Tax residents in Spain with income from the United States
(The content of this document is merely informative and has been prepared for informative purposes. For more information, please refer directly to the Personal Income Tax Act and the US-Spanish Agreement on Avoidance of Double Taxation).
I.- *TAX RESIDENCE*
An individual is a resident in Spanish territory when any of the following circumstances occurs:
- They have stayed longer than 183 days in Spanish territory over the calendar year.
- To establish this period of stay, sporadic absences will be counted unless the taxpayer proves his tax residence in another country (by means of a tax residence certificate issued by the tax authorities of that other country). In the case of countries or territories of those classified as tax havens, the Tax Administration may require proof of permanence in it for 183 days in 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.- INCOME TAX OF INDIVIDUALS
If an individual, in accordance with what is described, turns out to be a TAX RESIDENT in Spain, they will be a taxpayer for the Personal Income Tax (IRPF) and must pay taxes in Spain for their WORLD INCOME, that is, they must declare in Spain the income obtained anywhere in the world, without prejudice to what is provided in the Agreement to avoid international double taxation signed between Spain and the country of origin of the income.
The agreements enumerate certain types of income and provide, with respect to each one of them, 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, power is shared between both countries, both being able to tax the same income but with the obligation for the country of residence of the taxpayer to take measures to avoid double taxation.
The US-Spanish Agreement on Avoidance of Double Taxation 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. Taxation paid in the United States by a Spanish resident on the basis of citizenship does not entitle them in Spain to an international double taxation tax credit. If the United States taxes income using the “reserve clause” established for its citizens, double taxation should be avoided by the United States.
The income tax period is the calendar year. A person will be a resident or non-resident for the entire calendar year since the change of residence does not imply the interruption of the tax period.
The tax income tax return of individuals tax residents in Spain, is presented in the months of April, May and June of the year following the accrual. Personal income tax regulations regulate limits and conditions that determine the obligation to present the tax return, which must be consulted every year. Exempt income is not taken into account to determine the obligation to declare.
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 taxing power because it is a pension derived from previous employment in the private sector. The treatment in the Agreement is explained below). If the pension exceeds the amount of 14,000 euros per year, in accordance with the limits and conditions of the obligation to declare for the 2019 financial year, there would be an obligation to present a tax return for the personal income tax corresponding to 2019, since the payer of the US pension is not obliged to make withholdings on account of the Spanish personal income tax.
US-SPANISH AGREEMENT
(The text of the Agreement can be verified at www.agenciatributaria.es in the following route: Inicio > Normativa y criterios interpretativos > Fiscalidad internacional) (The route in English will be: Home> Regulations and interpretative criteria> International taxation)
In a simplified manner, taking into account the provisions of the Agreement between Spain and the United States of America (CDI), the taxation for tax residents in Spain of the most commonly obtained American source of income would be:
Pensions:
Understood as remuneration that resulted from previously exercised employment, it will be treated according to whether it is granted for services rendered in the public or private sector.
• Pension received for dependent work provided to the State, political subdivision or local entity (Article 21.2 CDI). It is explained as follows:
- In general, these pensions would only be taxed in the United States.
In Spain they would be exempted, although the exemption would be applied progressively. This means that, if the taxpayer is obliged to file an income tax return to obtain other income, the amount of the exempt pension is taken into account in Spain to calculate the tax applicable to the remaining income.
- However, if the beneficiary of the public pension residing in Spain had Spanish nationality, the aforementioned pensions would only be taxed in Spain.
- Pension received on account of previous employment in the private sector (Article 20 CDI). It is explained as follows:
- In general, these pensions will only be taxed in Spain.
- However, payments made under the US social security system to a resident of Spain or to a US citizen may also be subject to taxation in the US, in which case the resident taxpayer would be entitled to apply in Spain the deduction for international double taxation, provided that such income has been subject to taxation in the US based on criteria other than citizenship.
Income derived from real estate (article 6 CDI):
Income from real estate located in the United States can be taxed in both Spain and the United States. The resident taxpayer would have the right to apply the deduction for international double taxation in Spain in personal income tax.
Dividends (article 10 CDI):
US-source dividends may be taxed in Spain in accordance with Spanish law. These dividends may also be subject to taxation in the United States, if that is the country in which the company paying the dividends is resident and according to the legislation of that State, but if the beneficial owner of the dividends is a resident of Spain the tax so required will be limited to a maximum of 15 percent of the gross amount of the dividends. The resident taxpayer would have the right to apply the deduction for international double taxation in Spain in personal income tax 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. In some cases, however, the interest may also be taxed 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 so levied in the United States may not exceed 10% of the gross amount of the interest. In such cases, Spain would be entitled to apply the deduction for international double taxation up to that limit.
Remuneration of board members of companies of residents from 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:
- Derivatives of real estate (article 13.1 CDI): profits obtained from the disposal of real estate located in the United States, can be subject to taxation in both Spain and the United States. The taxpayer is entitled to apply the deduction for international double taxation in Spain.
- Derived from shares, interests or other rights which, directly or indirectly, give the owner of such shares, interests or rights the right to enjoy real estate situated in the United States (Article 13(4) CDI): the profits derived from the disposal of those shares, holdings or other rights may be subject to taxation both in Spain and in 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 obtained from the disposal of movable property that is subject to a permanent establishment or fixed base which a resident of Spain has or has had in the United States for the conduct of business or the provision of independent professional services, including gains from the disposal of the permanent establishment or fixed base, may be subject to taxation both in the United States and in Spain.In the event of double taxation, the taxpayer would be entitled to apply the international double taxation relief in Spain.
- Derived from other property (Article 13(6) CDI):in general, the profits derived from the disposal of any other type of asset can 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 benefits, professional services, remuneration for salaried work, artists and athletes, public functions, other income …), the treatment of which can be consulted in the text thereof.
In addition to those mentioned above, the Agreement lists other types of income (business benefits, professional services, remuneration for salaried work, artists and athletes, public functions, other income …), the treatment of which can be consulted in the text thereof.
III. *OBLIGATION TO PROVIDE INFORMATION ON GOODS ABROAD*
People residing in Spain must inform the Spanish Tax Administration 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, through form 720, between January 1 and March 31 of the year following that to which the information to be supplied refers.
There will be no obligation to report on each of the categories of goods when the value of the set of goods corresponding to each category does not exceed 50,000 euros. Once the informative return has been submitted for one or more of the categories of goods and rights, the presentation of the statement in subsequent years will be mandatory when the value has experienced an increase of more than 20,000 euros compared to that determined by the presentation of the last statement.
The Personal Income Tax Law and the General Tax Law establish specific consequences for the case of non-compliance with this information obligation. Contact us now for more information.