US-Spain Tax Treaty: What American Expats and Investors Need to Know

The trap for Americans in Spain is double taxation on pensions and investments — the treaty stops it, but each income type has its own rule, and getting the wrong one wrong is expensive.

Quick Answer: The US-Spain treaty allocates which country taxes each income type, but US citizens still file worldwide and each source — pension, dividends, capital gains — follows its own rule. Matching the right rule to each source is what prevents an expensive double-tax mistake.

Fast Answer: The US-Spain Double Taxation Treaty (CDI) prevents double taxation on most income types including employment, pensions, dividends, and capital gains. Americans in Spain must still file US returns but can claim Foreign Tax Credits or use treaty provisions to avoid paying tax twice.

Overview of the US-Spain Double Taxation Treaty

The Double Taxation Convention between Spain and the United States was signed in 1990 and has been in force since 1990. It covers income tax, corporate tax, and — unusually — the Spanish wealth tax.

The treaty determines which country has the right to tax specific types of income, and provides mechanisms to prevent the same income being taxed by both countries.

Employment Income (Article 15)

General rule: employment income is taxed where the work is physically performed.

• US citizen working in Spain: Spain taxes the salary. The US also taxes worldwide income, but you claim a Foreign Tax Credit (IRS Form 1116) for Spanish taxes paid.
• Short-term assignments: If you work in Spain for fewer than 183 days in a 12-month period, are paid by a non-Spanish employer, and the cost is not borne by a Spanish establishment, only the US can tax the income.

Pension Income (Article 19)

This is one of the most relevant provisions for American retirees in Spain:

• Government pensions (federal, state, military): taxable ONLY in the US — Spain cannot tax them
• Social Security: taxable ONLY in the country of residence (Spain, if you live there)
• Private pensions (401k, IRA distributions): taxable in the country of residence (Spain)

This means a retired US federal employee living in Spain would pay US tax on their government pension but Spanish tax on their Social Security and private retirement accounts.

Dividends, Interest, and Royalties (Articles 10–12)

Income Type	Source Country Tax (max)	Residence Country
Dividends (10%+ ownership)	10%	Also taxes, with credit
Dividends (portfolio)	15%	Also taxes, with credit
Interest	10%	Also taxes, with credit
Royalties	5–10%	Also taxes, with credit

Capital Gains on Real Estate (Article 13)

Capital gains from selling Spanish property are taxable in both countries, but the US gives a Foreign Tax Credit for Spanish tax paid.

• Spain: Non-residents pay 19% on capital gains from property sales. The buyer must withhold 3% of the price as an advance tax payment.
• US: Capital gains are reported on your US return. You claim a credit for the 19% Spanish tax via Form 1116.
• The US Section 121 exclusion (up to $250,000/$500,000 for a primary residence) may apply if the Spanish property was your principal home.

Wealth Tax and FBAR/FATCA

The treaty addresses Spain’s wealth tax — it cannot be applied in a way that creates double taxation of the same assets. However, Americans in Spain face additional US reporting obligations:

• FBAR (FinCEN 114): Report all foreign bank accounts if aggregate value exceeds $10,000 at any point during the year
• FATCA (Form 8938): Report specified foreign financial assets above $200,000 (end of year) / $300,000 (at any point) for residents abroad
• Form 3520: Report any gifts or inheritances from foreign persons exceeding $100,000

Common Mistakes Americans Make in Spain

1. Not filing US returns: US citizens must file worldwide income tax returns regardless of where they live. The filing threshold applies even from Spain.
2. Ignoring FBAR: Penalties for non-filing can be $10,000+ per account per year. This catches many expats by surprise.
3. Double-counting credits: You cannot claim both the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit on the same income.
4. Assuming pensions are tax-free: Moving to Spain does not eliminate US tax obligations on retirement income.

For comprehensive tax guidance: Your Guide to Spanish Tax | Income Tax on Foreign Pensions in Spain.

Frequently Asked Questions

Do I need to file taxes in both the US and Spain?

Yes. As a US citizen or green card holder, you must file a US return regardless of where you live. As a Spanish tax resident, you must also file a Spanish return on worldwide income. The treaty and Foreign Tax Credit prevent actual double taxation in most cases.

Is my 401k or IRA taxed in Spain?

Yes. Distributions from 401k plans and IRAs are treated as income in Spain and taxed at Spanish rates (19%–47%). You can claim a credit on your US return for Spanish tax paid.

Does the treaty cover inheritance tax?

No. There is no US-Spain inheritance tax treaty. Inheritance and gift taxes are governed separately. This means potential double exposure — consult a specialist for estate planning.

Can I use the Beckham Law as an American?

Yes. Americans who qualify for the régimen de impatriados (Beckham Law) pay a flat 24% on Spanish-source income and are only taxed on Spanish assets for wealth tax purposes. This can be very advantageous for high earners relocating to Spain.

Need personalised advice? Book a consultation or message us on WhatsApp Email Us: marialuisa@costaluzlawyers.es

We respond within 24 hours

.

CostaLuz Lawyers regularly advises American expats and investors on the US-Spain tax treaty.

Reviewed by María Luisa de Castro, CEO at CostaLuz Lawyers — specialist in Spanish & cross-border tax for US expats — Updated 2026

This is general information, not definitive legal advice — every case requires individual analysis.

Source: the US$10,000 FBAR reporting threshold is set by the US Treasury’s Financial Crimes Enforcement Network (FinCEN Form 114, Report of Foreign Bank and Financial Accounts). US reporting thresholds and rules are set by US law and can change — confirm your current position with a US tax specialist. This is general information, not legal or tax advice.