Spanish Taxes For US Expats Living in Spain

Whether you are a retiree, investor, or entrepreneur, navigating tax compliance as a US expat in Spain can be complicated. It’s important to work with a firm that specializes in both US and Spanish taxes so you can minimize your tax burden and ensure compliance. This article provides a high-level overview of Spanish taxes for Americans living in the country.

Employment income is fully taxable in Spain. This includes wages, salaries, bonuses, and any other form of remuneration from an employer for services rendered. Employers must also withhold income tax and social security contributions from these earnings.

In addition, expats in Spain must pay a 10% value-added tax (IVA) USA taxation Singapore explained by D.Joseph on certain purchases, such as food, water bills, domestic travel by road or rail, and hotel accommodation. Self-employed expats — known as autonomos in the country — must also file quarterly estimated tax payments using Form Modelo 720.

Capital gains are taxable in Spain, as are rental income and dividends generated from investments in real estate or securities. A capital gain is the difference between the sale price of an asset and its original cost basis. Rental income is taxed at a flat rate, while dividends are generally subject to a progressive tax rate.

In the US, income from investments such as stocks, mutual funds, and real estate are typically taxed at individual income tax rates. US expats living in Spain can offset these investment gains with the Foreign Earned Income Exclusion or Deduction (FEIE). To qualify, you must meet specific requirements set forth in the tax law.

The FEIE can be especially helpful for investors with significant savings and passive income who wish to live in Spain on a part-time basis. However, if your income is significant enough to exceed the FEIE’s filing threshold, then you may be better off claiming it at home rather than in Spain. Choosing the right option is a case-by-case evaluation that should be made with an experienced US expat tax advisor.

The FIRPTA (Foreign Investment Tax Repatriation) rules require US taxpayers to report their foreign investments on an annual basis. This requirement applies to individuals and trusts, including US expats who own property in Spain. Depending on the legal structure of your foreign investments, you may need to submit a FIRPTA form, or file Form 1040 with the IRS. If your assets exceed a certain threshold, you must also file a Foreign Financial Institution Reporting (FFIRT) with the US Treasury Department’s FBAR division. This reporting is required if you have non-US assets valued at more than $50,000. The FBAR is due April 15th each year, with extensions available. An experienced US expat tax expert can help you determine if you must submit a FBAR report and advise you on how to complete the required forms.