Spain is a beautiful country with an abundance of culture, food, and weather that draws countless Americans to make it their permanent or temporary home. However, navigating the complex tax laws in Spain as a US expat can be challenging. Fortunately, our experts are here to help. In this article, we will discuss the basics of Spanish taxes for US Spanish taxes for US expats in this guide expats and provide a high-level overview of the main tax forms that you’ll need to file each year. For more detailed advice on filing your US and Spanish taxes, we recommend consulting a professional expat tax accountant who specializes in international taxation.
What is the Spanish Income Tax Rate for American Expats?
Those who qualify as a resident of Spain are taxed at progressive rates on their worldwide income. This includes wages, salaries, bonuses, and any other remuneration from employment. It also includes rental income from property. Tax rates vary across different regions of the country, with Catalonia and Andalusia being among the highest.
The US and Spain have a tax treaty in place to eliminate the possibility of double taxation. However, the relief provided by the treaty is limited. In most cases, the treaty requires you to pay tax in the country where your income is earned.
For example, if you earn an income from renting property in Spain, you will be required to pay local property tax—or IBI—as well as federal personal income tax (IRPF). Your employer is responsible for withholding the appropriate amount of IPB from your salary and reporting it to the government on your behalf.
If you’re an entrepreneur in the business of renting properties, you can take advantage of several tax deductions available to you. For example, if you’re a new limited company that hasn’t generated any profits, you can receive a reduction in your IRPF rate for two years.
You’ll need to file FinCEN Form 114, or the FBAR, if you have financial assets in foreign accounts that exceed certain thresholds. This is a critical form for any US expat in Spain who owns assets outside of the country, such as real estate or investments.
The FBAR is due by April 15, but Americans living abroad get an automatic two-month extension until June 15. This can be extended further on request to October 15.