The US-Spain tax treaty has been in force since 1990, but the version that matters today is the one that took effect on November 27, 2019. The Protocol published under BOE-A-2019-15166 rewrote it from top to bottom: it eliminated almost all withholding on interest and royalties, cut dividend rates to 0%/5%/15%, and introduced a full LOB clause. It also added Art. 1.6 — the rule that allows a US-transparent LLC to access the treaty through its Spanish partner. No competitor explains the LOB × LLC intersection well, or the asymmetry in Art. 1.6. In this article I do both, with the rigor the subject demands.
The Treaty We Signed in 1990, the Protocol That Changed Everything in 2019, and Why Most People Are Still Quoting Old Rates
The tax treaty between the US and Spain was signed in 1990 and modeled on the OECD template. Its source-state withholding rates were 15% on dividends, 10% on interest, and 10% on royalties. For nearly three decades those rates were applied without question and an entire generation of advisory practice was built around them. The amending Protocol was signed in Madrid in 2013, but it took six years to enter into force — part of the reason the market was slow to catch up.
November 27, 2019 is the date that marks the before and after. That day the Protocol entered into force, published in BOE No. 255 of October 23, 2019, as BOE-A-2019-15166. Its effects apply: for taxes withheld at source, from that date; for other taxes, to fiscal years beginning on or after that date — in practice, from the 2020 fiscal year for taxpayers whose tax year follows the calendar.
The problem I see every day in practice is that a significant portion of advisers — and even more clients — are still citing the 1990 treaty rates. Interest at 10%. Royalties at 10%. Those rates no longer exist for most categories. The 2019 Protocol eliminated them, and operating with the old version has direct consequences: excess withholding left unreclaimed and legitimate planning opportunities missed.
Entry into Force November 27, 2019: What Changed and When
The 2019 Protocol was not a simple rate adjustment. It was a structural overhaul of the treaty that introduced four first-order changes:
First: radically lower withholding rates. Interest and most royalties become taxable exclusively in the State of residence of the beneficial owner, with 0% source-state withholding. Dividends are structured into three tiers (0%/5%/15%).
Second: introduction of a full LOB clause. The 1990 treaty had no complete limitation-on-benefits provision. The Protocol adds Art. 17, a LOB based on the 2006 US Model Convention, with qualified-person tests and three alternative routes. Treaty shopping is closed.
Third: Art. 1.6 on fiscally transparent entities. The Protocol adds a new paragraph 6 to Art. 1 of the treaty, derived from Art. 1.6 of the 2006 US Model Convention. This is the key rule for LLCs and I develop it in detail in section 7.
Fourth: the Memorandum of Understanding. Part of the official BOE-A-2019-15166 text, carrying interpretive weight on how the LOB operates in complex scenarios.
Art. 10 Dividends: 0% for ≥80% Holdings / 5% for ≥10% / 15% for All Other Cases + LOB Conditions
Art. 10 of the treaty, in its post-2019 Protocol version (BOE-A-2019-15166), establishes a three-tier structure for source-state withholding on dividends. For a Spanish tax resident who is a partner in a US entity, the rates are:
Tier 1 — 0%: when the beneficial owner is a resident company that has held directly or indirectly 80% or more of the voting stock for the 12 months preceding the dividend determination date. The beneficial owner must also satisfy the Art. 17 LOB test — in practice, this combination (80% + LOB) applies primarily to large corporate structures. Qualified pension funds that are generally exempt or subject to a zero rate also receive the 0% rate when dividends do not derive from an active trade or business.
Tier 2 — 5%: when the beneficial owner is a company holding at least 10% of the voting shares of the paying company. This reduction is relevant for corporate groups with significant but sub-80% stakes.
Tier 3 — 15%: in all other cases. This is the rate that generally applies to an individual resident in Spain receiving dividends from a US LLC. If the LLC is opaque under Spanish rules (classified as a capital entity per DGT V3074-22), the dividend will be subject to 15% US withholding and then taxed in Spain as investment income (rendimiento del capital mobiliario), with a foreign tax credit available under Arts. 80 and 67 of the LIRPF.
The LOB requirement exists across all three tiers, but access for individual Spanish residents is automatic (Art. 17.2.a). LOB is not, in practice, a barrier for the individual Spanish partner; it can be one for intermediate corporate structures.
Art. 11 Interest + Art. 12 Royalties: General Rate 0% After the Protocol
This is the most dramatic change introduced by the 2019 Protocol and the one most frequently misquoted.
Art. 11 — Interest: The general post-Protocol rule is that interest may be taxed only in the State of residence of the beneficial owner. Source-state withholding: 0%. The sole exception is contingent interest — interest that does not qualify as “portfolio interest” under US law — which is subject to a maximum rate of 10% on the gross amount.
In practical terms: if a Spanish tax resident (whether an individual or a company) lends money to a US entity and receives interest, the US cannot withhold on that interest under the post-Protocol treaty. The interest is taxed exclusively in Spain in the recipient’s savings-rate base.
Art. 12 — Royalties: The general post-Protocol rule is that royalties are taxable only in the State of residence of the beneficial owner. Source-state withholding: 0% for most categories, including copyright, patents, trademarks, formulas, know-how, and industrial or commercial information.
The practical impact of these rates for an LLC licensing intellectual property to a Spanish company is substantial. Under the 1990 treaty, royalties paid to a US recipient were subject to 10% withholding in Spain. Post-2019 Protocol, that withholding drops to 0% for most categories. The royalty flow from a Spanish subsidiary to a US LLC parent is, in terms of withholding, radically simplified.
Art. 13 Capital Gains + DGT V2353-20 on LLC Interest Transfers
Art. 13 sets out the standard OECD capital gains rule: gains from the disposition of interests in companies whose assets do not consist primarily of real property are taxable only in the State of residence of the seller. The source state cannot tax. The exception is real-property-rich entities, taxable in the State where the real property is located.
The DGT applied Art. 13 expressly in binding ruling V2353-20, dated July 9, 2020 (Iberley). The case involved a US LLC that owned a Spanish holding company. The DGT concluded that the transfer of interests in the LLC by a US-resident seller was taxable only in the US — Spain had no taxing right. The ruling also noted that migrating the LLC’s domicile to Spain does not in itself trigger a taxable event. It is one of the few DGT rulings that applies the treaty directly to an LLC, confirming the LLC’s capacity to be a treaty beneficiary.
For a Spanish tax resident selling their LLC, the rule operates in reverse: the gain is taxable in Spain (State of residence of the seller) as a capital gain in the savings-rate base; the US cannot withhold at source.
Art. 17 LOB Clause (Limitation on Benefits): the 7 Tests and 3 Alternative Routes
The LOB clause in Art. 17 is the heart of the post-2019 Protocol treaty. Its purpose: prevent residents of third countries from using US or Spanish entities as conduits to access treaty benefits (treaty shopping). To access the treaty, the resident must be a “qualified person” under Art. 17.2:
- Individuals resident in a Contracting State — automatically qualified.
- State or governmental entity — automatically qualified.
- Publicly traded company — shares regularly traded on a recognized stock exchange in the State of residence (or the EU if Spanish; or NAFTA if American).
- Subsidiary test — 50% or more of voting rights and value is held by five or fewer companies that meet the publicly-traded-company test.
- Tax-exempt entities (religious, charitable, scientific, cultural) — if they meet the applicable incorporation requirements.
- Pension funds — as defined in Art. 3(j) of the treaty.
- Base erosion test (Art. 17.2.e) — less than 50% of gross income is paid out as deductible payments to non-residents of the Contracting States. This test filters conduit structures: if more than half of income flows to third countries, the treaty does not apply.
The three alternative routes when none of the Art. 17.2 tests is met:
- Active trade or business (Art. 17.4): a resident that conducts substantial business activity in the other State may invoke the treaty for income derived from that activity. This is the most relevant route for genuinely operational structures.
- Derivative benefits (Art. 17.3): 95% or more of the entity is owned by seven or fewer “equivalent beneficiaries” (residents of EU or NAFTA countries with access to equivalent or better benefits under their own treaties).
- Competent authority (Art. 17.7): discretionary access granted by the competent authority of the source state based on facts and circumstances. A last-resort mechanism.
Art. 1.6: Fiscally Transparent Entities — How an LLC Accesses the Treaty Through Its Spanish Partner
This is the least-known article in the post-Protocol treaty and the one that matters most for LLC structures. I’ll get straight to the point.
The new paragraph 6 of Art. 1, added by the 2019 Protocol, establishes a bilateral fiscal transparency rule derived from Art. 1.6 of the 2006 US Model Convention. The rule, in essence, says: when income is earned through a fiscally transparent entity — organized in either Contracting State or in a third State that has an information-exchange agreement in force — treaty benefits apply to the beneficial owner of that income. The income “flows through” to the partner, and it is the partner who must individually satisfy the treaty conditions.
The application to an LLC is direct: if the LLC is treated as transparent in the US — as a disregarded entity (SMLLC) or partnership (MMLLC) — the Spanish partner can invoke the treaty directly with respect to attributed income. The partner, as an individual resident in Spain, automatically qualifies under Art. 17.2.a LOB. They access the reduced treaty rates (0% interest, 0% royalties, dividends by tier) as if they had received the income directly.
The critical asymmetry that nobody explains well:
Art. 1.6 operates from the US perspective (IRS classification). How Spain internally classifies the LLC is a separate and parallel question, governed by DGT Resolution BOE-A-2020-2108. The result is that the same LLC can find itself in one of four scenarios:
| IRS | DGT | Practical outcome |
|---|---|---|
| Transparent (disregarded/partnership) | Transparent (meets Resolution 2020) | Art. 1.6 active. Treaty via partner. Income attributed in IRPF in the year of receipt. |
| Transparent (disregarded/partnership) | Opaque (does not meet Resolution 2020) | Art. 1.6 active for treaty purposes. In IRPF, taxed only on distribution. Temporal asymmetry. |
| Opaque (elected C-Corp) | Opaque | Art. 1.6 inactive. LLC must pass LOB independently. |
| Opaque (elected C-Corp) | Transparent | Rare and difficult to coordinate. |
Art. 1.6 is, in the end, a taxpayer-favorable rule. It opens a treaty-access route for the Spanish partner of a US-transparent LLC that might otherwise not pass the LOB test as a standalone entity. It ceases to operate the moment the LLC elects C-Corp treatment via check-the-box.
Practical Case: Founder with a Delaware LLC Collecting Royalties from a Spanish Company
Let me walk through the type of structure we handle regularly at BMC:
Profile: Andrés has been a Spanish tax resident since 2022. He has had a single-member Delaware LLC since 2019. The LLC owns software modules that it licenses to a Spanish company (Empresa ES). He did not make the check-the-box election: the LLC is a disregarded entity for the IRS.
What happens to the royalties he receives from Empresa ES?
Empresa ES pays royalties to the LLC. Under Art. 12 of the post-2019 Protocol treaty, the withholding rate in Spain is 0% if the beneficial owner is resident in the US and satisfies the LOB. The LLC is disregarded: under Art. 1.6, the beneficial owner of those royalties is Andrés. Andrés is resident in Spain — he automatically qualifies as a qualified person under Art. 17.2.a LOB. Result: Empresa ES pays the royalties without withholding. The royalties are taxed only in Andrés’s Spanish IRPF return.
The Spanish layer:
How does Andrés report them? It depends on how the DGT classifies his LLC:
- LLC transparent under Spanish rules (meets the three criteria of Resolution BOE-A-2020-2108): Andrés reports the income in the year the LLC earns it, retaining its natural characterization (business income or investment income).
- LLC opaque under Spanish rules (DGT V3074-22): Andrés reports only when the LLC distributes profits, as investment income (rendimiento del capital mobiliario).
One final item to verify: Andrés’s interest in the LLC must be reported in Block 2 of Modelo 720 if its value exceeds €50,000, per DGT V0681-25 (2025). This reporting obligation exists regardless of whether the LLC is classified as transparent or opaque.
Before We Go Further, Let’s Talk
The post-2019 Protocol treaty is a real planning tool. The 0% rates on interest and royalties, automatic access for individuals under the LOB, and the Art. 1.6 mechanism for transparent LLCs are concrete advantages that many taxpayers are not capturing because their adviser is still working from the 1990 version.
If you have an LLC and are a Spanish tax resident, the treaty analysis is one of four layers that any serious review must cover — alongside LLC classification (Resolution BOE-A-2020-2108), the Art. 8 LIS permanent establishment risk, and the Modelo 720 reporting obligations.
At the BMC international tax team we work with US structures on a regular basis. If you want to run that review, we start with an initial consultation.
See also our article on how a US LLC is taxed for Spanish tax residents and our guide on the Beckham Law 2026 if you are under that special regime.
