If you are resident in Spain and you have paid tax abroad on income obtained abroad, you can apply the tax credit for international double taxation in your personal income tax return. The deduction will be the lower of the tax actually paid abroad and the Spanish tax liability attributable to that income, calculated by applying the average rate (general or savings base, as applicable) to the taxable income under Spanish law.
What is the international double taxation deduction?
Most countries sign a contract or agreement with each other to avoid paying tax twice for the same item in the country where the taxpayer resides.
Spain has signed many agreements with other countries. Here is a list of the countries with which Spain has signed an agreement.
These agreements establish that if a resident in Spain receives income generated abroad (salaries, dividends, rents…), he/she must generally include it in his/her personal income tax. And if in the country of origin he/she paid taxes on this income, he/she will be able to apply a deduction for double taxation.
General rule: the lesser of two quantities is deducted
- Tax paid abroad
- Spanish tax payable on this income (average rate x foreign taxable income):
The tax payable in Spain on the same income, resulting from applying the average personal income tax rate to the net taxable income taxable abroad.
For these purposes, the average rate applicable to the type of foreign income(general or savings income) must be applied. This average rate is the percentage resulting from dividing the net tax liability by the taxable base, expressed to two decimal places.
Key step: calculating the foreign tax base according to Spanish rules
Net taxable income
In order to quantify the IRPF tax liability, the taxable base corresponding to the foreign income calculated in accordance with Spanish law must be taken as the starting point. But be careful…
In other words, the basis for calculating this deduction is neither the gross income nor the foreign taxable income, but the net taxable income corresponding to the income obtained outside Spain.
Frequent case: income from employment abroad
Accordingly, for example, in the case of income from employment abroad:
- First of all, the net income from work must be calculated for these salaries (after deduction of deductible expenses).
Thus, the fixed expense of 2,000 euros under ‘Other expenses’ must be deducted. If there are also salaries obtained in Spain, they must be deducted according to the proportion that the foreign earned income represents in relation to the total earned income.
- If there are reductions that are applied to the general base (for example, for contributions to pension plans), the same should be done, but in this case according to the proportion that the foreign income represents with respect to the total income of the general base.
Deduct the lower amount between the tax actually paid and the tax payable in Spain on the income obtained. Calculate this tax by applying the average rate of your personal income tax on the taxable base corresponding to the foreign income.
Complete example with figures
Annual data.
During the year, a worker has received 10,000 euros in salaries abroad, for which he has paid a tax of 2,500 euros. Likewise, in Spain he has received 30,000 euros in wages (net of Social Security) and 6,000 euros for the rent of premises. If you have contributed 3,000 euros to the company pension plan:
Calculation of the average rate
| Concept | Amount |
Total income from work | 38.000 (1) |
| Total income from renting premises | 6.000 |
| General base | 44.000 |
| Company pension plan | -3.000 |
| Liquidable base | 41.000 |
| Net personal income tax fee | 9.817 |
| Medium type | 23,94% (2) |
40,000 euros – 2,000 euros ‘Other expenses’.
9,817 euros / 41,000 euros.
Calculation of the international deduction
| Concept | Importe |
| Foreign labour income | 10.000 |
| Other expenses (proportional) | -500 (1) |
| Pension plan (proportional) | -648 (2) |
| Foreign liquidable base | 8.852 |
| Foreign income share (23.94%) | 2.119 |
| Foreign satisfied tax | 2.500 |
| Deduction of double international tax | 2.119 (3) |
2.000 x 10.000 / 40.000.
3.000 x (10.000 – 500) / 44.000.
Minor between 2,119 and 2,500.
Deduction calculator in Spain to avoid paying twice taxes
Calculator: foreign tax credit (double taxation relief) — Spanish Personal Income Tax (IRPF)
This tool calculates the credit as the lower of (1) the foreign tax actually paid and (2) the Spanish tax attributable to those foreign-source amounts, computed by applying the average effective tax rate (general base or savings base, as applicable) to the tax base (base liquidable) attributable to the foreign income.
Optional: compute the foreign tax base for employment income (work-income prorations from the article)
This section mirrors the method described in the article: it prorates the fixed “Other expenses” deduction (default 2,000 €) based on foreign wages / total wages, and prorates general-base reductions (e.g., pension contributions) based on foreign net employment income / general base.
Final summary of the method (in 4 lines)
- Include foreign income in your personal income tax and calculate the taxable base according to Spanish regulations (do not use the gross income or the foreign taxable base).
- Determine the average rate corresponding to the type of income (general or savings): net tax liability / taxableincome, expressed to two decimal places.
- Calculate the Spanish tax liability attributable to this income: apply this average rate to the taxable basecorresponding to the foreign income.
- The deduction for international double taxation will be the lower of the tax effectively paid abroad and the Spanish tax attributable calculated in the previous step.
