Do U.S. Citizens in Spain Have to Pay Taxes Twice? Here’s What You Need to Know

If You’re a U.S. Citizen Living in Spain, You Might Be Paying More Taxes Than You Should

Did you know that U.S. citizens living in Spain are still required to file and pay taxes in the U.S., even if they don’t live there anymore? Unlike most countries, the United States taxes its citizens on their worldwide income, no matter where they live.

But here’s the tricky part: Spain also taxes your worldwide income if you’re a tax resident there. So, how do you avoid getting taxed twice on the same income?

The U.S.-Spain Tax Treaty is designed to prevent double taxation, but there’s a catch—a little-known rule called the “Savings Clause” that allows the U.S. to continue taxing its citizens as if the treaty didn’t exist. This means that while the treaty offers some protection, many U.S. expats still face complex tax situations.

How Can U.S. Citizens in Spain Avoid Double Taxation?

Under the U.S.-Spain Tax Treaty (Article 24), the country responsible for eliminating double taxation depends on the type of income you earn.

1. If You Have Income from a U.S. Property (Like Rental Income)

👉 Spain reduces your tax bill

If you earn rental income from a property in the U.S., the IRS will tax that income first because the property is located in the U.S.

• The U.S. applies a 30% tax on gross rental income (unless deductions are applied).
• Spain, as your country of residence, also taxes this income under Spanish income tax rules.
• Spain will allow you to deduct the tax you already paid to the U.S., but only up to the amount of Spanish tax that would have applied.
• If U.S. taxes are higher than Spanish taxes, you won’t get a refund for the difference—you just lose that money.

2. If You Earn a Salary in Spain (From a Spanish or U.S. Employer)

👉 The U.S. reduces your tax bill

If you work in Spain, whether for a Spanish or U.S. company, Spain has the right to tax your salary because the work is physically performed in Spain.

• Spain taxes your salary at progressive income tax rates.
• The U.S. also taxes your salary, but only because you’re a U.S. citizen.
• Since Spain is already taxing this income, the U.S. must allow a Foreign Tax Credit (FTC) for the Spanish taxes you’ve paid, reducing or eliminating your U.S. tax bill.

Key Takeaways for U.S. Expats in Spain

✔ If your income is taxed in the U.S. based on something other than your citizenship (like real estate income), Spain will reduce your tax bill.
✔ If your income is taxed in the U.S. only because you’re a citizen, the U.S. will reduce your tax bill using the Foreign Tax Credit.
✔ Planning ahead is key—without proper tax planning, you might end up paying more than you need to.

Many U.S. expats in Spain assume the tax treaty protects them from double taxation, but the Savings Clause limits these protections. Understanding where you should claim tax credits can save you thousands of dollars per year.

If you’re a U.S. citizen living in Spain and need help navigating your tax obligations, get in touch with us today to avoid overpaying and ensure full compliance with both tax systems.