US Citizen Living in Spain: Your Tax Obligations

U.S. citizens living in Spain face tax laws from both countries. The United States implements a citizenship-based taxation system, taxing its citizens on worldwide income regardless of where they live. Concurrently, Spain operates on a residency-based system, taxing its residents on their global income. This intersection means Americans in Spain are subject to the tax laws of both nations and must file returns with the U.S. Internal Revenue Service (IRS) and the Spanish Tax Agency, the Agencia Tributaria, creating the potential for double taxation.

United States Tax Obligations for Citizens Abroad

A United States citizen living in Spain must file a federal income tax return with the IRS if their worldwide income meets the minimum filing threshold. For the 2024 tax year, a single individual generally needed to file if their gross income was at least $14,600, while self-employed individuals filed if they earned $400 or more. All global income must be reported on Form 1040.

The tax code provides the Foreign Earned Income Exclusion (FEIE) to mitigate the tax burden on income earned abroad. This provision allows qualifying individuals to exclude a portion of their foreign-earned income from U.S. taxation. For the 2025 tax year, the exclusion is up to $130,000. To claim the FEIE using Form 2555, a taxpayer must have a tax home in a foreign country and meet either the Bona Fide Residence Test or the Physical Presence Test. The Bona Fide Residence Test requires residing in a foreign country for an uninterrupted period that includes an entire tax year, while the Physical Presence Test requires being present for at least 330 full days during any 12-month period.

As an alternative to the FEIE, the Foreign Tax Credit (FTC), claimed on Form 1116, provides a dollar-for-dollar reduction of U.S. tax liability for income taxes paid to a foreign country. The FTC is often better for those with higher incomes or paying Spanish taxes at a rate higher than their U.S. rate. Unlike the FEIE, the FTC can be applied against taxes on both earned and unearned income, such as interest and dividends.

U.S. citizens must also report foreign financial assets. The Report of Foreign Bank and Financial Accounts (FBAR) must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) using Form 114. This filing is required if the aggregate value of all foreign financial accounts exceeds $10,000 at any point during the year. The term “financial account” is broad, covering bank accounts, brokerage accounts, mutual funds, and other accounts at foreign institutions.

Another requirement is the Foreign Account Tax Compliance Act (FATCA), which requires reporting foreign financial assets to the IRS on Form 8938. The thresholds are higher than for the FBAR and vary by filing status. For a single person living abroad, the threshold is met if assets are over $200,000 on the last day of the tax year or over $300,000 at any time during the year. FATCA reporting is broader than the FBAR, including assets like stock or securities not held in a financial account.

Determining Spanish Tax Residency and Key Obligations

Spain considers an individual a tax resident if they meet one of several criteria. The primary one is the 183-day rule, which applies if an individual is physically present in Spain for more than 183 days in a calendar year. Sporadic absences are included in this count unless tax residency elsewhere can be proven.

Spain also uses economic and personal ties to determine residency. An individual is a tax resident if their main center of economic or professional activities is in Spain. A presumption of residency also exists if an individual’s spouse or dependent minor children reside in Spain.

Spanish tax residents are subject to the Impuesto sobre la Renta de las Personas Físicas (IRPF), a progressive tax on their worldwide income. The IRPF divides income into two categories. The general tax base includes employment and business income, with rates reaching 47% or more depending on the region. The savings tax base applies to investment income like interest, dividends, and capital gains, with rates from 19% to 28%.

Spain also imposes a wealth tax, the Impuesto sobre el Patrimonio, on the net value of a resident’s worldwide assets. Tax residents are liable if their net worth exceeds certain thresholds. The national threshold is €700,000, with a €300,000 exemption for a primary residence, but Spain’s autonomous communities can modify these amounts and the tax rates.

Spanish tax residents must file Modelo 720, an informational declaration of foreign assets. This form is required if the total value of assets in any of three distinct categories—foreign bank accounts, foreign investments or securities, and foreign real estate—exceeds €50,000. The form must be filed by March 31st of the following year. While penalties for incorrect or late filing were reformed following a 2022 European court ruling, failure to comply remains a serious offense.

Preventing Double Taxation Under the US-Spain Tax Treaty

The U.S.-Spain Tax Treaty was established to mitigate double taxation and prevent fiscal evasion. It sets rules to determine which country has the primary right to tax specific types of income. The treaty also provides mechanisms to relieve any remaining double tax burden.

The treaty includes residency tie-breaker rules for when an individual is considered a resident of both countries. To resolve this, the treaty establishes a sequence of tests to assign a single country of residence for treaty purposes. The tests are applied in this order: permanent home, center of vital interests, habitual abode, and citizenship.

The treaty assigns taxing rights for different income classes. Pensions are generally taxable only in the recipient’s country of residence. Capital gains are also typically taxed only in the country of residence, with an exception for gains from real property, which may be taxed where the property is located.

For income like dividends and interest, the treaty allows taxation by both countries but limits the tax imposed by the source country. For instance, the withholding tax that the source country can apply to dividends is generally limited to 15%. This preserves the residence country’s ability to tax the income while providing a credit for the tax paid at the source. The treaty provides the legal basis for a U.S. citizen to claim a Foreign Tax Credit for taxes paid to Spain.

Key Filing and Social Security Considerations

The U.S. and Spain have different filing deadlines. The standard U.S. tax deadline is April 15, but citizens abroad receive an automatic extension to June 15. A further extension to October 15 can be requested. In Spain, the filing window for the IRPF is generally from early April through June 30 for the preceding year’s income.

The U.S.-Spain Totalization Agreement prevents paying into two social security systems at once. It ensures a worker pays social security taxes to only one country. A U.S. citizen employed in Spain by a Spanish company will generally contribute only to Spain’s system. The agreement also allows individuals to combine coverage periods from both systems to qualify for benefits.

Individuals must also consider potential U.S. state tax liabilities. Moving abroad does not automatically end tax residency with a person’s last state of residence. Each state has its own rules for terminating residency, and individuals should formally cut ties to avoid ongoing state income tax obligations.