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The United States is one of only two countries to follow a “citizenship-based taxation” system, meaning American expats face the potentially onerous challenge of navigating income tax responsibilities in two countries every year. While British nationals residing abroad generally escape the task of having to submit UK tax returns if they have no UK income, Americans will need to file tax returns in both Spain and the United States even if they live all year in Barcelona and receive no US income.
Income Tax Returns
US citizens and residents must file a tax return in any year that income is greater than $12,200, increased to $24,400 for married filers (2019).
In Spain, while exceptions apply, a tax return is generally required in the first year of residency and then in later years if one generates more than €22,000 of employment income, €1,000 of real estate-related income, or €1,600 of income from capital gains and savings. Joint tax returns can be presented, though this may not be advisable when both spouses are receiving income.
Self-employed individuals will generally be obliged to submit annual tax returns in both countries regardless of income levels and face additional requirements for submitting tax payments throughout the calendar year.
No extension of time to file is available in Spain but an automatic 6-month extension can be requested in the United States. Expats can even request an additional discretionary extension through December 15th.
Despite the extensions of time to file, interest will begin to accrue on any U.S. tax due with the return as of April 15th and penalties accrue as of June 15th. Spanish tax due with the return can be paid in installments with 60% paid when the return is filed in June and the remaining 40% paid in installments through November.
Foreign Asset Reporting
Separately from the tax return, both countries also require a disclose of certain foreign accounts and assets located abroad.
In the United States, citizens and residents must file FinCEN Form 114 (commonly known as the “FBAR”) annually if the combined value of all non-US accounts exceeds $10,000 at any point during the year.
Spain requires residents to submit Modelo 720 if the value of non-Spanish assets held during the prior year exceeds €50,000. The assets that require disclosure here are broader than the FBAR and would include real estate and other business assets maintained outside of Spain. After the initial filing, the report is only required to be filed to disclose changes to assets and certain increases in the value of assets.
American Tax Partners is dedicated to providing global tax assistance to the American Expat community, offering free initial consultations and upfront flat-fee pricing. Contact us today to speak with one of our international tax specialists.
info@amtaxparters.com | tel. +34 518 889 429 | amtaxpartners.com