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Table of contents:
Spanish businesses and investments
Opening a local business in Spain as a U.S. citizen
Of course, before opening a local business in Spain, you must have the right to live and work in Spain. You will also need to obtain a work permit. Moreover, you must decide on your business structure and register your business with the Spanish tax authorities.
Types of local business structures in Spain and the U.S. filing requirement
Sole Trader (Empresa Individual)
As a Sole Trader, you are self-employed. You must report your self-employment to the IRS via form Schedule C (included in our PREMIUM package).
SA, SLNE, SRL/SL, SLA, SLL, and SC
In Spain, there are six types of limited companies you can choose including Sociedad Anonima (S.A.), Sociedad Limitada Nueva Empresa (SLNE), Sociedad Limitada (SRL / SL), Sociedad Laboral Anónima (SLA), Sociedad Laboral Limitada (SLL), and Sociedad Cooperativa (S.C.). The main differences between these limited companies are the minimum number of shareholders required and the minimum investment amounts. These limited companies are reported to the IRS via Form 5471.
Sociedad civil/Partnership
Expats planning to go into business with one or more people may decide to register their business as a partnership. You must report the block to the IRS via Form 8865.
Pequeñas Y Medianas Empresas (PYME)
Small and medium-sized businesses (corporations) are reported to the IRS via Form 5471.
Social Security and pensions
The Spanish Social Security system is similar to many other European countries and is structured into three pillars:
Pillar I - State pension: The Spanish state pension is compulsory for all residents working in Spain, and contributions are deducted from your wages. The amount you receive as a pension depends on your earnings history and the number of years you have contributed to the system. It has strict regulations on who can claim and when (Social Insurance and survivor's annuities).
Pillar II - Company and employee pensions: Company-sponsored pensions and contributions to these pensions are typically made by both the employer and the employee. The availability and conditions of these pensions can vary depending on the employer.
Pillar III - Private pensions: Private pensions are voluntary and provide individuals with an option to save additional funds for retirement. These pensions offer more flexibility in terms of contributions and withdrawals compared to the Spanish state pension. For example, some private pensions allow you to withdraw your savings before reaching the Spanish pension age.
Note: the U.S.-Spain Tax Treaty helps prevent double taxation of Social Security benefits. Under the treaty, if you are a resident of Spain and you are receiving Social Security benefits, those benefits are generally only taxable in Spain. This means that you won't typically pay U.S. federal income tax on your Social Security income if you are a resident of Spain. However, some U.S. states may choose to tax these benefits. The rules vary by state, so it is essential to check your specific state's tax laws. Our Tax projection service can help you with that.
Spanish income reporting
The terms below are based on the Impuesto Sobre la Renta de las Personas Físicas forms Modelo 100 & Modelo D-100.
Retribuciones dinerarias - Gross salary
To report the total amount of the annual gross salary in the Tax Questionnaire:
Click the Configure Life & Income button on the left side.
Click Yes next to I receive payments from an employer.
Click Next Step and Submit.
On Income > Wages click Yes to the question Did you receive payments during the tax year from a non-U.S. Employer?
Enter the gross salary amount to the question Gross wages/salary earned with this employer during the tax year? Use the income calculator to convert to a calendar year.
Contribuciones empresariales a planes de pensiones - Employer contributions to pension plans
Contributions paid by or on behalf of the individual to the pension scheme cannot be excluded when calculating the U.S. taxable income. Employer contributions are added to gross annual wages to determine taxable earned income. Please report these contributions under the same question Gross wages/salary earned with this employer during the tax year?
Por alquiler de la vivienda habitual - Rental of the primary residence
If you rent your primary residence, you likely qualify for the exclusion of housing costs. To report your housing arrangements, navigate to Personal Details > Where I Live > Housing Arrangements, and select Rent under the question Did you rent or own your primary foreign (i.e. non-U.S.) residence during the tax year?
Por obras de mejora en vivienda - Home improvements expenses
If you own rental property, please include the total amount for ALL home improvements made since purchasing the home. To report it:
Navigate to Income > Passive Income and select Yes under the statement I rent out property.
Click on the Rental Income tab on top and scroll down to the Rental Expenses section.
Fill in the Repairs table.
Renta inmobiliaria imputada - Rental income
To report your rental income in the Tax Questionnaire:
Navigate to Income > Passive Income and select Yes under the statement I rent out property.
Click on the Rental Income tab on top and scroll down to the Rental Income section.
Provide total amounts (pre-expenses) under the question Amount of gross rent received during the tax year.
Empresarios individuales - Income from self-employment
A sole proprietorship is a business run by a single person with no legal personality. To report details of the sole proprietorship, navigate to Income > Self-employment tab and enter the amount under the question Gross Income from the Self-employment.
Intereses de cuentas, depósitos y activos financieros - Income from interest on bank accounts, deposits and financial assets
To report any interest income in the Tax Questionnaire:
Navigate to Income > Passive Income and select Yes under the statement I earn interest.
Click on the Interest tab at the top and click Yes under the question Did you receive non-U.S. interest income?
Fill in the table.
Dividendos y demás rendimientos - Dividend income
To report your dividend income in the Tax Questionnaire:
Navigate to Income > Passive Income and select Yes under the statement I earn dividends.
Click on the Dividends tab at the top and click Yes under the question Did you receive non-U.S. dividends?
Fill in the table.
Sistemas de previsión social - Contributions to Social Security system
Contributions to Spain's Social Security system withheld from your paycheck or made on self-employment income are not deductible from the U.S. taxable income. They do not qualify for the foreign-earned income credit. If you contributed to Spain's Social Security System, navigate to Taxes And Deductions > Taxes Paid, and click Yes to the question Did you pay any tax to any non-U.S. country on any of your income this year?
Ganancias y pérdidas patrimoniales - Capital gains and losses
For example, if you sold a house/apartment, report capital gains and losses in the Tax Questionnaire:
Click the Configure Life & Income button on the left side.
Click Next Step and click Yes next to I sold a home.
Click Submit.
Navigate to Income > Home Sale and provide answers to all questions related to the home sale.
To report foreign tax paid on capital gains from the property sale, navigate to Taxes And Deductions > Taxes Paid, click Yes under the question Did you pay any tax to a non-U.S. country on the sale of any capital assets (stock, mutual funds, cryptocurrency, real property, etc.)?, fill in the table and select Property Sale as a tax type.
Retenciones y demás pagos a cuenta: Por rendimientos del trabajo - Income tax on gross wages
The amount of foreign income tax on gross wages paid or withheld can be utilized as a foreign tax credit to offset U.S. tax liability. To report tax imposed, navigate to Taxes And Deductions > Taxes Paid.
Retenciones y demás pagos a cuenta: Por rendimientos de actividades económicas - Income tax on self-employment income
The amount of foreign income tax on self-employment income paid can be utilized as a foreign tax credit to offset U.S. tax liability. To report tax imposed, navigate to Taxes And Deductions > Taxes Paid.
Devoluciones solicitadas por la Agencia Tributaria - Tax refund for tax overpaid
To report your tax refund for tax overpaid in the Tax Questionnaire:
Navigate to Income > Wages. (If you do not see the Wages tab, refer to these instructions).
Scroll down to the question Did you receive a foreign (i.e. non-U.S.) tax refund?
Click Yes and provide the amount.
Spanish financial accounts reporting
Individual bank accounts include savings accounts, checking accounts, and time deposits.
Retirement accounts - balance on Pillar 2 and Pillar 3 accounts.
Brokerage accounts, commodity futures, or options accounts.
Insurance policies and annuity contracts with a cash value (i.e., such as a whole life insurance policy).
Business accounts where a U.S. person has a greater than 50 percent interest in the entity.
Suppose you have bank accounts at Banco Cooperativo Espanol (BCE), Banco Echeverria, Bancaja, Banca Civica S.A., Bankia, Banco Financiero y de Ahorros (BFA), Banco de Valencia (BVA), or at another bank in Spain or any other foreign country. In that case, you may meet the filing requirement to disclose your foreign accounts on the FBAR.
Social Insurance.
Real Estate Holding.
Precious metals held directly.
Collectibles.
Financial Account held at a U.S. branch of a foreign financial institution.