US-Spain Tax Treaty: explained

If you are a US expat living in Spain, this post is for you. Because no matter your situation, you are liable to taxes in Spain. But do you also need to pay those taxes in the US? Will you pay twice for the same income? In this article, you will find all the answers to these questions. Next is a complete guide on the US-Spain tax treaty, which will help you understand how double taxation is handled between both countries, hence being able to optimize your tax payments.

 

What is US-Spain Tax Treaty?

 

The US-Spain Tax Treaty is a double taxation agreement between the United States and Spain, which regulates how your tax payments as a US expat living in Spain work. 

Spain has tax treaties with many countries, and each treaty has its own conditions and clauses. Hence, how double taxation is handled differs from country to country.

In this case, the tax treaty between Spain and the US was signed in 1990, and later updated through a 2019 protocol, which modernized its provisions, reduced withholding tax rates on dividends, and introduced a faster arbitration procedure for tax disputes.

Throughout this article, you will find out everything you need to know about it.

In simple terms, the U.S.–Spain Tax Treaty serves as a bridge between two different tax systems.

It defines where each type of income should be taxed, sets limits on tax rates for cross-border payments, and ensures cooperation between both tax authorities.

For U.S. expats in Spain this agreement is key to avoiding unnecessary taxation and enjoying peace of mind when filing taxes in two countries.

 

Taxes Covered by the Treaty

 

Where exactly is this treaty applied to? Basically, this US-Spain tax treaty applies to several key taxes in both countries.

In Spain, it covers:

• Personal Income Tax (IRPF)

• Corporate Tax (Impuesto sobre Sociedades)

• Non-Resident Income Tax (IRNR)

In the United States, it applies to:

• Federal Income Tax (but not Social Security contributions)

• Excise taxes on insurance premiums and private foundations

This means that if you earn income, operate a business, or hold investments in either country, these taxes are coordinated so that you don’t end up paying both governments on the same income.

Pensions and Social Security under the Treaty

And what happened with pensions? This is something the vast majority of our US clients ask.

Public pensions, such as those from U.S. government service, are generally taxed only in the country where the service was performed. Private pensions, on the other hand, are taxed in the country of residence.

This means that if you retire in Spain, your U.S. private pension will normally be taxed only in Spain.

In addition, the separate U.S.–Spain Social Security Totalization Agreement helps prevent double contributions for employees temporarily working abroad, allowing them to stay under their home country’s social security system for up to seven years.

 

Benefits of the tax treaty between Spain and US

 

What are the real benefits of the tax treaty signed between the United States and Spain? Let’s explore them in detail, because there is much more than saving money:

• No double taxation on income. This is perhaps the most important benefit. If you live or do business in both countries, the treaty ensures you don’t pay tax twice on the same income, as taxes paid in one country can be credited or deducted in the other.

• Lower withholding taxes on investments. More precisely:

  • Dividends: max 15%, or 10% if the shareholder owns at least 25% of the paying company.

  • Interest: usually capped at 10%, and even 0% for certain government or long-term bank loans.

  • Royalties: limited to 5–10%, depending on the type of intellectual property.

• Clear rules for business operations. In order to avoid unexpected taxation for cross-border activities between the two countries, U.S. or Spanish companies are only taxed in the other country if they have a permanent establishment there (like a branch or office). 

• Protection for remote workers and short-term employees. If you work temporarily (less than 183 days in a year) in the other country and your employer isn’t based there, your salary remains taxable only in your home country. This is especially important for digital nomad visa holders.

• Favorable treatment for students, teachers, and researchers. Scholarships, stipends, and training income can be tax-exempt for several years, which represents a major plus for exchange programs and internships.

• Simplified taxation for pensions and annuities. Pensions and retirement income are generally taxed only in the country of residence, which reduces administrative complexity for retirees living in Spain.

• Capital gains clarity. Property sales are taxed where the property is located, while gains on shares are usually taxed only in your country of residence (unless you own a large stake).

• Non-discrimination guarantee. Nationals and businesses from either country enjoy equal tax treatment, ensuring a level playing field for investments and employment.

• Transparency and cooperation between tax authorities. Both governments exchange information, which prevents tax evasion and ensures that the treaty’s benefits reach those truly entitled to them.

 

How to avoid double taxation under US-Spain treaty

 

To avoid being taxed twice on the same income, the first step is knowing where you’re considered a tax resident.

Spain treats you as a resident if you spend more than 183 days a year in the country or if your main economic interests are here.

The United States, on the other hand, considers you a resident if you meet the “substantial presence” test or hold a Green Card. When both countries could claim you as a resident, the treaty provides specific “tie-breaker” rules to determine which one takes priority.

The treaty allows both governments to grant tax credits for taxes paid abroad.

If you pay income tax in the U.S., Spain lets you deduct that amount from your Spanish tax bill, and vice versa. In the U.S., this is done through the foreign tax credit, which directly reduces the tax you owe. This mechanism ensures that income earned in one country isn’t taxed again in the other.

When it comes to investments, the treaty also reduces withholding taxes on cross-border income. Dividends, interest, and royalties benefit from lower rates — usually between 5% and 15%, depending on the type of payment. To apply these reduced rates, you must file the correct documentation, such as Form W-8BEN if you’re a Spanish resident receiving U.S. income.

Each type of income has its own treatment under the treaty, whether it’s salary, business profits, pensions, or real estate gains.

Understanding which country has the right to tax each source helps avoid unexpected obligations and ensures full compliance.

Even with these benefits, it’s still important to file correctly in both countries.

Reporting all income and claiming credits or exemptions properly is essential to activate the treaty’s protections and avoid future penalties. Hence, you must keep detailed records of taxes paid abroad (which encompasses tax certificates, payslips, or bank statements) since these documents prove your eligibility for foreign tax credits.

Finally, for individuals with complex financial situations (such as freelancers, entrepreneurs, or people with both U.S. and Spanish income), seeking professional tax advice is highly recommended.

An expert tax lawyer can ensure that the treaty’s benefits are applied properly and that you only pay what’s truly owed in each country.

 

How to claim benefits under US-Spain tax treaty

 

Claiming the benefits of the U.S.–Spain tax treaty isn’t automatic, as you need to prove your eligibility and follow the right process in each country.

In most cases, that means demonstrating your tax residency in either Spain or the U.S. with official documents, such as a Certificate of Tax Residence issued by your national tax authority.

This certificate confirms that you’re legally taxed in one country and therefore entitled to treaty protection in the other.

If you’re a Spanish resident receiving income from the U.S., you’ll usually need to complete and submit Form W-8BEN to the American payer (for example, a U.S. bank or company).

This form tells the IRS that you’re a Spanish tax resident and allows the payer to apply the reduced withholding tax rates established by the treaty. U.S. residents claiming benefits in Spain must follow a similar process using Spain’s tax forms for non-residents (Modelo 210 or Modelo 216, depending on the income type).

Businesses and individuals who operate in both countries can also claim treaty advantages through their annual tax returns. By declaring foreign income and applying the corresponding credits or exemptions, you make sure that the treaty is enforced correctly. It’s essential to keep documentation (payment records, invoices, and proof of tax withheld) since both tax authorities can ask for supporting evidence.

Finally, if you believe you qualify but your benefits were denied or over-withheld, the treaty allows you to request a refund or file a mutual agreement procedure between the two countries’ tax authorities.

In practice, a qualified tax advisor can handle this process, ensuring that your treaty rights are recognized and your taxes are minimized.

As you can see, this is not a simple process, but it is a necessary and crucial one. Understanding your real tax obligations, plus what are the actual benefits of this double treaty between the US and Spain, is crucial in order to not pay twice for the same tax. Hence, relying on expert assistance is of utmost importance.

At Balcells Group, we have helped hundreds of US expats with their tax needs. You just need to book an appointment with our tax department through the following section, and get started optimizing your taxes asap: