The United Kingdom of Great Britain and Northern Ireland, and the Kingdom of Spain have had a double tax agreement (commonly known as double tax treaty Uk Spain) since 1976. It was updated in 2014 with most changes applying from 01 January 2015.
The double tax treaty also clarifies and simplifies the tax situation of companies and persons that have dealings in both countries, in order to avoid double taxation and the prevention of fiscal evasion with respect to Taxes on Income and on Capital.
It specifically deals with situations where tax payers residents in the UK or Spain, or both, are obliged to pay tax on the same income under the rules of both countries and detail when relief is to be given in such circumstances.
There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains from the alienation of movable or immovable property, as well as taxes on capital appreciation.
Anyone with interests in Spain and the UK, who spend time in both, must enquire in which country is considered a fiscal resident, that´s to say, where he has a primary obligation to pay tax. This is not always easy to establish because each country has different rules to determine this condition and it is quite possible to be deemed resident by both countries at the same time. Here is one example:
– Income from property (i.e. rental income) in the double tax treaty is treated the same as other forms of income, so if you are resident in one country but rent out a property in another then you will probably have to pay tax in both countries but can use the treaty to get relief in your country of residence.
The same applies to businesses that are registered in one country but get income from a source in another; they may also be liable to pay tax in both countries under their tax laws.
As a general rule, the taxes covered by the Double Tax Agreement include interest, royalties, salary, profits and capital gains and all income, whichever country it arises in, must be declared where you are fiscally resident.
The double tax treaty establishes that if there is a conflict, the person is tax resident in the country where they have a permanent residence available and, if they have one in both countries, where their “centre of economic interests” lies.
However, it can get a little more complicated than this and therefore is always recommendable to seek professional advice on your tax obligations before becoming too entangled in any deal at home or abroad.