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Tax residents in Spain with income from the United States according to the AEAT

Jul 6, 2024 | AEAT, Business, IRPF Spanish Tax Return, Modelo 720 | 0 comments

Tax residents in Spain with income from the United States according to the AEAT

Tax residence

A natural person is fiscal resident in Spanish territory when any of the following circumstances occur:

  • They have stayed longer than 183 days in Spanish territory over the calendar year. To determine this period of permanence, sporadic absences will be counted unless the taxpayer proves his tax residence in another country (through a certificate of tax residence issued by the tax authorities of that other country). In the case of countries or territories labelled as tax havens, the Tax Administration can demand proof of stay in that tax haven over a period of 183 days within the calendar year.
  • They situate the main base or center 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.

Modelo 100 IRPF – Personal Income Tax

If a natural person, as described, turns out to be tax resident in Spain , they will be taxpayers for the Personal Income Tax (IRPF) and you must pay taxes in Spain for your worldwide income , that is, you must declare in Spain the income you obtain anywhere in the world, without prejudice to the provisions of the Convention to avoid international double taxation signed between Spain and the country of origin of the income.

The agreements list some types of income and establish, with respect to each of them, the tax powers that correspond to each signatory State:

  • In some cases, exclusive power for the country of residence of the taxpayer,
  • in others, exclusive power for the country of origin of the income and,
  • finally, in some cases, shared power between both countries, both being able to tax the same income but with the obligation for the taxpayer’s country of residence to arbitrate measures to avoid double taxation.

The US-Spain Double Taxation Convention contains a “reservation clause” under which the United States reserves the right to tax its citizens and residents as if the Convention were not in force. The tax borne in the United States by a resident of Spain based on the criterion of citizenship does not give the right in Spain to apply a deduction for international double taxation in personal income tax. If the United States taxes income using the “reserve clause” established for its citizens, double taxation is the responsibility of the United States to avoid.

The personal income tax period is the natural calendar year. A person will be a resident or non-resident throughout the calendar year since the change of residence does not imply the interruption of the tax period.

The income tax return of natural persons who are tax residents in Spain is submitted in the months of April, May and June of the year following the year of accrual. The Personal Income Tax regulations regulate limits and conditions that determine the obligation to submit the tax return, which must be consulted every year. Exempt income is not considered 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 the power to tax it as 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, taking into account the limits and conditions of the obligation to declare related to the 2019 financial year, you would be obliged to submit a personal income tax return corresponding to 2019, since the payer of the American pension is not obliged to make withholdings on account of Spanish personal income tax

Spanish-U.S.A. agreement

The explanations of the different agreements to avoid double taxations can be found in our Whitepaper “All U.S. and Spanish Treaties to avid Double Taxation

In summary, considering the Treaty articles and the Agreement between Spain and the United States of America, taxation for Spanish tax residents on typical US income sources would be:

Pensions:

Understood as remuneration that has its cause in a previously held job, they have different treatment depending on whether they are granted for services provided in the public or private sector.

  • Pension received due to work dependent provided to the State, political subdivision or local entity (Article 21.2). Its treatment is:
    1. In general, these pensions would only be taxed in the United States.

In Spain they would be exempt, although the exemption will be applied progressively. This means that, if the taxpayer is required to file a personal income tax return for obtaining other income, the amount of the exempt pension is considered in Spain to calculate the tax applicable to the remaining income.

    1. However, if the beneficiary of the pension residing in Spain had Spanish nationality, the aforementioned pensions would only be taxed in Spain.
  • Pension received due to previous employment in the private sector (Article 20). Its treatment is:
    1. In general, these pensions will only be taxed in Spain.
    2. However, payments made under the United States Social Security regime, to a resident of Spain or to a citizen of the United States, may also be subject to taxation in the United States, in which case the resident taxpayer would have the right to apply in Spain in personal income tax the deduction for international double taxation, provided that said income has been subject to tax in the United States based on criteria other than citizenship.

Income derived from Real Estate (Article 6):

Income from real estate property located in the United States may 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):

US-source dividends may be taxed in Spain in accordance with its domestic legislation. These dividends may also be subject to taxation in the United States, if that is the country where the company paying the dividends resides and according to the legislation of that State, but if the beneficial owner of the dividends is a resident of Spain, the tax will be imposed accordingly. Required will have a maximum limit of 15% 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.

Interest (article 11):

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. However, in some cases, 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 required in the United States cannot exceed 10 per 100 of the gross amounts of interest. In those cases, in Spain you would have the right to apply the deduction for international double taxation up to that limit.

Remuneration of members of the Borad of Directors of companies’ resident in the United States (article 18):

They can be taxed in both the United States and Spain. The taxpayer would have the right in Spain to apply the deduction for international double taxation.

Capital gains:

  • Derived from real estate (article 13.1) : Gains obtained from the sale of real estate located in the United States may be subject to taxation in both Spain and the United States. The taxpayer has the right to apply the deduction for international double taxation in Spain.
  • Derived from sharesparticipations or other rights that, directly or indirectly, grant the owner of said shares, participations or rights, the right to enjoy real estate located in the United States (article 13.4): Gains derived from the sale of those shares, participations or other rights may be subject to taxation in both Spain and the United States. In Spain, the taxpayer would have the right to apply the deduction for international double taxation.
  • Derived from movable property that belongs to a permanent establishment or a fixed base (article 13.3): profits obtained from the alienation of personal property that is attached to a permanent establishment or a fixed base that a resident in Spain has or has disposed of in the United States for the performance of business activities or the provision of independent professional services, including profits derived from the alienation of the permanent establishment or fixed base, may be subject to taxation in both the United States and Spain. If double taxation occurs, in Spain the taxpayer would have the right to apply the deduction for international double taxation.
  • Derived from other types of goods (article 13.6): In general, gains derived from the alienation of any other type of property can only be taxed in Spain, provided that this is the State of residence of the transferor. An example of this type of capital gains would be that corresponding to the sale of shares of a US company.

In addition to those mentioned above, the Agreement lists other types of income (business profits, professional services, remuneration for salaried work, artists and athletes, public functions, other income…), the treatment of which can be consulted in its text.

Modelo 720/721 – Obligation to provide information on assets abroad

People residing in Spain must inform the Spanish tax administration about four 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 over real estate located abroad
  • Cryptocurrencies (on Modelo 271)

This obligation must be fulfilled, using form 720, between January 1 and March 31 of the year following the year to which the information to be provided 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€. Once the informative declaration has been submitted for one or more of the categories of assets and rights, the presentation of the declaration in subsequent years will be mandatory when the value has experienced an increase of more than 20,000€ compared to that which determined the presentation of the last declaration.

If you need any further explanations on the Treaty or on the income taxed by the AEAT to Spanish residents. Please do not hesitate to contact us: US Tax Consultants

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