US Expat Taxes Explained: Filing Returns as an American Citizen Living in Spain
How Working in Spain Impacts US Expat Taxes
Spain has long been a popular location for expatriation, but how will living there affect your US expat taxes? It is important to understand both how your US expat taxes are going to change with your move to Spain and how Spain will tax you on income earned while living there.
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 exclusion allows you to decrease your taxable income on US expat taxes by the first $103,900 in 2018 earned as a result of your labors while a resident of a foreign country ($105,900 in 2019).
- 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 US expat taxes. Please note that even if you do not believe you will owe any US income taxes, you will more than likely still be required to file a return.
Who is a Resident of Spain?
Residency in Spain for tax purposes is identified by Spanish domestic legislation through the following requirements:
- 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.
- 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
If you are a tax resident of Spain, your worldwide income will be subject to personal income tax at a progressive rate that peaks at 43%. Non-residents are taxed at 24%.
For residents paying tax on worldwide income, the tax rates from the Agencia Tributaria for 2018 are as follows:
|Earnings in Euro (€)||Rate Applicable to Income Level (%)|
|17,707 – 33,007||28%|
|53,407 or higher||43%|
There are not regional or state income taxes in Spain, though Spain does impose property taxes at varying levels.
Up to 6,000 Euros, capital gains are taxed at 19%. Gains of 6,000 Euros and above are taxed at a rate of 21%.
There are deductions that Spanish tax residents are eligible for. These include the following:
- Tax credits for investments in principal residence
- Business activities
- Foreign tax credits
- Business savings accounts
- Maternity leave
Spain does offer a special tax regime for expats on temporary assignment in Spain. You are required to meet specific requirements, but it does give 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
The US and Spain have a tax treaty in place, which is helpful when determining which country should be paid what taxes and at what point those taxes should be paid. The US – Spain tax treaty is an expat’s guide to ensuring that taxes are paid to the right country. If you are unsure of the wording of the treaty or have any questions, be sure to talk to a tax advisor to ensure the correct taxes are paid to the correct country.
Spain Tax Due Date
Like the United States, the tax year in Spain is from January 1st to December 31st. Returns must be filed with the Agencia Tributaria between May 1st and June 30th on the year following the tax year. You are not able to apply for extensions on the deadline for tax return filing. Payments can be made when the return is filed, or you can pay 60% with the return and complete payment of the other 40% by the end of November.
Social Security in Spain
Spain requires foreign workers to pay into social security unless they have obtained a certificate of coverage through their home country which states you are still making contributions. If you are a resident of Spain, your mandatory contributions are tax deductible. If you are a non-resident, any contributions made are not deductible.
Do note that there is a US – Spain Totalization Agreement regarding social security. It explains which country should be paid social security based on residence status, duration of time spent in Spain or the US, and whether or not you were hired by a US or Spanish company at home or abroad.
Are US Social Security Benefits Taxable in Spain?
It depends on a variety of factors including Spanish domestic tax law. However there is also a US-Spain income tax treaty that overrides Spain’s domestic tax law, specifically Article 20(1)(b). We recommend you consult with your tax professional for advice on your particular situation.
Is Foreign Income Taxed Within Spain?
If you are not a tax resident in Spain, you are only taxed on income from Spanish sources. However, if you are a Spanish tax resident, you are required to report your worldwide income. Note that you can exclude up to 60,100 EUR if the requirements are met.
Other Taxes in Spain
In addition to income tax on salaries paid, there are other forms of taxation in Spain.
To start, there is an 18% value added tax (VAT) that is applied to consumer goods, while the VAT on essential goods (food, water, medicine) is reduced to 8%. Some items are reduced to 4%.
The Net Wealth Tax (NWT) in Spain was reintroduced in 2011. Some regions have a 100 % relief from the NWT (for instance, Madrid), so in some places actually it does not apply at all. However most regions do have the NWT (those regions generally governed left of center. The region of Cataluña has the NWT and it is considered to be very high. The new regional Government of Andalucía has announced recently that they will give a 100 % relief.
There are property taxes in place in Spain, and they will be identified based on the region and municipality in which a taxpayer is living. Motor vehicle taxes are assigned based on the city in which the vehicle is registered.
Saving on US Expat Taxes
While the Spanish tax structure is not drastically different from what you are used to as an citizen of the United States, it is important to be aware of your US expat tax requirements as well as how you will be taxed by Spanish tax authorities.