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US Expat Taxes Explained: Filing Taxes as an American in Spain

In the event that an individual decides to move to Spain, it is important for them to understand the implications such a move has for their US expat taxes. Spain’s beautiful countryside and romantic atmosphere have made it a popular destination for tourists, expatriates, and retirees alike. Americans who live in Spain are going to be subject to the Spanish taxation system, as well as having obligations to file US expat taxes.

US EXPAT TAXES IN spain

If you are a citizen or permanent resident of the United States then you are obligated to file US taxes, in this case US expat taxes, with the IRS each year regardless of the country in which you reside.

In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.

While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:

  • The foreign earned income exclusionallows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
  • The foreign tax credit,which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
  • The foreign housing exclusion,which allows you to exclude certain household expenses that occur as a result of living abroad.

With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your tax bill.  Please do note that even if you do not believe that you owe any US income taxes, you will more than likely, still be required to file a return.

WHO IS A RESIDENT OF Spain?

In order to be considered a resident of Spain for tax purposes, you must meet the following requirements determined by Spanish domestic legislation:

  • An individual is present in Spain for more than 183 days during a calendar year. If there are sporadic absences, the individual must prove that he or she is a tax resident elsewhere. (Note that temporary visits to Spain in order to comply with contractual obligations under cultural and humanitarian collaboration agreements with the Spanish authorities which are not remunerated are not included when calculating the 183-day residence period.)
  • An individual has business or economic interests in Spain.

An individual’s spouse and/or underage children are Spanish tax residents (unless another tax home is proven).

Spain INCOME TAX RATES

Non-residents are generally taxed at 24%. If you’re a tax resident of Spain, your worldwide income will be subject to personal income tax at a progressive rates, which vary by region. The highest rates in Spain peak at 49% in the Cataluñu and Andalucía regions.  Each region will have slightly different rates.

For instance, here are the rates for the residents of the Madrid region.

Earnings in Euro (EUR)

Rate Applicable to Income Level (%)

1-12,450

19%

12,450-20,200

24%

20,200-35,200

30%

35,200-60,000

37%

60,000+

45%

However, the different regions can alter the statutory rates, though Spain does impose property taxes at varying levels.

Capital Gains Tax in Spain

Up to 6,000 Euros, capital gains are taxed at 19%. Gains of 6,000 to 50,000 Euros and above are taxed at a rate of 21%. Gains of 50,000 and above are taxed at 23%. Gains for non-residents are taxed at 19%.

SPANISH tax deductions and credits

There are a number of deductions Spanish tax residents are eligible for, including:

  • Tax credits for investments in principal residence
  • Foreign tax credits
  • Business activities
  • Business savings accounts
  • Maternity leave

Also, Spain offers a special tax regime for expats who are on a temporary assignment in the country. In order to take advantage of it, you must meet specific requirements, but it allows expats the opportunity to opt out of the progressive tax rate (flat rate of 24%), as well as avoid paying taxes on foreign sourced income.

US – Spain TAX TREATY

There is a tax treaty in place between the US and Spain, which helps determine to which country different types of US tax for expats should be paid and at what point they should be paid. The purpose of the treaty is to ensure taxes are paid to the right country. Navigating the treaty on your own can be a bit complicated, so it’s a good idea to consult with an expat tax professional if you’re unsure of the requirements for your situation.

Spain TAX DUE DATE

The tax year in Spain follows the same timeline as the US, from January 1 to December 31. Tax returns must be filed with the Agencia Tributaria between April 6 and June 30 of the year following the tax year. There are no extensions on filing tax returns in Spain. You have the option to pay all of your taxes when your tax return is due, or you can pay 60% then and complete the other 40% payment by the end of November.

SOCIAL SECURITY IN SPAIN

As a foreign employee in Spain, you’ll be required to pay into social security unless you have a certificate of coverage through your home country that states you’re still making contributions. If you’re a resident of Spain, your mandatory contributions are tax-deductible, but that is not the case if you’re a non-resident.

There is a US – Spain Totalization Agreement in place, which helps explain which country should be paid social security based on residency status, duration of time spent in the US or Spain and whether or not you were hired by a US or Spanish company at home or abroad.

IS FOREIGN INCOME TAXED WITHIN Spain?

If you’re not a tax resident of Spain, you’ll only be taxed on your income from Spanish sources. If you’re a Spanish tax resident, you must report your worldwide income. However, up to 60,100 EUR of earned income for work performed outside of Spain can be excluded if certain conditions are met.

OTHER TAXES IN Spain

There are a few other forms of taxation in Spain, aside from income taxes. These include:

  • Value Added Tax (VAT) – This is a 21% tax applied to consumer goods, while the VAT on essential goods (such as food, water, medicine) is reduced to 10%. Some items are reduced even further, to 4%.
  • Wealth Tax – This applies to assets above 700,000 EUR, with an additional 300,000 EUR allowed for a home. Inheritance tax will be dealt with on a regional level, and depends on where the taxable event took place.
  • Property Tax – This will be identified based on the region and municipality in which you’re living. Motor vehicle taxes also will be assigned based on the city in which the vehicle is registered.

SAVING ON US EXPAT TAXES

If you plan on living in Spain, it is important to understand your Spainish filing requirements while remembering your US expat tax requirements as well.

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