If you are a resident in Spain and you receive income from the Netherlands, or vice versa, it is essential to know how the Convention for the Prevention of Double Taxation between Spain and the Netherlands affects your tax situation.
The aim of this treaty is to prevent the same income being taxed in both countries, reducing the tax burden and providing legal certainty for taxpayers. In theory, it establishes clear rules on where and how taxes should be paid. In practice, however, there are cases in which the application of the agreement is not that simple and can generate reasonable doubts.
Below, I explain the most relevant aspects of this international agreement and what to do in the event of a tax dispute between the two countries.
The Double Taxation Agreement aims to prevent income from being taxed twice
The agreement between Spain and the Netherlands aims to prevent the same income from being taxed in both countries. In addition, it regulates which country has the right to tax certain types of income according to the type of income and the taxpayer’s tax residence.
Main aspects of the Agreement:
- Determination of tax residence
One of the most important points of the treaty is the criterion for determining where a person is considered a tax resident. Generally speaking, a taxpayer is a tax resident in the country where he or she:
- stay for more than 183 days in a year;
- has the centre of his or hers economic or family interests.
If there is a conflict between the two countries, the treaty establishes criteria for conflict resolution to determine in which one the individu is a tax resident.
- Rules on the different types of income
The agreement regulates how the different types of income should be taxed, including:
- Income from work: This is taxed in the country where the activity is carried out, with some exceptions;
- Pensions: Generally taxed in the country of residence, with some exceptions for public pensions;
- Income from rentals: Taxed in the country where the property is located;
- Capital gains: Depends on the type of asset sold and the country in which it is located.
What to do in case of double taxation?
If the same income has been taxed in both countries, the agreement establishes mechanisms to eliminate or reduce double taxation, such as requesting a tax exemption or deduction in the country of residence. If it has been taxed twice, a refund of undue income can be requested in the country where it has been unduly taxed.
In the event of a dispute, the mutual agreement procedure must be initiated between the tax authorities of both countries to resolve any disputes between them.
Do you have any questions about your tax situation?
The Double Taxation Agreement is an essential tool for avoiding paying taxes twice, but its application is not always straightforward. Each case has its own particularities, and what at first glance seems clear can become complicated when different national regulations and administrative interpretations come into play.
If you have any doubts about your taxation, contact us and we will help you to determine the best solution for your case, ensuring that you comply with the regulations without paying more taxes than necessary.
This article is for information purposes only and does not constitute legal or tax advice. For a personalised professional analysis of your situation, we recommend that you contact us.
Mª Dolores García Santos