The United States

Tax residents in Spain with income from the United States

(The content of this document is for informational purposes only and has been prepared for educational purposes only. For more information, please consult the Personal Income Tax Law and the Spanish-American Agreement to avoid double taxation.

I.- Tax residence

A natural person is resident in Spanish territory when any of the following circumstances occur:

• They have stayed longer than 183 days in Spanish territory over the calendar year.

  To determine this period of stay, sporadic absences will be taken into account unless the taxpayer proves his tax residence in another country (through a tax residence certificate issued by the tax authorities of that other country). In the case of countries or territories labelled as tax havens, the Tax Administration can demand proof of stay in that tax haven over a period of 183 days within the calendar year.

• They situate the main base or centre of their activities or economic activities, directly or indirectly, in Spain.

• They have dependent not legally separated spouse and/or underage children who are usually resident in Spain. This latter situation accepts evidence to the contrary.

II.- Personal Income Tax

If a natural person, in accordance with the above, turns out to be tax resident in Spain , he/she will be a taxpayer for the Personal Income Tax (IRPF) and must pay taxes in Spain on his/her worldwide income , that is, he/she must declare in Spain the income he/she obtains anywhere in the world, without prejudice to the provisions of the Agreement to avoid international double taxation signed between Spain and the country of origin of the income.

The agreements list certain types of income and, with respect to each of them, establish the tax powers that correspond to each signatory State:

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

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

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

  The Spanish-American Double Taxation Agreement contains a “reservation clause” under which the United States reserves the right to tax its citizens and residents as if the Agreement were not in force. The taxation borne in the United States by a resident of Spain based on the citizenship criterion does not entitle the resident to apply a deduction for international double taxation in the personal income tax in Spain. If the United States taxes income using the “reserve clause” established for its citizens, double taxation must be avoided by the United States.

The personal income tax period is the calendar year. A person will be a resident or non-resident throughout the calendar year since a change of residence does not imply an interruption of the tax period.

The income tax return of individuals who are tax residents in Spain is submitted in the months of April, May and June of the year following the year of accrual. The Personal Income Tax regulations set limits and conditions that determine the obligation to file a tax return, which must be consulted each year. Exempt income is not taken into account when determining the obligation to file a tax return.

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 tax because it is a pension derived from previous employment in the private sector. The treatment in the Convention 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 for the year 2019, he would be obliged to file a declaration for the personal income tax corresponding to 2019, since the payer of the American pension is not obliged to make withholdings on account of the Spanish personal income tax.

Hispanic-American Agreement

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

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

Pensions :

Understood as remuneration that is based on a previously held job, they are treated differently depending on whether they are granted for services rendered in the public or private sector.

• Pension received by reason of dependent work performed for the State, political subdivision or local entity (article 21.2 CDI) . Your treatment is:

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

     In Spain they would be exempt, although the exemption will be applied progressively. This means that if the taxpayer is required to file a personal income tax return for 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 had Spanish nationality, the aforementioned pensions would only be taxed in Spain.

• Pension received due to a previous employment in the private sector (article 20 CDI). Your 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 subject to taxation in the United States, in which case the resident taxpayer would be entitled to apply the deduction for international double taxation in Spain in the personal income tax, provided that said income has been subject to taxation in the United States based on criteria other than citizenship.

Income from real estate (Article 6 CDI):

Income from real estate located in the United States may be taxed in both Spain and the United States. The resident taxpayer would be entitled to apply the deduction for international double taxation in the personal income tax in Spain.

Dividends (article 10 CDI):

Dividends from US sources may be taxed in Spain in accordance with its domestic legislation. These dividends may also be subject to taxation in the United States, if that is the country where the company paying the dividends is resident and according to the legislation of that State, but if the effective beneficiary of the dividends is a resident of Spain, the tax thus required will have a maximum limit of 15 percent of the gross amount of the dividends. The resident taxpayer would be entitled to apply the deduction for international double taxation in the personal income tax in Spain up to that limit.

Interests (Article 11 CDI):

Interest from the United States may be taxed in Spain in accordance with its domestic legislation. In general, they can only be taxed in Spain. However, in some cases, interest may also be subject to taxation in the United States, in accordance with its domestic legislation, but if the beneficial owner of the interest is a resident of Spain, the tax thus imposed in the United States may not exceed 10% of the gross amount of the interest. In such cases, in Spain you would be entitled to apply the deduction for international double taxation up to that limit.

Remuneration of members of boards of directors of companies resident in the United States (Article 18 CDI):

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

Capital gains:

• Derived from real estate (article 13.1 CDI) : Gains from the sale of real estate located in the United States may be subject to taxation in both Spain and the United States. The taxpayer has the right to apply the deduction for international double taxation in Spain.

• Derived from shares , participations or other rights that, directly or indirectly, grant the owner of such shares, participations or rights the right to enjoy real property located in the United States (Article 13.4 CDI): Gains from the sale of such shares, interests or other rights may be taxed in both Spain and the United States. In Spain, the taxpayer would be entitled to apply the deduction for international double taxation.

• Derived from movable property belonging to a permanent establishment or a fixed base (article 13.3 CDI): Gains from the alienation of movable property that is attached to a permanent establishment or a fixed base which a resident of Spain has or has had in the United States for the purpose of carrying out business activities or providing independent professional services, including gains from the alienation of the permanent establishment or the fixed base, may be taxed in both the United States and Spain. In the event of double taxation, in Spain the taxpayer would be entitled to apply the deduction for international double taxation.

• Derived from other types of goods (article 13.6 CDI) : In general, gains derived from the alienation of any other type of property may only be taxed in Spain, provided that this is the State of residence of the transferor. An example of this type of capital gain would be the sale of shares in a US company.

In addition to those mentioned above, the Agreement lists other types of income (business profits, professional services, remuneration for salaried work, artists and athletes, public functions, other income, etc.), the treatment of which can be consulted in the text of the Agreement.  

III.- Obligation to report assets abroad

Residents in Spain must inform the Spanish tax authorities about three different categories of assets and rights located abroad:

• accounts in financial institutions located abroad
• Securities, rights, insurance and income deposited, managed or obtained abroad
• Real estate and rights to real estate located abroad

This obligation must be fulfilled, 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 the set of assets corresponding to each category does not exceed 50,000 euros. Once the information declaration has been submitted for one or more of the categories of assets and rights, the submission of the declaration in subsequent years will be mandatory when the value has experienced an increase of more than 20,000 euros compared to that which determined the submission of the last declaration.

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