How is foreign income taxed?


taxpayers they must carry out the statement of income in Spain according to your residence. In other words, residents in Spain are subject to Personal Income Tax (IRPF), among other taxes, but non-residents, both individuals and entities, pay Non-Resident Income Tax (IRNR). .

The Tax Agency understands as a resident any taxpayer who stay for more than 183 days in Spain during the calendar year or who have the base of their activities or economic interests in the country. If you meet any of the above conditions, you will be considered a tax resident and must pay taxes in Spain for your “world income”. That is, you must present your Income Statement with the income obtained anywhere in the world.

Treasury calculates taxes every calendar year. Thus, a person will be a resident or non-resident throughout the calendar year, “since the change of residence does not imply the interruption of the tax period,” they explain from the ministry directed by María Jesús Montero.

Agreements to avoid double taxation on Income

Despite the obligation to pay taxes on worldwide income, taxpayers with income abroad must take into account the agreements signed between Spain and the country of origin of the income. These agreements are signed with the aim of avoiding double taxation, that is, paying taxes twice for the same income.

As explained by the Treasury, if the foreign income originates from a country with which Spain has signed an Agreement, it will be necessary to resort to the specifications of this document to know the “tax power”. This means the country on which the responsibility falls to apply the tax burden. Each agreement lists the types of income and the tax powers that correspond to each country. In some cases set the exclusive authority for the country of residence of the taxpayer or for the country of origin of the income and, in other cases, the joint authority.

In cases of shared power, both countries can tax the same income, but the obligation is set -in general, for the taxpayer’s country of residence- “to arbitrate measures to avoid double taxation”. In other words, when Spain is the country of residence of the taxpayer, the Tax Agency must evaluate these measures. In general, deductions apply.

But it is also possible for a taxpayer to obtain income from a country without an agreement with Spain. These incomes must be taxed in Spain. However, if they are also taxed in another country, the taxpayer may resort to the deduction for international double taxation which recognizes the personal income tax regulations.

withholdings abroad

The above requirements affect any income subject to personal income tax: income from work, from economic activities, capital gains, income from movable or real estate capital. And these world rents will be included to calculate the limits on the obligation to declare for personal income tax.

It must be taken into account that the Income Campaign serves to adjust the personal income tax payment based on the withholdings already applied throughout the year. But, for example, the Tax Agency recalls that “the non-resident payer of a foreign pension is not an obligor to withhold on account of personal income tax, so the income limit from which the obligation to declare begins is lower than with respect to other income from work”.

In the case of foreign source dividends, if they are deposited in an entity resident in Spainthey are subject to withholding, “which will be deductible as withholdings on movable capital.”

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