Moving to Spain: The Tax Reality Behind the Tapas

Moving to Spain usually starts as a love story: the late-night plazas, the €2 cortados, the feeling that siestas were invented just for you. But somewhere between your first plate of patatas bravas and your fourth WhatsApp group invite, reality knocks. That reality is spelled Hacienda — Spain’s version of the IRS.

Before you pack your bags, it pays (literally) to understand how Spain sees you and your money.

1. When You’re Considered a Tax Resident

Spain has two main tests that can make you a resident faster than you can say “otra caña, por favor”:

• 183-day rule: Spend more than half the year in Spain, and you’re automatically a tax resident.
• Economic interest test: Even if you stay fewer days, if your business, income, or family is based in Spain, you may still qualify.

What this means: once resident, Spain taxes your worldwide income. That rental condo in Denver? Spain wants to know about it. Dividends from your U.S. brokerage account? On the radar, too.

2. Spanish Tax Basics (a Tapas Sampler)

• Income tax: Progressive, with both national and regional layers. Brackets vary depending on where you live.
• Wealth tax: Still alive in certain regions like Catalonia and Valencia. Assets above certain thresholds get taxed annually.
• Capital gains: Generally taxed between 19%–28%, depending on amount.
• Inheritance tax: Rules differ by region, with some generous allowances and some less so.

3. Double Taxation (The U.S. Doesn’t Let Go)

Here’s the tricky part: as a U.S. citizen, you never escape filing U.S. taxes. Spain doesn’t care either. You’re on the hook for both — unless you plan carefully.

• The U.S.–Spain tax treaty prevents total double taxation, but doesn’t erase headaches.
• The Foreign Tax Credit (FTC) usually works better than the Foreign Earned Income Exclusion (FEIE) in Spain, since Spanish taxes are often higher.
• Social security is covered by the U.S.–Spain totalization agreement, so you don’t pay into both systems.

4. Retirement Accounts & Pensions

• U.S. retirement accounts (IRAs, 401ks) may get taxed in Spain when withdrawn.
• Spanish pensions are taxed as ordinary income.
• Some treaty provisions help, but the details matter — and they vary depending on whether you’re working or already retired.

5. The “Beckham Law” (Special Expat Regime)

Spain has a flat-tax option for newcomers, nicknamed after David Beckham’s Real Madrid days.

• Flat rate (24%–47%) applied only to Spanish-source income.
• Foreign income isn’t taxed under this regime.
• Downside: doesn’t last forever (generally up to six years) and has eligibility rules.

6. Reporting Obligations

• U.S. side: FBAR + FATCA (foreign bank accounts and assets).
• Spain side: Modelo 720 (report foreign assets > €50k).
  Skip these, and penalties can sting harder than Madrid rent prices.

7. Common Pitfalls

• Thinking the FEIE covers everything (it doesn’t).
• Forgetting about wealth tax.
• Not realizing regional differences in inheritance rules.
• Renting out U.S. property but failing to declare it in Spain.

8. Timing & Planning Tips

• Consider when you move — arriving in January vs. December can change your first tax year dramatically.
• Simplify and consolidate bank accounts before moving.
• Review your estate planning to align with Spanish inheritance rules.

Tax Move Checklist (Save This Part) ✅

• ☐ Check if you’ll become a Spanish tax resident (183 days, economic interest).
• ☐ Research regional tax rates (they vary).
• ☐ Review U.S.–Spain tax treaty rules.
• ☐ Decide on Foreign Tax Credit vs. FEIE strategy.
• ☐ Check eligibility for the Beckham Law.
• ☐ Collect statements for FBAR + Modelo 720.
• ☐ Review your retirement + social security situation.
• ☐ Adjust estate planning for Spanish rules.
• ☐ Get advice from a cross-border tax professional.

Final Thought

Spain offers the good life — but the good life comes with paperwork. If you plan ahead, you’ll spend more time on the beach and less time Googling “Spanish tax penalties translated to English.”

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