Double taxation relief is the mechanism by which Spain eliminates or mitigates duplicated taxation when income has already been taxed abroad. For individuals, Article 80 LIRPF allows a deduction from the IRPF tax liability equal to the lower of the foreign tax paid and the Spanish tax on the same income. For companies, Articles 31 and 32 LIS provide relief for juridical and economic international double taxation, limited to the Spanish tax proportionately attributable to the foreign income included in the taxable base.
In practice
What Is Double Taxation Relief in Spain
International double taxation arises when two countries tax the same income on the same taxpayer: the source country (where the income is generated) and the residence country (where the taxpayer is taxed on worldwide income). To correct this, Spain applies the ordinary credit method, which allows a deduction of the foreign tax from the Spanish tax liability up to the amount of Spanish tax that would have applied to those same revenues.
Relief for Individuals (Art. 80 LIRPF)
Article 80 of Law 35/2006 (LIRPF) allows the IRPF taxpayer to deduct from their Spanish tax liability the lower of the following amounts:
- The tax actually paid abroad on that income
- The Spanish tax that would have been due on that same income had it been earned in Spain
Any excess foreign tax above the Spanish liability is not deductible or refundable, though it may justify a reduction request in the source country through an applicable double tax treaty.
Relief for Companies (Arts. 31 and 32 LIS)
Law 27/2014 (LIS) distinguishes two types of relief:
Juridical Double Taxation Relief (Art. 31 LIS)
Applies when a Spanish-resident company earns foreign income on which a withholding or tax has been suffered in the source country. The deduction is the tax suffered abroad, limited to the Spanish tax that would correspond to those revenues.
Economic Double Taxation Relief (Art. 32 LIS)
Applies when a resident company receives dividends or profit participations from a non-resident entity and the tax has already been paid by that entity on the underlying profits. The relief eliminates the double taxation that would otherwise arise from taxing profits both at subsidiary level and again when dividends are distributed to the parent.
Required Documentation
To claim the relief, the taxpayer must retain documentation proving the tax paid abroad: withholding certificates issued by the payer, tax returns filed in the source country or certificates issued by the foreign tax authority. The AEAT may request this documentation in any audit or verification procedure.
Interaction with Double Tax Treaties
Double tax treaties concluded by Spain with other countries allocate taxing rights over each type of income. When a treaty limits the source-state withholding (for example, to 5 or 15 per cent on dividends), the Spanish credit is limited to that reduced treaty rate, not to the full domestic rate if the source state actually withholds at a higher rate than the treaty allows.