Tax residents in Spain working in Canada may be taxed in both countries

Tax residence in Spain does not guarantee exclusion from the taxing power of other States when work activity is physically carried out in foreign territory. Recently, the Dirección General de Tributos (DGT) has clarified the situation of workers performing their duties in Canada.

What the DGT has ruled

The ruling analyzes the situation of a tax resident in Spain who receives remuneration for work physically performed in Canada. The technical criterion determines that Canada possesses the power to tax such income as the source State. This taxing capacity arises when the exemption requirements established in Article XV.2 of the Convention between Spain and Canada are not met, specifically due to exceeding a stay of 183 days in any twelve-month period in Canadian territory.

In this scenario, the regulations establish that Spain must eliminate any resulting double taxation. To this end, the deduction method provided in the Convention signed between both States will be applied, allowing the taxpayer to offset the tax paid in Canada against their tax liability in Spain.

What this means for you

If you are a natural person resident in Spain and perform work activities physically in Canada, you should consider the following points:

• Canada's taxing power: If your stay in Canada exceeds 183 days in a twelve-month period, the country has the right to tax your salary.
• Double taxation: Although both countries have the right to tax the income, the full tax will not be paid twice, as Spain will apply a deduction.
• Residency criterion: Being a tax resident in Spain does not prevent the State where the physical work is performed from claiming its share of the taxation.

What you should do

It is fundamental to maintain rigorous monitoring of the days of physical stay in Canada to determine if the 183-day threshold is reached. The correct application of the Spain-Canada Convention is key to ensuring that the corresponding deduction method is applied and to avoid errors in the Personal Income Tax (IRPF) declaration. Since each international mobility situation presents specific nuances, it is necessary to assess each case individually to determine the exact impact on the tax burden.