US Taxes for Americans in Spain – What Expats Need to Know

Expat Living In Spain

Spain, France, and Morocco are the only three countries in the world with borders on both the Atlantic Ocean and Mediterranean Sea, a climate that offers a comfortable range of temperatures, and quality of life that ranks high among world-wide countries. This highly decentralized constitutional monarchy shares many important themes with its European neighbors including gender equality and religious freedom. The autonomy of over 17 local communities and cities in Spain with separate jurisdictions that can tax individuals and business concerns complicate income tax reporting for both domestic and foreign nationals. The Kingdom of Spain, sitting on the Iberian Peninsula at the mouth of the Mediterranean, has played a major historic role in both European history and the older story of humankind extending back in time thousands of years. It’s location and culture has been a magnet for international tourists and US expats for many years.

Below is our top 10 list of cities in Spain for expats (in no particular order):

• Madrid
• Barcelona
• Valencia
• Seville
• Zaragoza
• Málaga
• Murcia
• Palma de Mallorca
• Las Palmas de Gran Canaria
• Bilbao

Life in Spain is influenced a diverse range of descendants from the European continent in the north and Arab cultures from Africa in the south. Recent surveys report a foreign resident population that is double digits. Its membership in the European Union (EU) and seductive Mediterranean coastline have influenced an increase in immigration too. Though dominated for centuries by the Roman Catholic Church, the country has a liberal and open policy toward all faiths and creeds. It is also a world leader in the production and development of renewable forms of energy like solar, wind, and nuclear power.

Guide To US Expat Tax In Spain

The Tax Samaritan country guide to US expat tax in Spain provides a general review of expat tax in Spain and how that will impact your U.S. expatriate tax return as a U.S. Expat In Spain.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from Spain and the U.S. For example, certain benefits may be tax free or excluded from taxable income in the Spain, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to US expat tax in Spain and this brief article will address a few of those considerations.

Spain Expat Income Taxes

Who Is Liable For Income Taxes In Spain

Spanish taxation is based on residence and income source like most other countries in the world. A Spanish resident is subject to taxation on all their worldwide income. Nonresidents are contrarily taxed only on income from a Spanish-source and capital gains generated in the country. Residency is based on spending more than 183 calendar days in Spain. There is also a consideration for the location of an individual’s core business activities or interests rather than just physical presence. The residence for example of a person’s family or other social ties is factored into this determination. Spanish nationals are subject to taxation for four years in some case following any departure from the country.

Tax Year In Spain And Tax Filing And Payment Rules

Depending on an expatriate’s tax situation, income derived from employment may be subject to a flat tax rate of 24.75% rather than a regionally complex and progressive schedule of taxation. Given the autonomy of the many local jurisdictions in the kingdom, specific tax requirements for filing and paying assessments requires careful consideration. Any US expat living in Spain who enjoys special tax treatment must file their tax return any time between May and the end of June following the end of their calendar tax year. A nonresident can file quarterly tax returns or an annual return within 30 days of when their Spanish-source income was paid. The tax system in Spain is based on self-assessment and allows both single and “family” returns. Excess tax withholdings are refundable to the taxpayer.

Major categories of assessable income include compensation for personal services, fees for Director’s, and income from self-employment or business concerns. Employment income in the form of wages that are irregular or periodic may be eligible for exemptions. Tax treatment on net self-employment income depends on whether an individual is a resident or non-resident in the country. Investment income is subject to taxation depending on category (for example, tangible, real property) and residence. Once again, a non-resident may enjoy a flat 24.75% tax rate depending on their circumstances. The capital gains, interest, and dividends of a resident domestic national can be subject to a tax rate from 21% to 27%; a non-resident in comparison will pay a flat 21% rate.

There are a variety of deductions, allowances, and exemptions for residents of the Kingdom of Spain. Double-taxation treaties between countries are in addition a very important consideration especially when a US expat living in Spain files a tax return. Seek professional guidance also when considering proper rates of taxation based on reciprocal arrangements Spain has with other member countries in the European Union.

Expat Tax Withholding In Spain

Since the United States has a tax treaty with the Spain, tax returns of US expats living in Spain, require analysis by an international tax specialist like Tax Samaritan. See our Takeways at the bottom of this page. Tax exemptions are available under the Spanish tax code for expatriates. In fact, special treatments such as Regulation 687/2005 enacted in 2005, in addition to the existing tax treaty, pertain directly to a US expatriate’s tax regime when assigned to work in this country. We strongly recommend you consult with a practiced tax professional regarding how these tax rules and conditions apply to your personal tax situation as an expat in this country.

What You Need To Know About US Expat Tax In Spain

When dealing with US expat tax in Spain, there are a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats, the Foreign Earned Income Exclusion (IRS Form 2555) and other deductions will reduce your U.S. taxes to zero.

Some of these preferential tax treatments or benefits for US expat tax in Spain include:

• If you are a U.S. citizen or a resident alien of the United States and you live in Spain, your US expat tax in Spain is based on your worldwide income and as such you must file a U.S. return for all the years that you are residing in Spain. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
• When it comes to your US expat tax in Spain, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and Spain. A U.S. taxpayer working overseas in Spain may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.

A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a return for US expat tax in Spain does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability until they are claimed on a filed tax return.

When faced with US expat tax in Spain there are many tax items to consider, but the above are by far the most common preferential tax benefits. With top-notch experienced and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.

Spain Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to US expat tax in Spain is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).

The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).

The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

If you have bank accounts at Bancaja, Banca Civica SA, Bankia, Banco Cooperativo Espanol (BCE), Banco de Valencia (BVA), Banco Etcheverria, Banco Financiero y de Ahorros (BFA), or at another bank in Spain or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – Spain Social Security Totalization Agreement

The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account by an expat living in Spain when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country. As of this time, the United States has entered into a Totalization Agreement With Spain . There is an opportunity to avoid double taxation of social security income for US expat tax in Spain.

U.S.- Spain Tax Treaty And Tax Relief For US Expat Tax In Spain

The United States currently has a separate tax treaty with the Spain. The US Internal Revenue Code offers tax credits against any Spain income tax. See our Tax Samaritan Takeaways below for other valuable references.

Request A Tax Preparation Quote

Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our US expat tax in Spain. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in Spain. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.

Click the button below to request a Tax Preparation Quote today to get started with the preparation of your return for US expat tax in Spain or to request a free 30-minute tax consultation.

Tax Samaritan Takeaways

Please click on the hyperlinks below for additional takeaways for your expat tax in Spain:

Tax Samaritan Expat Tax Services

2014 IRS Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad

Consulate General of Spain, Washington, DC

US Embassy in Barcelona, Spain

US-Spain Tax Treaty, 1991

Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US expat tax in Spain and throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about US expat tax in Spain. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with US expat tax in Spain. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional US expat tax in Spain advice based on your individual needs.