Published: 21-04-2025
The double taxation treaty in Spain is a key instrument that ensures investors and tax residents do not pay taxes twice on the same income. Spain has signed over 90 treaties with countries around the world, strengthening its position as a secure and efficient destination for international investment.
What is double taxation?
Double taxation occurs when the same income is taxed by two different tax jurisdictions. For example, a French investor receiving dividends from a Spanish company may be subject to taxation in both Spain and France on the same income. This situation, besides being unfair, can discourage foreign investment if not properly managed.
Double Taxation Treaty in Spain: How DTTs Work
The double taxation treaties (DTTs) signed by Spain largely follow the OECD Model Tax Convention, although they may include specific clauses depending on the signatory country. In general terms, these agreements:
- Determine which country has the primary right to tax.
- Define the concept of tax residency.
- Establish mechanisms to eliminate double taxation (exemption or deduction).
- Provide for mutual agreement procedures between tax administrations.
Key Benefits for Foreign Investors
Thanks to Spain’s double taxation treaties, foreign investors can enjoy more favorable and predictable tax conditions.
- Avoid double taxation: Reduces the overall tax burden.
- Legal certainty: DTTs provide a clear framework for planning international investments and operations.
- Access to reduced rates: Lower withholding taxes on dividends, interest, and royalties.
- Easier claims: Through refund or tax credit procedures for taxes paid at source.
- Protection against tax discrimination: DTTs prohibit a country from treating a resident of the other contracting state less favorably.
Formal Requirements and Precautions
To benefit from a DTT, the taxpayer must prove their tax residency in the country that has signed the treaty with Spain. This is usually done by submitting a Tax Residency Certificate issued by the tax authority of the country of residence.
It is also essential to meet the formal requirements and deadlines established by the Spanish Tax Agency to directly apply the benefits of the treaty, such as reduced withholding rates. Proper application of the double taxation treaty in Spain can help avoid unnecessary tax payments.
Regulatory Developments and International Context
Although there have been no recent structural reforms in Spanish legislation regarding double taxation treaties, the regulatory framework is being shaped by a global trend toward greater tax transparency and stronger measures against tax evasion and treaty abuse.
Spain is actively participating in initiatives promoted by the OECD and within the framework of the BEPS (Base Erosion and Profit Shifting) Project, aimed at preventing the erosion of tax bases and the artificial shifting of profits to low- or no-tax jurisdictions.
In this context, Spain has adhered to and is progressively implementing the Multilateral Instrument (MLI), a tool that allows multiple bilateral treaties to be modified simultaneously to include anti-abuse provisions.
Through the MLI, key provisions have been introduced, such as:
- Principal Purpose Test (PPT): Limits treaty benefits if one of the main purposes of an arrangement was to obtain an improper tax advantage.
- Limitation on Benefits (LOB) clauses: Require the taxpayer to meet certain substantive conditions to access treaty benefits, preventing the use of purely artificial structures.
These changes represent a significant shift for international investors, who must carefully review the specific content of each treaty and its updates under the MLI, as eligibility conditions may vary by jurisdiction and type of income.
This increasingly complex environment underscores the importance of well-founded, legally compliant international tax planning that considers not only domestic legislation but also Spain’s international commitments. Many foreign investors benefit from Spain’s double taxation treaties in their tax structures.
How Can a Tax Advisor Help?
Correctly applying a DTT requires not only knowledge of the specific treaty but also of the domestic laws of both countries involved. Misinterpretation or procedural mistakes can lead to double taxation or the inability to recover undue withholdings.
A specialized tax advisor can help you:
- Accurately determine your tax residency.
- Analyze applicable treaties based on your profile and type of income.
- Optimize your international investment structure.
- Handle refund claims for undue withholdings.
- Prevent tax risks in both countries.
At Gentile Law, we have a team of experts in international taxation, tax planning for expats and foreign investors, and application of Spain’s double taxation treaties. We help you structure your investments in Spain in a secure, efficient, and compliant manner.