Simple Tax Guide for Americans in Spain
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and permanent residents living in Spain since 1999. We are on the list of approved Tax Preparers by the US Consulate in Barcelona. Our clients hail from all parts of Spain - Madrid, Barcelona, Granada, Seville, San Sebastian and Valencia.
US Expat Taxes - Spain
Spain has been a very popular destination for expats for many years, attracted by the history, beauty, and culture. But what does living in Spain do to your US expat tax return? This article will explain how you will be taxed by Spain while you live there.
US citizens, as well as permanent residents, are required to file expatriate tax returns with the federal government every year regardless of where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets which are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is among only a few governments who tax international income earned by their citizens, as well as permanent residents, residing overseas. There are, however, some provisions that help protect from possible double taxation. These include:
- The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD $104,100 (this amount is for 2018 taxes) in earned income from foreign sources.
- A tax credit allowing a tax on remaining income to be reduced based on the taxes paid to foreign governments.
- An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
Preparing a quality tax return following proper tax planning should allow one to use these, as well as other strategies, in minimizing or possibly eliminating tax liability. Note that in most cases the filing of a tax return is required, even if taxes are not owed.
Who Qualifies as a Spanish Resident?
Spanish tax residency is based on these requirements:
- A person is in the country for over 183 days in the calendar year. A taxpayer must prove they have tax residency elsewhere if they have sporadic absences from Spain.
- A person has economic or business interests in the country.
- A person’s spouse or minor children are classified as tax residents in Spain (unless other tax residencies can be proven).
Tax Rates for Spain
Spanish tax residents pay tax on their income worldwide at the personal tax rates, which are progressive. Non-residents pay a flat 24% tax rate. Rates are:
|19%||On||EUR 1 - EUR 12,450|
|24%||EUR 12,450 – EUR 20,200|
|30%||EUR 20,200 – EUR 35,200|
|37%||EUR 35,200 – EUR 60,000|
|45%||Over EUR 60,000|
Additional information can be obtained from the web site for Agencia Tributaria.
There are no state or regional income taxes, although Spain does have property taxes.
Capital gains get tax imposed at a rate of 19% up to a gain of EUR 6,000. Gains over EUR 6,000 get taxed at 21%.
Tax residents of Spain are eligible to take some deductions, including:
- Investment in a principal residence
- Credits for foreign taxes
- Business activities
- Savings accounts for businesses
- Maternity leave
There are special tax considerations for expatriates who are on a temporary assignment. Specific requirements must be met, but there is an opportunity to choose to be taxed at the flat 24% rather than the progressive rates, along with avoiding taxes on income from foreign sources.
There is a treaty between Spain and the United States, which helps determine which country to pay taxes to, and when the taxes must be paid. This treaty will help make sure you pay taxes to the proper country. It is always best to consult a professional tax advisor for help in understanding the treaty.
When Are Spanish Taxes Due?
The Spanish tax year mirrors the US tax year - January 1 through December 31. Tax returns are required to be submitted between the 1st of May and the 30th of June. There is no option for extensions to the deadline. Tax payments can either be made with the tax return filing, or they can be paid 60% at the time of filing and 40% before November 30th.
Spanish Social Security
Foreign workers in Spain must pay taxes into the Spanish social security program unless they obtain a coverage certificate from their native country showing that they are continuing to make contributions to that system. For Spanish residents, their contributions can be deducted on their taxes. Non-residents cannot deduct contributions.
Spain and the United States do have a totalization agreement for social security. This agreement sets out which country a taxpayer should pay their social security taxes to, as determined by residency status, the amount of time the taxpayer spends in the United States or in Spain, along with whether the taxpayer was hired abroad or at home by either a Spanish or US company.
Does Spain Tax Foreign Income?
If you aren’t a Spanish tax resident, you only pay taxes on Spanish sourced income. But, Spanish residents must report all of their worldwide income. If certain requirements are met, up to EUR 60,100 can be excluded from income.
Along with income taxes, there are also other kinds of taxes in Spain everyone should be knowledgeable of.
A standard value added tax (VAT) rate is 21%. The VAT is reduced to 10% for essential goods, such as water, food, and medicine. A few items are taxed using a rate of 4%.
Spain does not impose a wealth tax. Inheritance tax may be imposed in various regions, depending on the location of the event that triggered the tax.
Spain has property taxes, which depend on the municipality and region where the taxpayer lives. Cities impose a motor vehicle tax, which varies by city.
The tax structure in Spain is not significantly different than that in the US, but it is still important to understand the differing requirements.
Questions About Spanish Taxes?
Contact us! We have an expert team to provide tax advice to expats, and give you all the information you need to know to file your United States expat tax return while living outside the country.