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Spanish dual nationality and double-taxation

Hello,

I’m an American who has lived in Spain for the past 17 years, married to a Spaniard, and interested in the possibility of acquiring Spanish nationality.

Discussions in this site seem to confirm that although acquiring Spanish nationality requires a statement of renunciation of your US citizenship, the US doesn’t consider it a valid renunciation.

There’s a very important question, though, that I have not seen addressed anywhere, which is the following…

When preparing my annual Spanish tax declaration, and due to the bi-lateral tax treaty addressing double-taxation, I’m allowed a tax credit on taxes paid in the United States. What I wonder is, whether Spain would disallow that credit if I became a Spanish citizen, on the basis of, “You’re no longer a US citizen and shouldn’t be paying tax there.”

Do you have any insight into that? Thanks so much.

Hey nomadguiri :)

Welcome to Expat.com

I can't speak for Spain, but here in Austria, I have known for a few Americans to give up their USA nationality and became Austrian. So it is possible to give it up.

SimCityAT
Expat.com Expert

@SimCityAT — Thanks, but my question doesn't really relate to the acquisition of citizenship.

The question is whether, in a situation in which a person has renounced their US citizenship in the eyes of Spain, would they no longer be able to benefit from the coverage of the bi-lateral tax treaties (since from Spain's perspective, that person shouldn't be paying tax in the US any longer.)

Does that make sense?

Hi there,

I am wondering about taxes too, Though, I am Canadian. As the answer seems to be quite complex, I am about to go to the Spanish Consulate here in Toronto and ask to get a "short and sweet" answer.
You want to do the same there and go to the nearest U.S. Consulate where you live. Unless you want to pay for an immigration lawyer/ Spanish lawyer dedicated to taxes.

Let us know, please!
Best
Sergio.

@Sergio — Please report back, but I doubt the US Consulate will offer advice on the question of whether the local country—be it Candada or Spain—will cease to allow you to benefit from bi-lateral tax treaties if you've presumably renounced the other's citizenship.

My guess is that if you become "Spanish" then you are Spanish and you wouldn't be able to benefit from the US tax allowances.

Is it possible to avoid US taxes, to become exempt because you are not living there, i.e. nothing to do with your nationality status? If famous rock stars leave the US to live in Switzerland to avoid taxes, as they do from the UK, then there must be some form of exemption from US taxes available to you too.

I think that a local gestor could probably give you the short and sweet answer and probably without charge - they don't seem to charge if they don't have to produce paperwork. Although I'm a UK/EU citizen I had something similiar with a question about UK tax on a pension. I asked one and he told me I was in the clear, I asked another and he said I needed to pay some back taxation, number three confirmed  the need to pay back tax so it would be wiser to ask a couple just to check that they give the same information

Hi,
I can't assure any answers. That's why I will go to the Spanish consulate and get their answers.

Cheers!
S.

I believe first of all you would need to obtain your Spanish citizenship, or some other citizenship, as otherwise you would be "stateless" once you renounce US citizenship;

Then, you need to renounce US citizenship per US requirements, NOT Spanish requirements.  See at https://travel.state.gov/content/travel … nship.html

If you are trying to reduce tax burden, you should already know that living outside of the US for more than 335 days of the year should allow you to exclude $101.3k of taxable income, under "Foreign Earned Income" (see form 2555).  Some types of income do not qualify as "earned income".

Just renouncing citizenship does not eliminate tax obligation; if you have a lot of money (more than $2Million), you'll have to pay an "exit tax".

I have been granted Spanish Nationality, my U.K. Government  pension is taxed in the U.K. and that tax paid in the U.K. is taken into consideration when I make my annual Spanish tax return, I do not pay any further tax on my U.K. pension.

Boseley, Excuse me if I have misunderstood your post.

Only a UK Crown Pension can be, and indeed can only be,  taxed in UK.  That pension, as from last year (tax year 2015) is taken into consideration when you make your Spanish tax declaration.

Income from  letting a property in UK is also taxed in UK but must be declared in Spain where a top up tax may be applied.

ALL OTHER INCOME WORKDWIDE is taxable in Spain.

  So a UK State Retirement Pension is taxable only in Spain

DTA  2013  see:-
https://www.gov.uk/government/uploads/s … _force.pdf

Johncar :

Boseley, Excuse me if I have misunderstood your post.

Only a UK Crown Pension can be, and indeed can only be,  taxed in UK.  That pension, as from last year (tax year 2015) is taken into consideration when you make your Spanish tax declaration.

The above with exceptions is correct, that is what my pension is, and why it is taxed in the U.K.

Hi @Boseley — Thanks! Yours is the first reply that actually addresses my question. :-)

So just to clarify: You pay your pension tax in the UK, and then you apply a credit of that tax paid when completing your Spanish tax return, in order to avoid double-taxation. And, Spain has allowed that, and has not raised the issue of your Spanish citizenship as evidence that you shouldn't be paying tax in the UK in the first place?

Is that correct?

nomadguiri :

Hi @Boseley — Thanks! Yours is the first reply that actually addresses my question. :-)

So just to clarify: You pay your pension tax in the UK, and then you apply a credit of that tax paid when completing your Spanish tax return, in order to avoid double-taxation. And, Spain has allowed that, and has not raised the issue of your Spanish citizenship as evidence that you shouldn't be paying tax in the UK in the first place?

Is that correct?

Yes that is correct, however I do use an accountant to complete the tax return, costs me a few Euros but he knows the system far better than us. Being a Spanish national does not raise any issues whatsoever.

Nomadguiri. There appears to be some confusion here.

Boseley gets a Crown Pension in UK,  That is as a former government employee, i.e. military, police, teacher etc.  Such a pension can only be taxed in UK and is done so at source and there is no way to recover that tax in Spain.

Apart from income from letting a property in UK ALL OTHER INCOME IN UK IS NOT TAXABLE IN UK AND MUST BE DECLARED IN SPAIN where it is taxed,

BUT.  what applies to Boseley (and me) will not apply to you as you are from USA and the Spanish double taxation agreements with USA will almost certainly be different.

Hi John,

The fundamental issue is this: I'm liable for taxation in both the United States (on the basis of being a citizen), and in Spain (on the basis of residence). Due to the bilateral tax agreement, I receive a tax credit in Spain for any taxes that I pay in the United States.

I've been living I Spain for 17 years, so I know this works just fine. In Spain, I have only paid tax on the delta-amount whenever there's a difference in tax rate between the two countries. For example, if the dividend tax is 15% in the US and 20% in Spain, then after paying 15% on dividends sourced in the US, I'll pay the delta 5% in Spain.

Now, my question is: Will this change, if I take Spanish nationality, since, at least as far as Spain is concerned, I would have to renounce my US citizenship.

In other words, in the future, if I tried to claim a credit for tax paid in the United States, would Spain reply, "Nope, you're not a citizen there any longer, and shouldn't have paid tax there in the first place!"

My guess is that things will NOT change, based on the issue that US-sourced income would be liable first for US taxation, regardless of who earned it — i.e. a US citizen or non-resident alien — and whoever paid tax in the US (again, citizen or not) would be able to claim a local tax credit if a bilateral agreement is in place.

Nomad,

I googled       double taxation agreement between spain and usa

https://www.irs.gov/pub/irs-trty/spain.pdf

I have not ploughed through but I suspect what you want to know is in there somewhere !  Good luck

Hi NomadGuiri,

You do not have to renounce your US citizenship if you become a Spanish national. If I were you I would speak to a good lawyer.

Also, depending on what type of income you have in the US (ie real estate rental income, US domiciled business income etc...), it doesn´t matter what nationality you are, you may be liable for US tax and you will not be double taxed in Spain because of the tax treaty.

I hope that helps.

Best regards,

Thomas Sneed
Wicklow Tax Advisors

Sneedy, I am surprised by your post

You do not have to renounce your US citizenship if you become a Spanish national. If I were you I would speak to a good lawyer.

Extract from :-   
https://en.wikipedia.org/wiki/Spanish_n … ationality
Foreign nationals who acquire Spanish nationality must renounce their previous nationality, unless they are natural-born citizens of an Iberoamerican country, Andorra, the Philippines, Equatorial Guinea or Portugal.[1][15]

I am not an immigration lawyer which is why I suggested one.  I know that in practice, plenty of people have duel US Spain nationality.  When you take the Spanish oath of nationality, you renounce your former nationality but it is symbolic and no one will come for your US passport.  And the tax treaty applies whether you have US nationality or not. There are Spanish nationals who have businesses in the US and apply the tax treaty where necessary. .

Sneedy When you take the Spanish oath of nationality, you renounce your former nationality but it is symbolic

I should be astounded a lawyer would advise that lying, anywhere, is an appropriate course of action,

I am not suggesting that anyone lie and not sure where I suggested it. I am saying that one can hold dual Spanish US nationality, period. The way laws are written and the way they are interpreted and applied by the courts is something beyond my expertise. (The source for the information for my statement about the symbolic oath was from a Spanish judge!) So I will again suggest speaking to a knowledgeable lawyer before turning oneself into knots over something read on wikipedia. As for the tax treaty, it seems that nomadguiri already has a handle on that so i will leave this here.

Yes agree we have 30 years of experience advising people on visas for non EU residents... www.berdaguerabogados.com

nomadguiri :

The fundamental issue is this: I'm liable for taxation in both the United States (on the basis of being a citizen), and in Spain (on the basis of residence). Due to the bilateral tax agreement, I receive a tax credit in Spain for any taxes that I pay in the United States.

I agree with this assessment.  I also agree with you that you do NOT have to actually renounce your US citizenship; you only have to promise Spain that you are renouncing your US citizenship.

In fact, I just talked with a US Consulate official in Spain about this very issue a week or two ago, and he was very clear; just because you tell Spain "I'm renouncing my US citizenship" does not mean much of anything to the USA.  They (the US State Department) will ask you if you meant to actually give it up, and if you say "no", that's it, for the purposes of the US you're still a US citizen.

There is a very clear reference on the US State Department web site that says the same thing: https://travel.state.gov/content/travel … ality.html

In other words, in the future, if I tried to claim a credit for tax paid in the United States, would Spain reply, "Nope, you're not a citizen there any longer, and shouldn't have paid tax there in the first place!"

My guess is that things will NOT change, based on the issue that US-sourced income would be liable first for US taxation, regardless of who earned it — i.e. a US citizen or non-resident alien — and whoever paid tax in the US (again, citizen or not) would be able to claim a local tax credit if a bilateral agreement is in place.

Based on my reading (and I'm not a lawyer, or an abogado for that matter) of a few things in the treaty (https://www.irs.gov/pub/irs-trty/spain.pdf), I think your guess is correct and you would be in exactly the same situation as you are now.

First, Article 3's definitions do not seem to indicate that whether you promised Spain you were going to give up your US citizenship matter.  You're still a fiscal resident of one nation or the other (item 1 d) and item (1 g) makes it very clear that if you possess the citizenship of either State, you're a "national" of that State.

Since the US and US alone determines who's a citizen of the US, even if you told Spain you were renouncing your US citizenship, you're still a national under this definition, because you're still a citizen of the United States.

Second, Article 4 discusses where you're "resident", and makes zero mention of citizenship issues- it's just discussing people.

Third, as you read through the various articles talking about different types of income, it just refers to "persons", never "citizens".

(The point here is that there are a lot of people who might actually wind up owing tax to the US but not be a US citizen, and those people- if resident in Spain- still get the benefits of this dual taxation treaty.  In fact, lots of people who are not US citizens still have to pay taxes to the United States for various reasons, and that's another reason I don't think the "renunciation" makes any difference.)

Fourth, and most important IMO, is Article 24 of the tax treaty.  Section 1a says
Where a resident of Spain derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, other than solely by reason of citizenship, Spain shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax actually paid in the United States.

This is pretty big.  It indicates that from Spain's point of view, they only care if you're a resident of Spain and that you owe taxes in the US.  Note that it actually rules OUT "reason of citizenship"- in other words, even if we assume that Spain is pretending that you're no longer a citizen of the US, they don't care- if you still owe taxes to the US, they give you the deduction on the Spanish taxes.

Sneedy  I am saying that one can hold dual Spanish US nationality, period.

I suggest you take some advice on that statement as you are not correct, unless of course one lies about it.

Have a word with Rafael Berdaguer Abogados !

John, if you don't want to do dual citizenship, nobody's making you.

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