What is digitalisation in accounting?

You earn dividends from German shares and live in Spain. You work for an American company from Barcelona. You have a rented flat in France and you’re a tax resident in Spain.

In all these cases you face the same problem: two countries consider they have the right to tax the same income. And if you don’t know how the system works, you end up paying twice.

International double taxation isn’t a tax quirk reserved for large fortunes. It affects anyone with income that crosses borders: expatriates, investors, freelancers working for foreign clients, owners of property outside Spain, and pensioners with pensions from another country. And in all of these cases there are mechanisms to avoid or reduce it, but they don’t work automatically.

This article explains what international double taxation is, how the treaties that prevent it work, what methods exist to eliminate it, and how it applies in practice in the most common cases.

What is international double taxation and why does it happen?

Double taxation is the tax situation in which two different countries tax the same income in the same tax period.

It isn’t a flaw in the system, it’s the natural consequence of each country applying its own tax rules under its own sovereignty.

The conflict arises because countries tax income from two different perspectives that can overlap. The source country, where the income is generated, considers it has the right to tax it because it was produced within its territory. The country of residence, where the taxpayer lives, considers it has the right to tax the worldwide income of its residents. When both apply their rules at the same time to the same income, double taxation occurs.

The solution is Double Taxation Treaties (DTTs): bilateral agreements between two countries that allocate the right to tax each type of income and set out mechanisms so the taxpayer doesn’t pay twice. Spain has more than 99 treaties in force, covering the vast majority of situations affecting its residents.

How Double Taxation Treaties work

A DTT doesn’t eliminate taxes, it allocates them. It establishes which country has the right to tax each type of income (employment income, dividends, interest, royalties, pensions, real estate, capital gains) and in what proportion. In some cases the taxing right is exclusive to one country; in others it’s shared, with maximum limits for the source country.

Spanish DTTs mostly follow the OECD Model Convention, which gives them a consistent and predictable structure. But each treaty has its own particularities: maximum withholding rates can vary, some types of income receive different treatment depending on the treaty, and there are specific clauses negotiated bilaterally that don’t appear in the general model. Applying the wrong treaty, or applying it incorrectly, can have significant tax consequences.

The two methods for eliminating double taxation

DTTs mainly establish two mechanisms so the country of residence avoids taxing what has already been taxed in the source country:

Exemption method

The country of residence exempts from taxation income that has already been taxed in the source country. It can be fully exempt (full exemption) or taken into account only to calculate the rate applicable to the rest of the income (exemption with progression). In Spanish practice, exemption with progression is the most common for employment income earned abroad.

Credit method (imputation)

The country of residence includes the foreign income in the tax base but allows the tax paid abroad to be deducted from the tax due, up to the limit of what would correspond to pay in the country of residence. This is the method Spain applies to dividends, interest and most capital income of foreign source, under Article 80 of the Personal Income Tax Law.

What happens when there’s no treaty

When Spain doesn’t have a DTT with the source country, there are some countries without a treaty: some in Central America, parts of Africa and certain small jurisdictions, double taxation doesn’t disappear, but Article 80 of the Personal Income Tax Law establishes a domestic relief mechanism.

A taxpayer resident in Spain can deduct from their total tax liability the lower of these two amounts: the tax actually paid abroad, or the result of applying Spain’s effective average tax rate to the portion of the tax base corresponding to that foreign income. In practice, this means Spain limits the deduction to what it would have charged itself on that income, regardless of what the other country charged.

⚠️ Without a treaty, if the foreign country charges more than Spain, the excess isn’t deductible or recoverable in Spain. Only the amount equivalent to Spanish taxation can be deducted from the tax due.

How each type of income is taxed: a practical guide

The problem of dual tax residency: when you’re a resident of two countries at once

The most complex situation isn’t having income in two countries, it’s having two countries consider you simultaneously a tax resident. This happens more often than people think: someone who spends several months a year in Spain and has economic or family ties in their home country can find that both countries apply their domestic law and treat them as a resident.

DTTs resolve this conflict through the so-called tie-breaker rules, the tie-break rules in Article 4 of the OECD Model, which apply in hierarchical order until the conflict is resolved:

→ Permanent home: the taxpayer is resident in the country where they have a permanent home available. If they have one in both, move to the next criterion.

→ Centre of vital interests: the country with which personal and economic relations are closer, family, work, assets, social life.

→ Habitual abode: the country where the person habitually lives, with a qualitative analysis beyond simply counting days.

→ Nationality: if it’s still unresolved, the taxpayer’s country of nationality.

→ Mutual agreement procedure (MAP): if the conflict persists, the competent authorities of both countries resolve it bilaterally.

What matters is that applying these rules isn’t automatic or always obvious. Two tax advisors from two different countries can reach different conclusions about which is the country of residence.

And the Spanish tax agency (AEAT) isn’t obliged to simply accept the classification made by the foreign tax authority.

Four real situations and how they’re resolved

Expatriate with a contract in Germany who returns to Spain

He worked in Germany for three years, returns to Spain in 2025, and that year had income from both sources. The employment income generated in Germany while he was resident there is taxed in Germany. The income generated in Spain since his return is taxed in Spain. The tax return for the year of return, the year residency breaks, requires a specific analysis of the residency period in each country and the application of the Spain-Germany DTT for income from the German period that might still be arriving.

Resident in Spain with dividends from a French company

France withholds 30% on dividends. The Spain-France DTT caps that withholding at 15%. Spain declares the gross dividend on the personal income tax return and deducts the 15% (the DTT limit). The remaining 15% withheld by France in excess of the DTT isn’t recovered in Spain, it has to be claimed directly from the French tax authority (DGFIP). If the taxpayer doesn’t claim that excess, they’ve effectively paid the 30% French rate plus the Spanish differential, which can result in combined taxation of over 40%.

Non-resident with a rented property in Spain

A German citizen, tax resident in Germany, has a flat rented out in Barcelona. Spain taxes that income under the non-resident income tax (IRNR), a 19% rate for EU residents, because the property is located in Spain. Germany also declares it because he’s resident there and is taxed on worldwide income. The Spain-Germany DTT grants the preferential taxing right to Spain. Germany applies the exemption-with-progression method: it includes the Spanish income in the tax base to calculate the rate, but exempts it from direct taxation in Germany. The result: the German citizen pays 19% in Spain and pays nothing further in Germany on that income.

Spanish freelancer who invoices clients in the US

If the freelancer is resident in Spain and provides remote services to American clients, as a general rule the income from those services is taxed only in Spain, the country of residence. The US could only tax that income if the freelancer had a fixed base or permanent establishment on American territory, which normally doesn’t happen when working from Spain. Any withholding the American client eventually applies to the payments can be recovered through the Spain-US DTT or the mechanism under Article 80 of the Personal Income Tax Law.

How to properly document your international situation

The right to apply a DTT isn’t automatic, it has to be proven. The basic tool is the certificate of tax residency issued for the purposes of the relevant treaty, which in Spain is issued by the AEAT upon request through its online office. This certificate confirms that the taxpayer is a tax resident in Spain for the purposes of the DTT with a specific country and is valid for 12 months.

To claim reduced withholding rates at source, for example, the 15% under the DTT instead of the 30% US domestic rate on dividends, that certificate must be submitted to the foreign payer or to the source country’s tax authority before the withholding is applied, or attached to the refund request for the excess.

💡 The Spanish Supreme Court has established (STS 2735/2023) that the Spanish tax administration cannot unilaterally reject a valid certificate of tax residency issued by another State. This principle protects the taxpayer in situations of dual residency where Spain tries to override the other country’s classification.

Frequently asked questions about double taxation

What is double taxation, in a nutshell?

It’s when two different countries impose taxes on the same income for the same period: the country where that income is generated and the country where the person receiving it resides. It’s resolved by applying a Double Taxation Treaty (DTT) or, if no treaty exists, the mechanism under Article 80 of the Personal Income Tax Law.

How is double taxation avoided or reduced?

Through the applicable DTT between the two countries, which allocates the right to tax each type of income and sets out one of two methods: exemption (the country of residence doesn’t tax again what’s already been taxed abroad) or the credit method (the country of residence taxes the income but deducts the tax already paid abroad).

What happens if there’s no double taxation treaty with that country?

Double taxation doesn’t disappear, but Article 80 of the Personal Income Tax Law allows the lower of two amounts to be deducted from the tax due: the tax paid abroad, or the equivalent of what that income would have been taxed in Spain. Any excess paid abroad isn’t recoverable in Spain.

How is tax residency proven in order to apply a DTT?

With the certificate of tax residency for the purposes of the relevant treaty, which in Spain is issued by the AEAT and is valid for 12 months. It must be submitted to the foreign payer or to the source country’s tax authority before withholding is applied, or attached to the refund request.