The 1990 US-Spain treaty explained article by article — residency tie-breaker, dividends, interest, capital gains, employment income, pensions, the saving clause that affects every American in Spain, and the 2014 Protocol changes.
The Convention between the United States of America and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the "Treaty" or "CDI España-Estados Unidos") was signed on 22 February 1990 and entered into force on 21 November 1990. It was subsequently modified by a Protocol signed on 14 January 2013 and ratified by the US Senate in December 2019, entering into force in 2021 (the "2013/2021 Protocol"). Understanding this treaty is not optional for US citizens living in Spain — it is the foundation of your entire cross-border tax position.
Before covering any specific treaty provisions, the most important concept for US citizens to understand is the saving clause in Article 1(4) of the Treaty. It reads, in substance: "Notwithstanding any provision of the Convention, the United States may tax its citizens as if the Convention had not come into force." This clause is the source of enormous frustration for Americans living in Spain.
What it means practically: the United States reserves the right to tax its citizens on their worldwide income regardless of where they live, regardless of what the treaty says. For most types of income, if you are a US citizen living in Spain, the US retains its right to tax you under domestic law (the IRC), and the treaty cannot override that right. The treaty provides relief from Spanish taxation through exclusive taxing rights, exemptions, and reduced withholding rates — but it does not prevent the US from also taxing you on the same income.
The mechanism that prevents actual double payment (as opposed to double taxation exposure) is the US foreign tax credit, which allows you to credit Spanish IRPF paid against your US federal income tax liability on the same income. But the saving clause means you always start from a position of dual tax obligation and must work backwards using credits to avoid double payment.
Article 4 determines where a person is "resident" for treaty purposes when that person qualifies as a resident under both countries' domestic laws. For individuals, the tie-breaker tests are applied in sequence until the conflict is resolved:
For a US citizen who moves to Spain and establishes a family home there, works in Spain, and has no maintained US home: the tie-breaker usually resolves in favour of Spain. The US citizen is a "resident of Spain" for treaty purposes — and the treaty provisions allocating taxing rights between Spain and the US apply based on that residence status. However, because of the saving clause, this does not reduce the US citizen's US tax obligations.
The tie-breaker is most relevant for determining which country has primary taxing rights over specific categories of income (particularly passive income like dividends, interest, and rental income), and for establishing the correct treatment of business profits and employment income under the treaty.
Business profits of a US enterprise are taxable in Spain only to the extent they are attributable to a permanent establishment (PE) in Spain. Without a PE, Spain has no taxing rights over the US company's profits, regardless of how much business the company does with Spanish clients. This is why PE analysis (covered in our dedicated article) is so critical for US businesses with Spanish connections.
If a PE exists, Spain may tax only the profits attributable to the PE — not the entire enterprise's global profits. Attribution follows the OECD's authorised approach, treating the PE as an independent enterprise operating at arm's length with the rest of the company.
Dividends paid by a Spanish company to a US resident are subject to reduced withholding in Spain. The general treaty rate is 15%. However, if the US recipient holds at least 25% of the voting stock of the Spanish company, the withholding rate is reduced to 10%.
Dividends paid by a US company to a Spanish resident are also limited to a 15% withholding rate (10% if 25%+ voting stock ownership). In practice, the US withholding rate on dividends paid to non-US persons is 30% under domestic law, but the treaty reduces this for eligible Spanish residents.
For US citizens in Spain, dividends from US companies create a nuanced situation: the US will withhold at the US domestic rate (often 0% for US citizens in many cases, since the IRC does not impose withholding on dividends to US citizens) and the US citizen reports the dividends on Form 1040. Spain also taxes the dividends as savings income under IRPF. The foreign tax credit mechanism prevents double payment.
Interest arising in Spain and paid to a US resident is taxed at a maximum rate of 10% in Spain (the source state), under Article 11(2). Interest arising in the US and paid to a Spanish resident is also limited to 10% US withholding. In practice, interest paid to genuine arm's length lenders between unrelated parties is often exempt from source-state withholding under the treaty (Article 11(3) includes several exemptions for government bonds, banks, and certain qualifying interest payments).
The 2013/2021 Protocol introduced changes to Article 11, including expanded exemptions for interest received by pension funds and financial institutions. These changes are directly relevant for US persons with US bank accounts and bond portfolios who have become Spanish tax residents.
Royalties arising in Spain and paid to a US resident may be taxed in Spain at a maximum rate of 10%. This applies to royalties from intellectual property — patents, trademarks, copyright, know-how, and similar rights. For US tech companies licensing IP to Spanish entities, the 10% withholding cap under the treaty is often significantly better than the 24.75% Spanish domestic withholding rate for non-residents.
Capital gains are subject to complex allocation rules under Article 13:
For a US citizen living in Spain who sells shares in a US company (non-real estate): Spain has primary taxing rights (residence state), and the US retains taxing rights under the saving clause. IRPF savings rate (19–28%) applies in Spain; US long-term capital gains tax (0%, 15%, or 20%) applies in the US. The foreign tax credit is used to avoid double payment.
Salaries, wages, and other remuneration for employment are taxable in the state of residence — Spain, for a Spanish tax resident — unless the employment is exercised in the US. If a Spanish tax resident works in the US (physically present in the US while performing work), the US may also tax that portion of the income. The 183-day rule applies: if an employee is present in the US for more than 183 days in a 12-month period (or the tax year, depending on the applicable period), the US has clear taxing rights over all US-performed work.
Pensions and other similar remuneration paid to a resident of Spain in consideration of past employment are taxable only in Spain. This means a Spanish tax resident receiving a US private sector pension, 401(k) distribution, or IRA distribution should, under the treaty, pay tax only in Spain. However, the saving clause complicates this for US citizens: the US still taxes its citizens on pension distributions under domestic law. The result is that US citizens in Spain face both Spanish IRPF and US income tax on pension distributions — though the foreign tax credit typically reduces the net double payment.
Social Security benefits are treated differently under Article 20: US Social Security benefits paid to a resident of Spain are taxable only in Spain (subject to treaty). Spain taxes a portion of the benefits based on Spanish domestic rules.
Remuneration paid by the US government (including state and municipal governments) to US citizens for services rendered to the US government is taxable only in the US — not in Spain — even if the recipient is a Spanish tax resident. This is an important exception for US government employees, military personnel, and federal civil servants living in Spain.
Article 17 of the Treaty (as modified by the 2013/2021 Protocol) contains a comprehensive Limitation on Benefits (LOB) clause designed to prevent "treaty shopping" — the use of the treaty by persons who are not genuine US or Spanish residents. For individual US citizens and permanent residents physically living in Spain, the LOB clause is generally satisfied and does not restrict treaty access. For corporate structures, the LOB analysis is more complex.
The 2013 Protocol (ratified by the US Senate in 2019 and in force since 2021) introduced several significant changes:
The Protocol is particularly important for US LLC owners living in Spain: the Protocol's provisions on transparent entities clarify how the treaty applies when a US LLC (treated as transparent for US tax purposes but potentially opaque for Spanish tax purposes) generates income. This is an area requiring careful analysis, as the two countries' treatment of the LLC may differ materially.
| Income Type | Primary Taxing State | Withholding Cap | US Citizen Note |
|---|---|---|---|
| Dividends (Spanish company) | Spain (residence) | 15% / 10% (25%+ stake) | Saving clause: US also taxes |
| Interest (Spanish source) | Spain (residence) | 10% | Saving clause: US also taxes |
| Royalties (Spanish source) | Spain (residence) | 10% | Saving clause: US also taxes |
| Capital gains (US securities) | Spain (residence) | — | Saving clause: US also taxes |
| Capital gains (Spanish real estate) | Spain (source) | — | Saving clause: US also taxes |
| Employment income (Spain-based) | Spain (place of work) | — | Saving clause: US also taxes |
| Pensions (private sector) | Spain (residence) | — | Saving clause: US also taxes |
| US government salary | US only | — | Treaty protects; Spain exempt |
Jacob Salama advises US citizens in Spain on treaty application, IRPF compliance, US-Spain dual filings, and foreign tax credit optimisation. The treaty is complex — get specific advice for your situation.