When a US citizen decides to move to Spain, one of the main concerns is how to manage their taxes. Unlike other countries, the US requires its citizens to declare and pay taxes regardless of their place of residence. This can raise questions about double taxation, available exemptions and tax obligations in both countries. In this article, we will break down the key aspects that US citizens residing in Spain should take into account in order to fulfil their tax obligations and optimise their financial situation.
US Tax Obligations for Expats
US citizens residing abroad must continue to file their tax returns with the Internal Revenue Service (IRS). This includes:
- Form 1040: The annual US tax return, which must include all worldwide income, regardless of the country of origin.
- Foreign Earned Income Exclusion (FEIE): Allows up to $120,000 (reference figure 2023) of foreign earned income to be excluded, provided certain residency requirements are met.
- Foreign Tax Credit: Avoids double taxation by granting a credit for taxes paid in Spain.
- Financial Reports (FBAR and FATCA): Foreign bank accounts that exceed certain thresholds must be reported to the Treasury Department.
Tax Obligations in Spain for US Citizens
If you reside in Spain for more than 183 days in a tax year, you will be considered a tax resident in the country and will have to declare your worldwide income to the Spanish Tax Agency.
- Personal Income Tax (IRPF): This is applied to income earned in Spain and abroad.
- Form 720: Mandatory declaration for assets and accounts abroad exceeding 50,000 euros.
- Wealth tax: This may be applied if the taxpayer’s net wealth exceeds certain thresholds.
- Inheritance and gift tax: This is applied to inheritances and gifts received.
Double Taxation Agreement between the USA and Spain
To prevent US citizens in Spain from paying tax twice on the same income, there is a double taxation treaty between the two countries. This agreement:
- Determines which of the two countries has the right to tax certain types of income.
- Allows tax credits to be applied in the US for taxes paid in Spain.
- Regulates the requirements for exemption of certain income.
Tips for Optimising your Tax Situation
- Advance tax planning: Analyse your income and financial structure before moving to Spain to reduce the tax burden.
- Take advantage of exclusions and tax credits: Maximise the benefits of the FEIE and the foreign tax credit.
- Comply with reporting obligations: Do not neglect the filing of Form 720, FBAR and FATCA to avoid penalties.
- Seek professional advice: The complexity of tax regulations makes it advisable to seek expert help.
How can Gutiérrez Pujadas & Partners help you?
Complying with tax regulations in two countries can be challenging, but with the right advice you can optimise your tax burden and avoid legal problems.
Personalised Advice: Our team specialising in international taxation will guide you every step of the way to ensure that you comply with all your tax obligations.
Efficient Tax Planning: We help you structure your income and assets to minimise double taxation and take advantage of all available tax benefits.
Filing returns: We take care of the management and filing of your taxes in the US and Spain, ensuring that you comply with current legislation without complications.
If you are a US citizen living in Spain and need help with your tax situation, contact Gutiérrez Pujadas & Partners today and get a personalised consultation to optimise your taxation.