The United States and Spain first signed their income tax treaty on February 22, 1990. Its main objective is to avoid double taxation and prevent fiscal evasion for individuals and companies operating between both countries. The treaty outlines who qualifies for benefits, which taxes are covered, and how different types of income—such as business profits, capital gains, dividends, interest, royalties, and employment income—should be taxed. It includes special provisions for groups like government employees, students, artists, diplomats, and athletes. Since the U.S. does not impose taxes on capital, these are excluded. A mutual agreement procedure allows both countries to resolve disputes that may arise.

A key focus of the treaty is transparency and combating abuse. An information-exchange mechanism strengthens enforcement, while anti–treaty-shopping rules help ensure benefits are provided only to genuine residents of either country. A “saving clause” preserves each country’s right to tax its own citizens and residents as if the treaty did not exist.

The 2013 Protocol—signed January 14, 2013—modernizes and significantly amends the treaty. One major change increases the threshold for creating a permanent establishment in construction projects from 6 to 12 months. Cross-border payments are notably impacted: withholding tax on dividends between associated companies is reduced to 5% and eliminated entirely where a parent owns 80% or more of the subsidiary for at least 12 months. Withholding taxes on interest and many types of royalties are fully removed, particularly benefiting technology companies and financial institutions.

The protocol also eliminates source-country taxation of most share sales, except for real-estate holding companies, and introduces mandatory arbitration for unresolved double taxation cases. Additional updates enhance information exchange, limit treaty abuse, and establish clearer rules for entities such as U.S. REITs and Spanish SOCIMIs.

Overall, the revised framework aims to reduce tax barriers, foster investment, and provide clearer, more predictable tax treatment between Spain and the United States.

If you need help understanding this Treaty or have additional questions, you can contact us at US Tax Consultants. You may call us, book a free consultation through our online scheduling system, or write to us by email—we will be happy to assist you.

Antonio Rodriguez – US Tax Consultants – Tel. +34 915194392