Every year, Americans in Spain are faced with the challenge of navigating not one, but two tax seasons. The reason for this lies in citizenship-based taxation, which is a taxation system largely unique to the U.S. requiring all U.S. citizens, green card holders, and U.S. business owners to continue filing a U.S. tax return – even if they live in Spain.
It’s a complicated topic that many American residents, and even professionals, are confused about, so it’s important to know what the law actually says.
Liberty Atlantic Advisors, a team of professionals specialising in helping U.S. taxpayers abroad, are here to help clear things up.
Spain applies a residence-based taxation system, meaning that if you qualify as a Spanish tax resident, you are required to file a Spanish tax return.The key takeaway here is this: If you qualify as a Spanish tax resident, it usually doesn’t matter if the income is U.S. sourced, whether it’s earned money (such as from work) or passive income (such as from U.S. retirement account distributions), or otherwise generated outside of Spain.
As an American citizen, when you become a Spanish tax resident, you become liable for filing two tax returns: A U.S. tax return for those Americans living abroad and a Spanish tax return.
