spain in accordance with its internal legislation. In general, they can only be subject to tax in Spain. However, in some cases, interest may also be subject to tax in the United States, in accordance with its internal legislation, but if the effective beneficiary of the interest is a resident of Spain the tax thus required in the United States cannot exceed 10% of the gross amount of the interest. 100 In these cases, in Spain, you would have the right to apply the deduction for international double taxation up to that limit.

Remuneration of members of boards of directors of resident companies in the United States (article 18 of the Spanish Confederation of Companies):

They can be subject to taxation both in the United States and in Spain. The taxpayer would have the right in Spain to apply the deduction for international double taxation.

Capital gains:

• Derived from real estate (article 13,1 of the Spanish Tax Act): Gains on disposal of real estate assets located in the United States may be taxed both in Spain and in the United States. The taxpayer has the right to apply the deduction for international double taxation in Spain.

• Derived from shares, shares or other rights that, directly or indirectly, grant the owner of these shares, shares or rights, the right to enjoy real estate located in the United States (article 13,4 of the ILC): Gains derived from the disposal of these shares, holdings or other rights may be subject to taxation both in Spain and the United States. In Spain, the taxpayer would have the right to apply the deduction for international double taxation.

• Derived from movable property belonging to a permanent establishment or a fixed base (article 13,3 of the Spanish Confederation of Companies Act): Gains on disposal of movable property that are in a permanent establishment or a fixed base from which a resident in Spain has or has made use of business activities in the United States or the provision of independent professional services, including gains derived from the disposal of the permanent establishment or fixed base may be subject to taxation both in the United States and in Spain. In the event of double taxation, in Spain the taxpayer would have the right to apply the deduction for international double taxation.

• Derived from other kind of goods (article 13,6 of the Spanish Tax Act): In general, profits derived from the disposal of any other kind of property can only be subject to taxation in Spain, provided that this is the transferor's State of residence. An example of this type of capital gain would be that corresponding to the sale of shares of an American company.

In addition to the above, the Agreement lists other types of income (business benefits, professional services, employee benefits, artists and athletes, public functions, other income, etc.), the processing of which can be viewed in the text of the same.  

III.- Obligation to provide information on goods abroad

Persons resident in Spain must inform the Spanish Tax Administration about three different categories of goods and rights located abroad:

• Accounts in financial institutions located abroad
• Securities, rights, insurance and income deposited, managed or obtained abroad
• Real estate and property rights located abroad

This obligation must be met, using form 720, between January 1 and March 31 of the year following the year to which the information to be supplied refers.

There will be no obligation to report on each of the categories of assets when the value of all the assets corresponding to each category does not exceed 50,000 euros. Once the informative tax return has been filed for one or more of the categories of goods and rights, the tax return will be filed in subsequent years when the value has increased by more than 20,000 euros compared to the one that established the last tax return.

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