The Ultimate Guide to US Expat Taxes for Americans Living in Spain

Spain is famous for its sunshine, excellent cuisine, and rich culture. It’s no wonder countless US expats have made it their home. Whether you are drawn to the vibrant lifestyle of Madrid or the stunning beaches of Costa del Sol, Spain offers a high quality of life. However, between sunshine and tapas lies one thing no US expat can escape: taxes.

Whether you are working as an employee or running your own business, there are several key tax considerations to keep in mind each year. , 

In this post (yes, thorough!), we will walk you through the essential tax rules US expats need to be aware of while living in Spain.

• Expats in Spain still have to file a US tax return
• Tax deadlines and extensions for Americans abroad
• How Americans living in Spain can reduce their tax burden in the US
• US expats in Spain need to declare their assets
• Be Cautious of State Taxes When Relocating Overseas
• Retirement accounts
• Thinking about investing in Spain? 
• What expats need to know about the Spanish tax system
• The US-Spain tax treaty 
• The Spain-US social security Totalization agreement
• Are you a tax resident in Spain? 
• Non-residents of Spain may still have to pay tax
• Owning property in Spain as an American
• The Spanish wealth tax
• Corporate taxes for business owners in Spain
• The Beckham Law may offer expats in Spain a reduced tax rate
• How to deal with US taxes when living in Spain

If you need help with your taxes you can schedule a consultation here.

Expats in Spain still have to file a US tax return

Living full-time in Spain doesn’t exempt U.S. citizens from filing a federal tax return. If your income exceeds the standard filing thresholds, you’re still required to file with the IRS, regardless of where you live.

For the 2024 tax year, the filing threshold is $14,600 for single individuals under age 65, and $29,200 for married couples filing jointly However, certain IRS rules may require you to file even if your income falls well below the standard thresholds.. For example, if you earn as little as $400 in self-employment income, or just $5 if you’re married to a non-US citizen and file separately, you’re still required to file a US tax return.

‘’But wait, I have already paid taxes in Spain and filed there, isn’t that enough?’’ You may wonder. Your question is fair. However, the IRS still requires US expats to report their worldwide income every year, regardless of where they live, pay or file taxes.

Tax deadlines and extensions for Americans abroad

US citizens residing in Spain receive an automatic two-month extension to file their federal tax return, shifting the deadline from April 15 to June 15.

However, this extension applies to filing only; it does not postpone your payment deadline. In simple words, if you expect to owe taxes, you must pay these by April 15. Otherwise, interest will start accruing. That’s why it’s important to estimate your tax liability and make payments on time to avoid additional charges.

If you need more time to file, you can request an extension until October 15 by submitting Form 4868 before June 15. Just keep this one thing in mind: even with the extensions, the payment deadline remains fixed at April 15.

How Americans living in Spain can reduce their tax burden in the US

Reduce your US tax bill with the Foreign Earned Income Exclusion

While living in Spain won’t exempt you from filing US taxes, there are tools available to help reduce, or eliminate (hopefully!), your US tax liability. The two main strategies are the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). Understanding when and how to apply each can make a significant difference in your overall tax outcome. 

So, what do we mean by FEIE or FTC?

If you are earning income from employment or self-employment while living abroad, the IRS allows you to reduce your US tax bill by up to $130,000 (for 2025) by claiming the Foreign Earned Income Exclusion using Form 2555. As the name suggests, the exclusion applies exclusively to earned income such as salaries or self-employment income. It does not apply to passive income such as from rental, retirement, or investment income.

To qualify, you’ll have to demonstrate that you either spent at least 330 full days outside the US in the tax year, or that you are a permanent resident abroad, meaning you’ve unpacked your bags for good, and started living like a local, not a tourist.

US expats who qualify for and claim the FEIE may also be able to reduce their US tax bill even further by using the Foreign Housing Deduction or Exclusion. This allows you to offset your housing costs such as rent or utilities.

While Spain is often praised for its affordable lifestyle, living in cities such as Madrid or Barcelona can be costly so, trust me, you’ll definitely want to consider these as a deduction.

The Foreign Tax Credit

Remember we were talking about two options? Well, here comes the second: the Foreign Tax Credit. The FTC is a dollar-for-dollar credit that allows you to offset your US tax bill with the income taxes you’ve already paid in Spain. Basically, you’re telling uncle Sam, ‘’hey, I already paid $1,000 to Spain, no need to charge me again for the same income, right?’’. And Uncle Sam will agree, at least most of the time.

One of the key advantages of the FTC over the FEIE is that you can apply it to most types of income, including passive income like dividends or rental income. It also doesn’t require you to prove your residency abroad.

Typically, this is the best option for US expats living in Spain. This is because the tax rate in Spain is much higher than in the US. This difference in tax rates makes the Foreign Tax Credit often more advantageous than the Foreign Earned Income Exclusion.

However, do not take this for granted. There are situations where this is not the case.

For example, if you do not pay taxes in Spain because you are under the filing threshold, then the Foreign Tax Credit may not be optimal. In fact, you may want to claim the Foreign Earned Income Exclusion instead.

This is a case-by-case evaluation that an experienced expat tax accountant can help with.

US expats in Spain need to declare their assets

Despite these expat tax benefits, there are some extra obligations that come along with being a US citizen and a Spanish resident. Both governments require the declaration of certain assets.

Asset declaration to the US government

US expats with foreign financial accounts and specified foreign assets must report those to the US government on FinCEN Form 114 (FBAR) and Form 8938.

The FBAR is specifically used to report foreign financial accounts, such as bank accounts or brokerage accounts

Form 8938, on the other hand, includes other foreign assets like mutual funds or pensions.

Both forms have reporting thresholds that you should be aware of before filing. Otherwise, you will risk heavy penalties.

Asset declaration to Spain

Just like the US, Spain also requires that you declare foreign assets. You can report these assets on a form known as Modelo 720 – and yes, it’s just as serious as it sounds.

 If you’re a tax resident in Spain and you hold foreign assets worth more than €50,000 as of December 31, you’re required to report them. This includes bank accounts, securities, real estate and even certain life insurance policies held outside of Spain. 

Failure to file Modelo 720 or filing it incorrectly can trigger heavy penalties so make sure you consult a Spanish tax advisor to ensure you’re fully compliant.

Be Cautious of State Taxes When Relocating Overseas

Certain US states, such as California, New York, and New Mexico, can be particularly strict when it comes to ending your tax residency.

If you maintain strong connections to your former state, such as owning real estate, keeping a state driver’s license, or remaining registered to vote, you could still be liable for state income taxes even after moving to Spain.

To minimize the risk of ongoing state tax liability, it’s important to fully cut ties with your previous state and clearly establish residency in your new country. Yep… some states won’t let you go unless it’s clear you moved on.

Retirement accounts

As well as reporting Spanish investment accounts on FBAR and FATCA forms, think carefully about saving for retirement in Spain. 

The IRS doesn’t recognize Spanish retirement accounts as tax-deferred. Employer contributions to a Spanish pension plan may be considered taxable compensation in the US even though they are deferred for Spanish tax purposes. 

Similarly, Spain doesn’t recognize the tax benefits of US retirement plans such as 401ks, IRAs and Roth IRAs.

If the plan is not recognized, contributions may be taxed when made and again when withdrawn.

While Spain and the US have a Tax Treaty in place that helps avoid double taxation, it does not fully align how the two countries treat tax-deferred retirement plans. This is one of those grey areas where the safest move is to get personalized advice from a US tax expert. 

Thinking about investing in Spain?

Beware of investing in Spanish mutual funds, ETFs, or pooled retirement accounts. What may seem a smart move in Spain can turn into a headache in the US, literally.

These types of non-US investments can be classified as Passive Foreign Investment Companies (PFICs) by the IRS. This means more complex reporting and possibly additional US taxes. Gains may be taxed at the highest US rate, plus interest charges that accumulate over time. In some cases, you could be taxed, even if you haven’t sold the investment yet.

PFICs have one of the most punitive tax law in the US tax code, so make sure you seek professional advice.

What expats need to know about the Spanish tax system

As a US expat living in Spain, having a basic understanding of how the Spanish tax system works is key. Here we provide a high-level overview. For Spain-specific tax advice, please consult a tax accountant specialized in the Spanish tax system.

The Spanish IRS is known as the Agencia Tributaria, the government agency responsible for receiving and managing all tax filings within the country.

The Spanish tax year runs from January 1 through December 31. Spanish tax returns are due between April 6 and June 30.  This means that US expats in Spain typically file for an extension for their US taxes because they are waiting for their Spanish tax documents.

Spain has a progressive tax system, meaning your tax rate increases with your income. The actual amount you owe depends on various factors, including your region of residence, family status and additional social contributions. 

As a general overview, Spanish tax rates range from 19% to 45%. 

The US-Spain tax treaty

The Tax Treaty between the United States and Spain, formally known as the ‘’Income Tax Convention with Spain’’ deals with income taxes between the two countries. Its primary goal is to determine which country has the right to tax specific types of income, and under what circumstances.

While this treaty can be helpful for US expats living in Spain, claiming tax credits are still the best way to avoid double taxation. They require careful interpretation and sufficient tax knowledge to apply it correctly to your unique situation. That’s why it’s essential to work with a US tax professional to make sure you are not taxed twice and you do not miss any benefits, considering your current situation. 

The Spain-US social security Totalization agreement

Here comes another key agreement. The Totalization Agreement between Spain and the United States determines social security payments and distributions. This agreement exists to coordinate Social Security coverage between both countries and avoid dual contributions.

This agreement also applies to those who are self-employed. It stipulates that if you are self-employed in Spain, you do not need to pay self-employment tax in the States, because you’re already contributing to the Spanish’s social security system

Nevertheless, self-employed US expats in Spain still need to notify the IRS that they are paying Social Security in Spain. This is done by including a written statement with their US tax return confirming coverage under the Totalization Agreement.

Are you a tax resident in Spain?

Before discussing more of the Spanish tax system, it’s important to clarify that  Online Taxman specializes in US taxation. We do work with a global network of partners in key countries, who can help you with local taxes.

In general, foreigners are considered tax residents of Spain, if any of the following applies:

• Spending 183 days or more in Spain during the year
• Having vital business interests in Spain
• Your spouse or children are Spanish residents

Tax residents of Spain must pay taxes on their worldwide income and declare all assets over €50,000 (modelo 720, remember?).

Being a tax resident in Spain doesn’t necessarily mean you’ll be double-taxed in the US. Thanks to a combination of tax credits, exclusions and allowable deductions, many US expats are able to significantly reduce, or even eliminate, their US tax liability while living abroad. For instance, you may be able to benefit from certain social payments (like maternity leave benefits), if they’re treated as taxable income in Spain.

Non-residents of Spain may still have to pay tax

For non-residents, the tax burden and reporting requirements are usually significantly less.

However, non-resident status is not a way out of all taxes. Even non-residents still need to pay taxes in Spain on Spanish-sourced income and on any property they own.

Non-residents also must pay other taxes including:

• Wealth tax
• Tax on investment interest
• Tax on dividends
• Capital gains tax for transferred assets

For non-residents, the general income tax is 24% for Spanish-sourced income. This is a flat tax, meaning it applies the same regardless of income level. This is a significant reduction from the tax rate for many Spanish residents.

Unfortunately, as a non-resident using the flat general income tax, you cannot claim any deductions.

Owning property in Spain as an American

Owning a property in Spain is a dream for many expats! Until reality kicks in and you realize that expats owning property in Spain typically must pay local property taxes. This local property tax is known as Impuesto Sobre Bienes Inmuebles or IBI. 

Non-resident property owners are required to file Modelo 210 to report their property taxes. They’re typically liable for two types of property tax. The first is the regular local property taxes (IBI) and the second is an income tax for potential rental income.

Local property taxes vary based on the region the property is located in.

Any property taxes paid in Spain are deducted from any rental income to arrive at the net income. The good news is that income taxes paid to Spain for rental income are fully creditable on the US return.

Likewise, if you sell your property, be aware of the  several Spanish taxes you will need to pay. The primary tax is the Impuesto Transmisiones Patrimoniales. This is the property transfer tax. It’s often paid by the buyer but it plays a key role in the transaction and often influences how the sale is structured, especially when negotiating pricing and final costs.

You will also need to pay a tax to the local authorities for the increase in the value of the property. This is referred to as Plus Valia.

When it comes to yourUS tax return, this tax can either be a credit to the capital gains tax or an adjustment to the basis of the property (reducing the capital gains) depending on the type of tax. Make sure you talk to an experienced expat tax advisor so you apply it properly!

The Spanish wealth tax

Spain also imposes a wealth tax (Impuesto Sobre el Patrimonio) on individuals with significant assets. This tax was abolished in 2009, but it was later reinstated and has remained in place ever since. The wealth tax is calculated based on the value of your assets held as of December 31 each year.

The rates range from 0.2% to 2.5% and are the same, regardless of residency status. 

However, there is a key difference in the wealth tax for residents and non-residents.

For residents, the wealth tax is applied to their worldwide assets. Non-residents only pay the wealth tax on their Spanish-based assets.

There is a general exemption threshold of €700,000, meaning only assets above this value are subject to the tax.

On the bright side of things,Spanish residents receive an additional €300,000 allowance for the value of their own home before they must pay the wealth tax. So, if you live in your own home and are a Spanish tax resident, the first €300,000 of your home’s value is not included when calculating your wealth tax liability.

To calculate your net estate value for Spanish wealth tax purposes, you’ll need to include all high-value assets, such as:

• Real estate
• Bank deposits
• Jewelry and fur coats
• Racing cars, boats, and airplanes
• Art
• Antiques
• Some intellectual property rights
• And more.

Fortunately, some business assets are exempt from the wealth tax.  Consult a tax accountant to find out more.

Corporate taxes for business owners in Spain

For business owners living in Spain, one of the primary concerns is the potential corporate tax.

Spain applies a flat corporate tax rate of 25%. Fortunately, there are a few strategies that can help reduce this burden.

For example, new limited companies can pay reduced taxes. For the first two years of business, limited companies only pay 15% on the first €300,000 of profit.

In addition, by locking your profits into a special reserve for five years, you can receive a 10% reduction in tax.

Taxation for US expats in Spain owning a US corporation or an offshore company depends on the specific situation. Our sister company Global Expat Advisors specializes in tax-optimized offshore structuring. Click here to schedule a consultation.

The Beckham Law may offer expats in Spain a reduced tax rate

The Spanish government launched a special a program to encourage expats to move to Spain. This program offers foreigners who move to Spain a fixed income tax rate of 24% for the first six years they live there.

The famous soccer player, David Beckham, used this program shortly after its creation. Thus, the program was nicknamed “Beckham Law.”

Under the Beckham Law, only income earned within Spain is taxed. This is a huge benefit. But the fixed tax rate can only be applied to income up to €600,000.

In short, this program allows expat to be a non-resident for tax purposes.

Foreigners must meet two conditions to qualify. First, they must not have lived in Spain for the last 10 years. Second, they are an expat employee who has come to work for a Spanish company.

However, there are some exceptions to the employment requirement. Generally, you can also become eligible by becoming a director of a Spanish corporation or through employment at a foreign company established in Spain.

It’s important to note that the Beckham Law doesn’t apply automatically. You’ll have to formally apply for it, and the deadline is tight – so no leaving it to the last minute like your quarterly taxes! 

How to deal with US taxes when living in Spain

Many US citizens have made Spain their temporary or long-term home. However, the complexities of filing as an expat can leave expats overwhelmed. This article is intended to give a general overview. It cannot replace advice from a qualified tax accountant, as every situation is different.

If you would like to avoid the headache and paperwork of doing your own US taxes this year, contact Online Taxman for help. We can also help you catch up if you’re behind with your US tax filing from Spain without facing penalties under the IRS Streamlined program.

Set up a consultation with one of our expert expat accountants today.