How to Avoid Double Taxation When Living in Spain

1. Establish Your Tax Residency Clearly

The first step is to know which country you are a tax resident of, because by default that country taxes your worldwide income and others may only tax certain sources. If you have ties to two countries (like Spain and your home country), you might initially meet both countries’ criteria for residency, leading to potential double claims.

Spanish tax residency criteria: 183+ days in Spain in a calendar year, or main economic interests in Spain, or spouse/underage kids live in Spain (presumption). If you meet this, Spain considers you tax resident.

Your home country might have its own tests (days or permanent home, etc.). It’s possible to be dual-resident under domestic laws.

Solution: Look to the tie-breaker rules in the tax treaty between Spain and your home country (if one exists, Spain has treaties with over 90 countries). These typically go through factors in order:

1. Where you have a permanent home available.
   
   

2. Where your center of vital interests is (personal and economic relations).
   
   

3. Where you habitually reside (spend more time).
   
   

4. Nationality.
   
   

5. Mutual agreement if still unresolved.
   
   

Applying these, you can determine which one country the treaty deems you resident of for treaty purposes. That country then has the primary right to tax worldwide income; the other country agrees to treat you as non-resident (though it may still tax local-source income, but then the treaty provides relief).

Example: You moved to Spain in July and spent 7 months there (so 210 days in Spain, 155 in UK). Spain says you’re resident (183+ days), UK might say you’re resident too (depending on UK’s statutory residence test). Treaty tie-breaker:

• Permanent home: you kept your house in UK and rented in Spain. So you have a permanent home in both.
  
  

• Center of vital interests: you moved job to Spain and family is with you in Spain. That leans Spain.
  Therefore, treaty would deem you Spain-resident. The UK should treat you as non-resident for treaty purposes, meaning they only tax certain UK-source incomes per treaty, and you’d use Spanish rates for everything else.
  
  

Action item: If you stop being resident in your old country, often you should formally notify them (e.g., in the UK file form P85, in US file as part-year resident etc.). Conversely, you may register as resident in Spain (filing Modelo 030 to give Spanish tax agency your foreign address, and later Spanish address, so they know you’re resident).

Being clearly a resident of one country at a time and ensuring the other recognizes it is the foundation of avoiding double tax.

2. Use Double Taxation Treaties to Your Advantage

Spain has a network of Double Taxation Agreements (DTAs) with many countries that outline which country gets to tax specific types of income, and that the other country will either exempt that income or give a credit for tax paid.

Key provisions usually:

• Employment income: Taxed where the work is physically done, except short-term secondments (under 183 days) with foreign employer, then may remain taxed only in home country.
  
  

• Pensions: Often, private pensions taxable only in residence country, government pensions taxable only by paying country (Spain’s treaties often do this: e.g., UK state pension taxable in Spain, UK civil service pension taxable only in UK).
  
  

• Dividends/Interest: Source country (where company paying dividend is, or bank interest originates) can tax but usually at a reduced rate (often 0%–15%). The resident country taxes fully but must credit the source tax.
  
  

• Real estate income: Taxed where property is (so if you rent out property in another country, that country taxes it, and Spain as your residence also can but must avoid double tax).
  
  

• Capital gains: Gains from real estate – taxed where property is. Gains from shares – usually only in resident country (some exceptions for substantial holdings).
  
  

How to use this:

• Claim treaty benefits at source: If you have income from abroad, you can often have the source use treaty rates so you don’t overpay initially. For example, if a US company is paying you dividends and you are Spanish resident, the Spain-US treaty caps US tax on dividends at 15%. Without claiming, the US might withhold 30%. By filing a W-8BEN form claiming Spanish residency, you get 15% withheld. Spain will then tax the dividends at e.g. 19% and give credit for that 15%.
  
  

• Ensure foreign payers know you’re now in Spain: Provide certificates of tax residence to foreign banks, pension administrators, etc., to adjust withholding to treaty rates.
  
  

• Exclude certain incomes: Some treaty articles might mean you simply don’t pay tax in Spain on something. E.g., some treaties have a clause for teachers or students or researchers where for a short period, salary from abroad isn’t taxed in host country. Uncommon but check if any apply to you.
  
  

Always mention treaty positions in your Spanish tax return if relevant (there’s usually a box or section to note income exempt by treaty, such as a foreign government pension that Spain shouldn’t tax – you’d disclose it but mark exempt due treaty X, art Y).

3. Foreign Tax Credits in Spain

If you are taxed by Spain on foreign income that was also taxed abroad, Spain’s domestic law (and treaties) allows a foreign tax credit (FTC) to avoid double taxation. This credit is generally the lesser of:

• The foreign tax paid, or
  
  

• The Spanish tax due on that same income.
  
  

For example, you have a pension from Germany, €10,000, on which Germany withheld €1,000 tax. As a Spanish resident, you declare €10k; Spanish tax might be €1,500 on it. Spain will give you a credit of €1,000 (foreign tax), so you only pay €500 more to reach the €1,500 Spanish liability. If instead Germany withheld €2,000 (more than Spanish €1,500), you’d be capped at €1,500 credit (so you pay zero extra in Spain, but the extra €500 foreign can’t be recovered via Spain – you might try to reclaim from Germany if treaty said it should have been lower).

To utilize this:

• Keep proof of foreign tax paid (statements, withholding certificates). Spanish tax office might ask for them if you claim a credit.
  
  

• Fill out the foreign tax credit section in the Spanish tax form (Modelo 100 for IRPF) for each country and income type, stating amount of income and tax paid.
  
  

• If multiple countries, credit is calculated per country, not mixing.
  
  

Spain’s credit rules align with treaty usually. If no treaty, Spain still often gives credit up to Spanish tax on that income (unilateral relief), except in some cases with tax havens.

Note: If your foreign income is dividends from an EU company and you own >5% of it, Spain might exempt them (participation exemption) rather than credit – more for corporate shareholders though.

4. Special Cases: UK, US, etc.

Different countries have quirks:

• UK: Since Brexit, UK pensions and such are no longer EU but treaty still applies. UK state pension taxed only in Spain (so UK shouldn’t tax it; if they do by default, you can claim NT tax code to stop UK tax). UK government pensions (civil service, police, etc.) taxed only in UK, exempt in Spain (though Spain may include it for rate calculation, “exemption with progression” in some cases).
  
  

• US: US citizens are always taxed by the US on worldwide income regardless of residence (citizenship-based taxation). If you’re a US citizen living in Spain, double taxation is avoided by foreign tax credits in the US return for Spanish taxes paid (and treaty tie-breaker might make you Spanish resident, but US doesn’t fully recognize it due to saving clause). This is complex – often one uses the US Foreign Earned Income Exclusion for salary and FTC for other income to avoid double tax.
  
  

• Non-treaty countries: If you’re from a country with no treaty with Spain (few, like maybe some low-tax jurisdictions), Spain will tax you on worldwide income since you live here. The other country might tax you too – but many such countries (like Gulf states) have zero tax, or if they do, Spain might still credit under unilateral relief. Always check Spanish law or professional advice in such cases.
  
  

5. Proactive Steps to Avoid Double Tax Before Moving

• Timing of move: If possible, avoid being resident in both countries in the same tax year. For instance, UK and Spain tax years differ (UK April–April, Spain calendar year). If you leave UK mid-year, you can claim split-year treatment in UK so UK stops taxing after departure. In Spain, arriving mid-year means you’ll be tax resident only from arrival (Spain doesn’t do split-year; if you surpass 183 days, you are resident for full calendar year – they don’t split the year, though in practice you weren’t there first part. So better to plan moving early in a year or exactly mid-year and track days carefully).
  
  

• Settle tax affairs at home: Declare your departure if required. Some countries want you to formally break residence (like deregister from health or municipal registries).
  
  

• Consider selling assets with large gains before becoming Spanish tax resident: Spain’s tax on capital gains might be higher than your home (or home may exempt something like on main home sale – UK has main residence relief for home sales, which if you sell after moving to Spain, UK relief might not fully apply, and Spain taxes if sold while Spanish resident). Align big transactions with the most favorable residency.
  
  

• Pensions: Look at your pension type. If you have a large lump sum option, note Spain will tax it fully, whereas UK may have 25% tax-free. It might be beneficial to take lump sum before moving (using UK’s tax free portion) and then move to Spain with remaining income stream which treaty covers. Similarly, consider Roth IRAs for US – Spain might tax distributions differently unless planned.
  
  

• Housing: If you intend to keep your house in home country and rent it out, know that country will tax the rent (as property is located there). Spain will tax it too (if you’re resident) but credit foreign tax. Sometimes it might be beneficial to sell or not rent to simplify. Or ensure you document expenses to reduce the foreign taxable profit.
  
  

• Use experts: Cross-border tax is complex; a consultation with a tax advisor who understands both Spain and your home country can pinpoint areas to fix.
  
  

6. Ongoing Management

Once in Spain:

• File Spanish returns fully including foreign income, but claim credits or exemptions where applicable.
  
  

• File home country returns if needed (like US citizens must) and use either the treaty or foreign credits for Spanish tax.
  
  

• Keep an eye on changes: e.g., post-Brexit changes in UK-Spain treaty interpretation, or if you spend time back home, watch days to avoid re-triggering residence there inadvertently.
  
  

• If you earn income from a third country (not Spain or home), treaties might have tri-country interplay. Usually, Spain as your residence taxes it, the source country can tax at source per treaty, and Spain gives credit.
  
  

Example scenario: You’re Spanish resident, get a pension from Germany (treaty says only Spain taxes it, so you ensure Germany doesn’t), and also you have rental property in France (France taxes that, Spain also taxes but gives credit). Through careful treaty use, you pay each part where due but not twice.

7. Dealing with Double Social Security

Not exactly tax, but worth a mention: if you work remotely for a foreign employer while living in Spain, normally you should switch to Spanish social security (because you reside and work from here). EU regulations allow you to remain in home country system for up to 2 years via a detached worker A1 certificate. Outside EU (like UK now), social security totalization agreements or local law apply. This is separate from income tax treaties but also important to avoid paying two countries’ social contributions.

Conclusion: Avoiding double taxation is entirely possible by understanding and utilizing the tools available: tie-breaker tests to determine sole residency, tax treaty provisions to allocate taxing rights, and foreign tax credits to eliminate any overlapping tax. The key is to be proactive – declare your incomes properly and then apply the treaty/credit in the tax return to get relief. Keep documentation of foreign taxes paid and consider professional advice for complex situations.

When in doubt, consult a tax professional who can review your personal situation across jurisdictions. We offer cross-border tax planning services – if you want to optimize your taxes between Spain and another country, book an appointment with our advisors. We’ll help ensure you’re not paying any more tax than necessary and that each country’s requirements are satisfied with no double taxation. Book now: Book an appointment