Navigating Spanish Taxes for American Expats in Spain

Question

“I’ve seen numerous posts that mention this process, but never fully explain it. For Americans, we pay Spanish taxes first, then file US taxes. In theory, the Spanish taxes are higher than what we would pay in the US, so we pay ‘NO’ US taxes??

I’m basing this off of no assets of any kind in the US, just a bank account at USAA where the paychecks are deposited. But for those of us who receive government retirement, supposedly much of that is not taxed in Spain.

If so, Spanish taxes could be lower than the US taxes, so does that mean we pay the difference in US taxes?? What we owe in the US minus what we paid in Spain?? Thanks.”

Answers

These are the answers of Spainguru’s Facebook group members:

“If an item of US source income is taxed in Spain because the US citizen is a resident of Spain, then the resourcing article (Article 24 paragraph 3) in the US/Spain treaty allows you to resource the US source income as foreign source so you may take a foreign tax credit for the Spanish taxes paid or accrued.

If the US source income isn’t taxed by Spain then you can’t take a foreign tax credit against the tax on that income even if you have excess foreign taxes because of taxes paid on another type of income. Generally, US citizens living in high tax countries don’t have a residual US income tax liability.

US citizens living in low tax countries such as Singapore generally don’t have enough foreign tax credits to offset the US liability so they owe incremental US tax. Essentially you pay the higher of the 2 countries.

There are some variations though. For example, countries like Switzerland and Singapore don’t tax capital gains. So the tax on capital gains realized by a US citizen resident in those countries would be paid to the US.

Some countries don’t have a tax treaty with the US (Brazil, Singapore) so you can’t resource at all. Lastly, the net investment income tax can’t be offset with a foreign tax credit. Note the calculation of the foreign tax credit can be quite complex for many people (see Form 1116).”

“Not everyone here files the Spanish taxes first. For us, as Spanish tax residents and retirees, all our (passive) income is sourced in the US. So we will file for the US first and then our Spanish tax accountant will use that as the base and tell us how much more we owe in Spain, as well as filing other forms for Spain.

We’ll still be using the regular US tax year deadline, because although immigrants have until June 30 I think for the US, that’s really just for people who don’t owe any taxes to the US. So that’s another reason to file first in the US. I realize this isn’t your exact question, but I think it’s helpful to understand.”

“Here you can find tax experts both for tax filings in Spain and in the US: https://spainguru.es/consultations-immigration-tax/ Your Spain move simplified: Immigration lawyers Spain, tax advisors, translators & apostille services.”

“Unfortunately while our guy was brilliant he’s extremely hard to contact so I can’t recommend him. We probably won’t continue with him. Most people I know use 2 tax accountants, 1 US who understands immigrant issues and one Spanish who does as well. There are very few who are true experts at both systems.”

Conclusion

According to Spainguru’s Facebook group members, the conversation among expats highlights the complexity of navigating tax obligations for Americans moving to Spain.

It underscores the importance of understanding the bilateral tax treaty between the US and Spain, leveraging foreign tax credits, and possibly consulting with tax professionals knowledgeable in both US and Spanish tax laws.

The varied experiences shared suggest that individual circumstances, such as the source of income and residency status, significantly influence the tax filing strategy and liabilities in both countries.