When it comes to living abroad, Spain is a popular destination for US citizens. With its reasonable cost of living, beautiful weather, and rich culture, there are many reasons why a US citizen would want to move to Spain for both long and short-term periods. However, the country’s complicated tax agreements can create confusion for expats. In this article, Derrent talks about US taxes for expats in Spain, as well as the different benefits and obligations that come with living there.
US Citizens Living in Spain Must File US Taxes
As a United States citizen, you are required to report your worldwide income to the IRS, regardless of where you live. However, there are some exceptions to this rule, such as the Foreign Earned Income Exclusion or the Beckham Law. It is important to talk to a tax professional to determine which exemptions are best for you and your family.
Employment income is taxable in Spain, and includes wages, salaries, bonuses, and other types of remuneration from your employer. In addition, any non-cash compensation that represents an ownership stake in a company is also taxable in Spain. This can include stock options, RSUs, and other forms of equity compensation.
Property taxes in Spain are handled at the regional level, and rates can vary widely depending on where the property is located. In general, property taxes tend to be higher in urban areas than rural areas. In addition, the government may impose additional taxes on certain properties, such as heritage sites or natural conservation areas.
If you are a resident in Spain, you must file an annual personal income tax return, or IRPF. This return is due between April 1 and June 30 each year, and covers the previous year’s income. It is similar to the US filing system in that it operates on a calendar-year basis.
In addition to a personal income tax, residents in Spain must pay a 4% value-added tax (IVA), or impuesto sobre la mercancia, on most goods and services. This tax is typically factored into the price of items in stores, but can also appear as a separate line item on invoices.
The US and Spain have a number of tax treaties in place that help to prevent double-taxation, but there are some instances where this is not possible. It is essential that you discuss your specific situation with a tax professional before moving to Spain.
In addition to a US tax return, you will likely need to submit Spanish paperwork, such as Form Modelo 390 or 720. In some cases, you will also need to submit FinCEN Form 114 (FBAR) or 8938 (Statement of Specified Foreign Financial Assets). Talking to a tax professional familiar with both the US and Spain’s systems is critical in order to avoid any issues with filing.
