US Citizens in Spain: FBAR, FATCA and Your Spanish Tax Obligations

The United States is one of only two countries in the world — the other being Eritrea — that taxes its citizens on worldwide income regardless of where they live. A US citizen who moves to Spain and becomes a Spanish tax resident does not escape US tax obligations. Instead, they acquire an entirely new layer of Spanish obligations on top of the existing US ones.

Understanding how these two systems interact — and how to comply with both efficiently — is the central challenge of US expat tax planning in Spain. This guide covers the key US reporting obligations, their Spanish counterparts, and how to manage the overlap without paying tax twice.

The US Worldwide Taxation Principle

Under IRC §61, US citizens and permanent residents (Green Card holders) are taxable on all income from all sources worldwide, regardless of the country of residence. This principle has been part of US tax law since the Civil War era and has survived numerous constitutional challenges.

The practical consequence for US citizens in Spain is that they must file a US federal income tax return (Form 1040) every year, reporting their worldwide income — Spanish salary, Spanish rental income, Spanish bank interest, Spanish capital gains, and any other income regardless of source. The filing obligation exists even in years when no US tax is due.

FBAR: FinCEN Report 114

The Report of Foreign Bank and Financial Accounts — commonly known as the FBAR — is filed with the Financial Crimes Enforcement Network (FinCEN), not with the IRS. It is a disclosure requirement, not a tax. The FBAR is required when:

• The filer is a US person (citizen, permanent resident, or certain entities)
• The filer has a financial interest in, or signature authority over, one or more foreign financial accounts
• The aggregate maximum value of all such accounts exceeds $10,000 at any point during the calendar year

"Foreign financial account" for FBAR purposes is broadly defined — it includes bank accounts, brokerage accounts, mutual funds, and certain insurance or annuity policies with a cash surrender value. For US citizens living in Spain, virtually every Spanish bank account, investment account and pension fund will need to be considered.

The FBAR is filed electronically via FinCEN's BSA e-filing system. The deadline is April 15, with an automatic extension to October 15. No separate extension request is required (see FinCEN FBAR page).

FATCA: Form 8938

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, added a parallel disclosure requirement: Form 8938 (Statement of Specified Foreign Financial Assets), filed with the annual Form 1040 (see IRS FATCA overview). The thresholds for Form 8938 are significantly higher than FBAR:

• Single filers or married filing separately: $50,000 at year-end or $75,000 at any point during the year
• Expats (residents outside the US): $200,000 at year-end or $300,000 at any point during the year
• Married filing jointly living abroad: $400,000 at year-end or $600,000 at any point

The higher thresholds for expats are specifically designed to recognise that individuals living abroad typically maintain larger foreign account balances as their primary accounts. Form 8938 covers a broader range of assets than FBAR — including interests in foreign entities and certain foreign contracts — but the two forms are not duplicative. An asset reported on Form 8938 must also be reported on the FBAR if it is a financial account.

Model 720: Spain's Foreign Asset Declaration

Spain has its own foreign asset declaration requirement: Modelo 720. This form must be filed by Spanish tax residents who hold foreign assets in three categories, each exceeding €50,000 in aggregate value:

1. Foreign bank accounts — accounts held at financial institutions outside Spain
2. Foreign securities, rights, insurance and annuities — shares, bonds, funds, pension plans, life insurance with surrender value held outside Spain
3. Foreign real estate — property located outside Spain

The deadline for Model 720 is March 31 of the year following the calendar year to which it relates. The declaration only needs to be refiled in subsequent years if the aggregate value in any category has increased by more than €20,000, or if any asset that was previously declared has been transferred or disposed of.

The ECJ Ruling and Current Penalties

In 2022, the European Court of Justice ruled in Commission v. Spain (Case C-788/19) that Spain's original Model 720 penalty regime — which imposed disproportionate penalties of up to 150% of the asset value, with no statute of limitations — was incompatible with EU law. Spain revised the penalty regime following the ruling.

Under the revised rules, the penalty for late or incorrect Model 720 filing is now aligned with Spain's general penalty framework: €20 per data record late (€200 minimum, €20,000 maximum) for formal violations, with the punitive 150% charge eliminated. This is a significant improvement but the obligation to file remains, and the revised penalties are not trivial.

Foreign Tax Credit vs. Foreign Earned Income Exclusion

US citizens living in Spain have two main mechanisms for reducing US tax on foreign income:

Foreign Tax Credit (Form 1116)

The foreign tax credit allows Spanish taxes paid to offset US tax liability on the same income, dollar-for-dollar (subject to limitations). For Spanish residents paying Spanish IRPF, this is generally the preferred approach. The credit is particularly effective for employment income and investment income — categories where Spain's rates are often higher than the US rates, generating excess credits that can be carried forward.

Foreign Earned Income Exclusion (Form 2555)

The Foreign Earned Income Exclusion (FEIE) allows qualifying US citizens abroad to exclude a set amount of foreign earned income from US taxation ($126,500 for 2024). The exclusion applies to earned income only — it does not cover investment income, rental income or other passive income. The primary disadvantage of the FEIE for Spanish residents is that it does not generate foreign tax credits — if you exclude income under the FEIE, you cannot also credit the Spanish tax on that income.

For most high-income US citizens in Spain, the foreign tax credit is superior to the FEIE. This is because Spanish rates are generally higher than US rates on the same income, generating credits that eliminate US tax liability entirely and create carryforward credits for future years. Choosing the FEIE instead would leave Spanish taxes unrelieved and US tax unoffset.

Social Security and the Totalization Agreement

The US-Spain social security totalization agreement (in force since 1988) prevents dual social security taxation for workers moving between the two countries. Under the agreement:

• Employees working in Spain for a Spanish employer pay only Spanish social security (Seguridad Social)
• Employees sent to Spain by a US employer (secondees) can remain in the US social security system for up to five years, paying only US Social Security and Medicare taxes
• Self-employed individuals generally pay social security in the country where they are working

The totalization agreement also allows combining US and Spanish contribution periods for the purpose of qualifying for benefits — useful for individuals who have worked in both countries.

Practical Compliance Calendar for US Citizens in Spain