When it comes to owning property abroad, the issue of taxes can be confusing and complicated.
However, international double taxation agreements signed by Spain and other countries offer a solution to this dilemma by preventing taxes from being paid on the same income in two different countries at the same time.

In this article we will look at what these treaties are, how they work and who they apply to.


What are double taxation agreements?

Double taxation agreements are international treaties signed between two countries with the purpose of preventing the same income or gain from being taxed in both countries.

These agreements are designed to boost foreign investment and facilitate trade by providing clear rules on how income and profits are taxed abroad.

For example, if you own property abroad and receive income from renting or selling it, you may have to declare and pay tax on that income in both the country where the property is located and the country of residence.

However, you may be able to avoid this double payment of tax, known as ‘double taxation‘, by entering into a double taxation agreement.


How do double taxation agreements work?

Double taxation agreements specify how foreign income and gains are taxed.

These treaties usually contain provisions that determine in which country tax should be paid on a particular income or gain, as well as provisions to avoid double taxation.

For example, if you are resident in Spain and own a property in another country that generates income from rental or sale, you will usually have to pay tax on that income in the country where the property is located.

However, thanks to a double taxation agreement between Spain and that country, you may be able to obtain a tax credit for the taxes paid abroad, thus avoiding double taxation.

Two methods can be used to avoid paying twice, at least in general.
– Exemption method: once the State has defined what type of income should be taxed and what should not, it can waive taxation if a gain has been obtained abroad and has been taxed in this country.
– Imputation method: refers to the taxation of this income in the country of residence of the beneficiary

After having paid double tax, both in the country where the property is located and in the country of residence, it is possible to deduct the fee paid abroad.

If you want to know more about the countries that have signed this agreement with Spain, you can access the following link from the Tax Agency.


Who does the agreement apply to?

Double taxation treaties apply to people and companies who receive income or profits abroad. This includes individuals who own property abroad and companies that do business internationally.

For example, if you are an expat resident in Spain and own property in your home country that generates rental or sale income, you are likely to be subject to the provisions of a double taxation agreement between Spain and your home country.

Double taxation agreements are created to prevent tax evasion and fraud.
The management of information exchanged between the countries that have signed these treaties has made it possible to increase the transparency of personal assets.

In addition, each treaty aims to achieve security in international transactions, both in the generation of income or ease of sale, and in the acquisition of a property in the form of a lease or by direct purchase.

Conclusions

International double taxation agreements are important tools for facilitating international trade and encouraging foreign investment.
By providing clear rules on how foreign income and gains are taxed, these treaties help to avoid double taxation and provide legal certainty for taxpayers.

For more information about international double taxation agreements and how they may affect your taxes, we invite you to consult a tax advisor or visit the Spanish Tax Agency website.


More information for investors in real estate and property in Madrid

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