Deduction For Double Taxation On Foreign Inheritances For Spanish Residents: Do I Have To Pay Inheritance Tax In Both Countries?

When receiving an inheritance from abroad while being a tax resident in Spain, several important aspects must be borne in mind so that the process is handled correctly and all the legal and tax obligations are met.  In our previous article “Receiving an inheritance from abroad: special considerations for Spain taxpayers“, we explained all the necessary formalities for receiving an inheritance abroad. Nevertheless, many clients ask us the following: “Why do I have to pay inheritance tax in Spain if I have already paid it in the other country?”

Written for Expat Network by Dimitrichka Anghelova, tax lawyer. AGM Abogados

The answer is simple: “Because you are resident in Spain and the country of origin may not have an inheritance treaty with Spain” (see: When am I a tax resident in Spain? How do I calculate the 183 days?).

In the following article, we will explore in detail the legal and fiscal mechanisms governing inheritance tax in Spain for people who receive an inheritance from abroad while being resident in Spain: from applying the double taxation deduction to providing the required documentation.

Obligation to pay inheritance tax in Spain and deduction for double taxation

As explained above, if tax residents in Spain receive an inheritance from abroad, they must file and pay inheritance tax in Spain simply because they are tax residents in the country on the date of the person’s death.

However, there is a solution to this double payment situation called “deduction for double taxation”.

The Spanish inheritance tax law allows persons resident in Spain who have paid a similar inheritance tax abroad to deduct the lower of the following two amounts from their tax liability:

• The amount of tax paid abroad.
• The result of applying the average effective rate to the part of the tax base corresponding to the assets located outside Spain.

Practical example

For example, if you paid €10,000 in the other country and your Spanish tax liability before deductions is €8,000, you pay nothing in Spain because you have paid more abroad.

On the other hand, if you paid €5,000 in the other country and the Spanish tax liability is

€8,000, you only pay €3,000 in Spain as a result of applying the deduction for double taxation.

Documentation required

To apply the deduction for international double taxation, you need to have the letter of payment of the foreign tax and the proof of payment from the corresponding public authority.

If the tax is paid in France, Greece or Sweden, the double taxation treaty signed for inheritance tax should be consulted.

Tax refund

If you pay the same tax twice without applying the deduction for double taxation, you can claim a refund of the Spanish tax, provided that the right to claim the refund has not expired.

Recommendation for specialist advice

Since these procedures are very complex, it is highly advisable to seek specialised legal and tax advice. This advice is essential to ensure that all procedures are carried out correctly and all legal and fiscal obligations are met.