There are an estimated 95,000 Americans living in Spain.
Living in Spain is an incredible experience for a variety of reasons – the culture, climate, food, and wine to name but a few. As an American expatriate living in Spain though, what exactly do you need to know regarding filing Us expat (and Spanish) taxes?
The good news is if you are paying income tax in Spain, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn at least US$10,000 (or $400 for self-employed individuals), you have to file form 1040. While taxes are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further online until October 15th
“The Spanish system for direct taxation of individuals is mainly comprised of two personal income taxes: Spanish PIT, for individuals who are resident in Spain for tax purposes, and Spanish non-residents' income tax (NRIT), for individuals who are not resident in Spain for tax purposes who obtain income in Spain.”
If you have foreign assets worth over US$200,000 (per person), excluding your home if it is owned in your own name, you also have to file form 8938 and declare them.
If you had a total of at least US$10,000 in one or more foreign accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
The US and Spanish governments share taxpayer info, while Spanish banks pass on US account holders' account info to the IRS, so it's not worth hiding or being 'economical' with the truth on your return. The penalties for tax evasion for expats are severe to say the least.
If you're a US citizen, green card holder, or US/Spanish dual citizen, and you have been living in Spain but you didn't know you had to file a US tax return, don't worry: there's a program called the IRS Streamlined Procedure that allows you to get up to date with your filing without facing any penalties. Don't delay though, in case the IRS find you first.
Foreigners who spend more than 183 days a year in Spain, you are considered resident for tax purposes. If you earn over 22,000 Euros a year from just one employer, you must file a Spanish tax return. If you earn less, but from either more than one source, or not from employment (e.g. from rental income), you also have to file a return. The Spanish filing deadline is June 30th, however if you wish to pay your tax by direct debit in instalments you must file by June 25th.
There are several deductions available, including a personal deduction, a deduction for married couples, and for those with children.
The Spanish tax authority is called the Agencia Tributaria, and the tax return form is called Modelo 100.
Spanish residents must also declare assets outside Spain using form Modelo 720 if the assets have a combined total value of more than 50,000 Euros.
Spanish income tax rates are relatively high compared to in the US, so for many people it will make sense to claim the Foreign Tax Credit. Spanish income tax rates range from 19% to 45%.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in Spain that you contact an expat tax specialist.