Fiscal Residency in Spain or in the USA?

How the timing of the trip would impact our tax liability, both here in the US and in Spain (nonlucrative VISA).

If you have a nonlucrative visa, it means that you might not have any income from Spanish source.

In Spain, like in the rest of the world, except the US, you must file a tax return if you are a fiscal resident. In the USA you must file a Tax return because of your nationality. The fiscal residency is established for the corresponding natural year and you can only be a fiscal resident of one country on that year. You establish your residency mainly if you live in the country for more than 183 days (Treaty USA Spain Tax Convention Feb 1990. Article 4).

According to the Treaty you must file and PAY taxes at your country of residency (Spain) and credit those taxes paid in your county of nationality (USA). In Spain, we have much higher tax rates than in the US. (NTK Tax rates).

VERY IMPORTANT: the non-profit visa is automatically extinguished if you are more than 183 days out of Spain, therefore, it is in direct conflict with the fiscal residence, that is, maintaining the residence with the non-profit visa requires you to be at least 183 days in Spain and therefore you are fiscal resident in Spain.

So, if you travel to Spain after July 3rd, that year you will be treated as non-fiscal resident of Spain, so you do NOT have to file the Spanish tax return; in this case, if you have any Spanish source income, please read Spanish Taxes for non-residents; if you come before July 3rd, that year you will be treated as Spanish fiscal resident, so you must file the regular Modelo 100 IRPF tax return for residents in Spain.

As fiscal residents in Spain, you will be taxed on your worldwide income.

The Foreign Tax Credit (Form 1116 FTC) in the US gives a $1 tax credit for every dollar of tax paid in Spain. Since you will be paying foreign taxes (Spain) at a higher rate than the U.S., you will have excess credits left over that can be carried forward for use in the 10 subsequent years.

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