🌎 Worldwide Income & Double Taxation in Spain
If you are a tax resident in Spain, you are legally required to report all your worldwide income to the Spanish Tax Agency (AEAT), no matter where it was earned.
The central problem is Double Taxation: the same income being taxed both in the country where you earned it (Source Country) and in Spain (Residence Country).
Spain uses international agreements and domestic laws to ensure you only pay tax on that income once.
Step 1: Check for a Double Taxation Agreement (DTA)
The first step is always to check if Spain has a Double Taxation Agreement (DTA) with the country where your income was generated.
✅ Scenario A: Spain HAS a DTA with the Source Country
The DTA specifies exactly which country has the right to tax your income, leading to two possibilities:
| DTA Outcome | Who Taxes the Income? | How Spain Prevents Double Taxation |
| DTA grants exclusive right to Spain. (e.g., specific pensions) | Only Spain taxes the income. | Action: If you were taxed in the source country, you must request a refund from that country’s tax authority. |
| DTA allows the Source Country to tax. (e.g., employment, dividends) | Both countries can tax the income. | Spain applies the Tax Credit Method or the Exemption Method (see below). |
❌ Scenario B: Spain has NO DTA with the Source Country
- Spain applies the Tax Credit Method (Imputation) as the default method to avoid double taxation.
Step 2: How Spain Gives You Credit (The Two Methods)
If both countries can tax the income, Spain uses one of two methods when calculating your IRPF:
1. The Tax Credit Method (Imputation)
This is the most common method for investment income (like dividends) or when no DTA exists.
- You pay tax on the full income in Spain.
- Spain then gives you a deduction (credit) for the tax you already paid abroad.
- The limit: The credit is capped at the lower of two amounts:
- The tax you actually paid abroad.
- The amount of Spanish tax that would have been due on that same income.
2. The Exemption Method (with Progressivity)
This is common for employment income under certain DTAs (like the Spain-France example).
- Spain formally exempts the foreign income from direct taxation.
- The Progressivity Clause: Although the income is exempt, Spain includes it temporarily just to calculate your Average Tax Rate (TMG).
- Result: You pay the calculated higher tax rate only on your Spanish-source income, ensuring you pay a fair progressive rate based on your total worldwide earning power, without double-taxing the foreign income itself.
Tax Treatment of Foreign Income: Work & Investment
When dealing with worldwide income as a Spanish tax resident, the tax treatment of foreign income usually boils down to two categories: Work Income (like a foreign salary) and Investment Income (like dividends or interest).
Here is the simplified breakdown of how Spain applies the double taxation methods to these two most common and complex income sources.
1. Foreign Employment/Work Income (Salaries, Bonuses) 💼
Foreign salary is the most common income type to use the Exemption Method with Progressivity. This method is frequently stipulated in Spanish Double Taxation Agreements (DTAs) for employment income.
| Step | Action Required for Taxpayer | Simplified Effect |
| 1. Calculate Total Income | You must include the full amount of your foreign salary in your total worldwide income figure. | This total determines your true economic capacity. |
| 2. Calculate Average Rate | The Spanish Tax Agency calculates the Average Tax Rate (TMG) based on this total worldwide income. | Having the foreign income included makes your average tax rate higher. |
| 3. Apply Exemption | You subtract (exempt) the foreign salary from your taxable base before calculating the final tax. | You are not taxed on the foreign income itself, but the rate applied to your Spanish-source income is higher (The Progressivity Effect). |
| 4. Final Tax | You pay the higher rate (Step 2) applied only to your Spanish-source income. | Result: You are only taxed on the foreign salary in the source country, but Spain ensures your overall tax burden reflects your worldwide earnings. |
Before starting, the first step is always to check the DTA. This visual flow simplifies the decision process:
2. Foreign Investment Income (Dividends, Interest) 📈
Investment income is the most common income type to use the Tax Credit (Imputation) Method. This is also the default method if there is no DTA.
| Step | Action Required for Taxpayer | Simplified Effect |
| 1. Calculate Taxable Income | You must include the full amount of your foreign dividends or interest in your Spanish tax return. | You are initially taxed on your worldwide income. |
| 2. Calculate Spanish Tax Due | The Spanish Tax Agency calculates the total Spanish tax on your full investment income (typically at a flat “savings rate”). | This is the tax Spain wants to collect. |
| 3. Apply Tax Credit | You apply for a deduction (credit) for the tax that was already withheld by the foreign country. | This prevents you from paying tax twice. |
| 4. Check the Limit | The credit is limited to the lower of these two amounts: A) The foreign tax actually paid, OR B) The amount of Spanish tax due on that specific income. | Spain will only credit up to the amount you would have paid in Spain anyway. If the foreign tax was higher, you may need to ask the foreign country for a refund (if the DTA set a maximum rate). |
| 5. Final Tax | The final Spanish tax payable is the total tax due (Step 2) minus the allowed credit (Step 4). | Result: Spain ensures you pay at least the Spanish tax rate, topping up any difference from the foreign tax paid. |
Key Takeaway: For Salaries (Exemption), the foreign income is excluded from the tax base. For Investments (Credit), the foreign income is included, and the foreign tax paid is subtracted.
Action Item: Proving Your Status and Payments
- Proof of Spanish Residency: You will need a Tax Residence Certificate from the AEAT to prove your status to the foreign tax authority (if requesting a refund abroad).
- Proof of Foreign Tax: When claiming the Tax Credit, you must be able to prove the amount of tax actually paid abroad (e.g., with a withholding certificate or foreign tax return/payment confirmation).
Case Scenarios
Situation Example: Exemption Method
Ms. Y is a tax resident in Spain and works for a few months in France, where she earns employment income that is taxed at source. According to the Double Taxation Treaty (DTT) between Spain and France, salaries derived from employment performed in France may be taxed in France. Therefore, Spain, as the state of residence, must exempt this income to avoid double taxation — but applying the exemption with progressivity method.
Data:
| Concept | Amount (€) |
|---|---|
| Salary earned in France (gross) | 30,000 |
| Tax paid in France (withholding) | 6,000 |
| Other income obtained in Spain | 40,000 |
Spain’s domestic law would consider the 30,000 as taxable income if there were no DTT. However, since the DTT provides for taxation in France, that income will be exempt, but taken into account to calculate the average tax rate (TMG).
Solution: Method of Exemption with Progressivity
Step 1: Determine total income for TMG purposes
- Total income = 40,000 (Spain) + 30,000 (France) = 70,000 €
Step 2: Compute the average tax rate (TMG) on the total income
- Let’s assume the total tax on 70,000 € (according to Spanish progressive rates) equals 21,000 €.
- Average rate (TMG) = 21,000 / 70,000 = 30%
Step 3: Apply that TMG only to the Spanish-source income (non-exempt)
- Taxable income in Spain (after exemption) = 40,000 €
- Tax due in Spain = 40,000 × 30% = 12,000 €
Explanation
- Spain exempts the French income to avoid double taxation, since France already taxed it.
- However, the exempt income affects the tax rate used in Spain — the taxpayer pays a higher rate on their Spanish income due to the inclusion of the French earnings in the TMG calculation.
- This ensures fairness and progressivity in taxation without double taxing the same income.
Situation Example: Imputation or Credit Method
Mr. Z is a tax resident in Spain. He owns shares in a company resident in Germany, from which he received dividends during the year.
According to the Double Taxation Treaty (DTT) between Spain and Germany, dividends may be taxed in both countries, but the tax in the source country (Germany) is limited to 15% of the gross amount of the dividends.
Spain, as the state of residence, will tax the dividends as part of Mr. Z’s worldwide income but will grant a tax credit for the German tax paid, limited to the portion of the Spanish tax attributable to the same income (ordinary credit).
Data:
| Concept | Amount (€) |
|---|---|
| Gross dividends received from Germany | 10,000 |
| German withholding tax (15%) | 1,500 |
| Other taxable income in Spain | 30,000 |
| Spanish total tax rate applicable | 25% |
Solution: Ordinary Credit Method
Step 1: Determine total taxable income in Spain
All income is included:
- 30,000 (Spain) + 10,000 (Germany) = 40,000 €
Step 2: Compute total Spanish tax on total income
- 40,000 × 25% = 10,000 €
Step 3: Determine the Spanish tax attributable to foreign income (limit of the credit)
- Foreign income: 10,000 €
- Tax corresponding to that portion: 10,000 × 25% = 2,500 €
Step 4: Calculate the allowable foreign tax credit
- Tax paid abroad (Germany): 1,500 €
- Credit limit in Spain: 2,500 €
- → The deductible credit will be the lower of the two amounts.
✅ Credit applied in Spain = 1,500 €
Step 5: Compute Spanish tax payable after credit
- Total Spanish tax: 10,000 €
- Minus foreign tax credit: 1,500 €
- → Final tax due in Spain = 8,500 €
Explanation
- Mr. Z is taxed in both countries, but Spain grants a credit for the tax already paid in Germany.
- Only the ordinary credit (not full imputation) is applied — meaning the credit cannot exceed the portion of Spanish tax attributable to that income.
- This prevents double taxation while maintaining Spain’s right to tax worldwide income.
Both Cases in the Same Year
For a single taxpayer, the exemption with progressivity and the deduction (credit) method for international double taxation may both apply within the same fiscal year—either for income from different countries or for different types of income originating from the same country.
In such cases, the average tax rate (TMG) used to determine the deduction limit must be calculated by including the exempt income.
Tax Guide 2026
If you need an overall view of tax obligations, click on Taxes in Spain Guide 2026.
LEGAL FRAMEWORK
Ley 35/2006, de 28 de noviembre, del Impuesto sobre la Renta de las Personas Físicas (IRPF, Income Tax)
Article 80. Deduction for international double taxation.
1. When the taxpayer’s income includes income or capital gains obtained and taxed abroad, the lower of the following amounts shall be deducted:
a) The effective amount of the amount paid abroad by reason of a tax of an identical or analogous nature to this tax or to the Non-Resident Income Tax on such income or capital gains.
b) The result of applying the average effective tax rate to the part of the taxable base taxed abroad.
2. For these purposes, the average effective tax rate shall be the result of multiplying by 100 the quotient obtained by dividing the total net tax liability by the taxable base. To this end, the tax rate corresponding to general income and savings income must be differentiated, as appropriate. The tax rate will be expressed to two decimal places.
3. When income is obtained abroad through a permanent establishment, the deduction for international double taxation provided for in this article shall be applied, and in no case shall the provisions of article 22 of the Corporate Income Tax Law apply.
