What you need to know: Tax Filing When Moving to Spain from the US
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When moving from the US to Spain, individuals must navigate tax filing responsibilities in both countries. Understanding the requirements in Spain and the United States is essential to avoid penalties and ensure compliance with both systems. This article provides a detailed guide on the obligations when relocating to Spain from the US, outlining the necessary tax returns and important considerations to remember.
Moving from the US to Spain can be an exciting new chapter, but it comes with complex considerations. In both countries, individuals may need to file tax returns based on their residency status, income sources, and the type of assets they hold. Spain and the United States have distinct tax rules, and failure to meet these requirements could result in fines, and penalties.
This article will explore what individuals must do to ensure they meet their obligations in the US and Spain, from understanding the rules of residency in each country to filing the necessary returns. Remember that your taxable income in Spain and the United States is worldwide in both countries.
US Tax Filing Requirements When Moving to Spain
As a US citizen or resident, you must generally report and pay taxes on your worldwide income, even if you move abroad. The US tax system operates on a citizenship-based taxation policy, meaning that Americansmust file annual returns with the Internal Revenue Service (IRS), regardless of where they live.
Key points to consider when moving to Spain from the US:
– Worldwide Income Reporting: US citizens and resident aliens must report all income from foreign sources, such as rental income, pensions, dividends, or wages earned abroad.
– Foreign Earned Income Exclusion: The IRS allows US expats to exclude up to $130,000 (for 2025 ) of foreign earned income from tax under the Foreign Earned Income Exclusion (FEIE), provided they meet certain requirements.
– Foreign Tax Credit: If you pay taxes in Spain, the Foreign Tax Credit (FTC) allows you to offset those taxes against your US liability. However, this may not eliminate all US tax obligations.
Requirements: The IRS requires American expats to file Form 1040 annually. Additionally, if you have financial accounts overseas, you may need to file an FBAR (Foreign Bank Account Report) under the Bank Secrecy Act if the total value of foreign accounts exceeds $10,000
Spanish Requirements
Once you move to Spain, your obligations will shift to Spanish law, which operates on a residency-based taxation system. If you become a resident in Spain, you will be taxed on your worldwide income, similar to the US system.
Here are key things to know about filing taxes in Spain:
-Residency in Spain: You are considered a tax resident in Spain if you spend more than 183 days in the country during the calendar year or if your “centre of economic interests” is located in Spain (i.e. if your primary business activities or investments are based there).
– Modelo 100 – Personal Return: As a resident of Spain, you will need to file the Modelo 100, which is the Spanish personal income return. You must report all worldwide income, including any income taxable in Spain.
– Double Taxation Agreement (DTA): Spain and the United States have a Double Taxation Agreement that prevents paying twice. This agreement allows for credits and exemptions, so income that is taxed in the US may be eligible for relief when submitting returns in Spain.
– Wealth Tax in Spain: Spain imposes a wealth tax on individuals with net assets over certain thresholds. Individuals with significant assets, including foreign property, may need to file a wealth return (Modelo 714) in Spain.
– Modelo 720 – Declaration of Overseas Assets: If you own assets worth more than €50,000 abroad (including property, bank accounts, or investments), you must declare these assets by filing Modelo 720.
Key Considerations
– Social Security: If you continue to work for an American employer or receive income from US sources, you may still be required to pay Social Security taxes in the US. Spain has no similar system, so you must ensure you are not paying double contributions.
– Deadlines: US citizens must file their tax returns by April 15th (with extensions available). In Spain, the tax year follows the calendar year, and returns are usually filed between April and June of the following year.
– Planning: It is advisable to consult a professional who understands both systems. With careful planning, you can optimise your tax situation and avoid overpaying taxes.
Navigating the requirements when moving from the US to Spain can be complex. Still, ensuring compliance with both countries is essential to avoid penalties and double taxation. Understanding the rules for US residency, the Foreign Earned Income Exclusion and the residency rules in Spain is critical to fulfilling your obligations in both countries.
By keeping accurate records and working with a professional, you can manage your filings effectively and ensure you’re not caught off guard by unexpected liabilities.
FAQ About Tax Filing When Moving to Spain from the US
Do I need to file taxes in the US if I live in Spain?
Yes, American citizens must file taxes with the IRS on their worldwide income, even if they live abroad. You may qualify for exclusions or credits to avoid double taxation.
How do I avoid double taxation between the United States and Spain?
The US and Spain have a Double Taxation Agreement (DTA), which helps to avoid double taxation. You can claim credits for taxes paid in Spain to offset your US liability.
What are the requirements for American citizens in Spain?
If you are a resident in Spain, you must file the Modelo 100 for income tax and Modelo 720 if you own assets abroad worth over €50,000. These forms report worldwide income and foreign assets.
What is the Foreign Earned Income Exclusion?
The Foreign Earned Income Exclusion (FEIE) allows US citizens to exclude up to $108,700 of foreign-earned income from taxation if conditions are met.
Do I need to report overseas bank accounts in the US?
Yes, if the total value of your foreign bank accounts exceeds $10,000, you must file the FBAR (Foreign Bank Account Report) with the IRS.
