What a treaty is and when it applies
Double tax treaties are bilateral agreements that Spain has signed with a large number of countries, mostly following the OECD Model Tax Convention. They take precedence over domestic law and apply to persons resident in one or both of the contracting States.
Before applying a treaty you need to confirm three things: that it is in force, that the person is resident for its purposes and that the income and the tax fall within its scope.
How taxing rights are allocated
Each type of income has its own article. In some cases it is taxed only in the State of residence; in others, the source State may tax it up to a limit.
| Type of income | OECD Model article | General rule | Source-State limit |
|---|---|---|---|
| Income from immovable property | Art. 6 | The State where the property is located may tax | No limit: the State where the property is located may tax in full |
| Dividends | Art. 10 | Residence, with limited source taxation | OECD Model: 5% (company holding at least 25% of the capital) and 15% in all other cases |
| Interest | Art. 11 | Residence, with limited source taxation | OECD Model: 10% |
| Royalties | Art. 12 | Residence | OECD Model: no withholding; many of Spain’s treaties allow limited withholding |
| Capital gains | Art. 13 | Depends on the nature of the asset | Immovable property and assets of a permanent establishment: State where located; otherwise, generally, residence |
| Employment income | Art. 15 | Place where the employment is exercised, with exceptions | Residence only if the stay does not exceed 183 days in twelve months, the payer is not resident in the source State and the remuneration is not borne by a permanent establishment there |
| Private pensions | Art. 18 | Residence | No source taxation (public pensions follow art. 19) |
Methods for eliminating double taxation
When both States may tax, the State of residence relieves double taxation by exemption or by credit. Spain generally applies the credit method: the foreign income is included and the tax paid in the other country is deducted, up to a limit.
1. Cuando entre las rentas del contribuyente figuren rendimientos o ganancias patrimoniales obtenidos y gravados en el extranjero, se deducirá la menor de las cantidades siguientes:
a) El importe efectivo de lo satisfecho en el extranjero por razón de un impuesto de naturaleza idéntica o análoga a este impuesto o al Impuesto sobre la Renta de no Residentes sobre dichos rendimientos o ganancias patrimoniales.
b) El resultado de aplicar el tipo medio efectivo de gravamen a la parte de base liquidable gravada en el extranjero.
In short. The international double taxation credit is the lower of two amounts: the tax actually paid abroad under a similar tax, or the result of applying the Spanish average tax rate to that income.
Source: Ley 35/2006, of 28 November (BOE)
Formal obligations
To apply the treaty limits at source, a certificate of tax residence from the other State is usually required. If too much tax has been withheld, the refund is claimed in the source country, with each country’s own deadlines and forms. To avoid this, many countries allow the treaty limit to be applied at the time of payment if the recipient proves residence beforehand (in the US, for example, with Form W-8BEN).
Frequently asked questions
01What happens if there is no treaty with the other country?
Only the domestic law of each State applies. In Spain, the credit under art. 80 LIRPF remains available to residents.
02Who issues the residence certificate in Spain?
The Spanish Tax Agency (AEAT), through its online portal (sede electrónica), for tax residents of Spain.
03Can the treaty make my tax position worse?
It should not: a treaty limits the right to tax, it does not extend it. However, its anti-abuse clauses can deny benefits to certain structures.
This guide is for general information and does not replace the analysis of a specific case. Check the legislation cited in its current wording.