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I don't know Spanish tax law, but is the 25% withholding your full and complete tax to Spain, or do you need to file a Spanish tax return to report the exact amount of tax due?
If you think you need an expert in Spanish tax law, I'll opt out, but my question above does indicate a possible resolution under US tax law.
Yes, the 25% is all I have to pay to the Spanish government. I don't file an individual tax return in Spain since I'm a fiscal resident of the US. I don't need an expert in Spanish tax law. I need an expert in US tax law. It is here that I'm being asked to pay again an additonal 10% in taxes over and above what I paid in Spain already.
Again, I do not pay income tax in Spain...
I'm not sure if you have the IRS Spain-US treaty, but I do and could attach for your convenience
are you still there?
That, I found. The question I have is whether the 25% withholding is considered a "tax".
If you need to file a Spanish tax return to adjust the amount, then only the final amount due is allowable against US taxes.
Absolutely it is a tax. It is sent to "Hacienda", the equivalent of the Spanish IRS
The accountant there, before distributing earnings to the owners of the business must send to "Hacienda" 25% of the earnings from each non-Spanish resident. He does not withhold from Spanish residents, because they include those monies with their regular income, and send payment to Hacienda when their total taxes are due. Same as we do here
Only non-residents are withheld 25%. This amounts to 83.3% of owners. 6 out of 9 owners are non-residents
I'm not familiar with Spanish taxation; however, a provision I recently ran across in Canada, there is 25% withholding on the sale of real property by a non-resident, but the non-resident has to file a non-resident Canadian tax return to get a refund.
If that's not your situation, then Article 26 seems to be the only way to go.
That's not my situation. This does not relate to the sale of anything. It's income from a business. It's not the Spanish government the one that needs to give me relief, it's the US government the one taxing me an additonal 10% over my global income. This is a question of US law, not Spanish tax law
I don't understand why my accountant here says that I have to pay an additonal 10% over and above what I've paid already
I'm not sure if you have the entire picture clear.
83.3% of owners of the business are non-residents. Imagine if the case was reversed, and it was 6 Spaniards owning a hotel here
they don't have an lld
just family. when earnings are distributed, they get 25% sent to the IRS
I don't think the IRS would allow for an overseas business here to pay zero taxes to the US government. that's the point
the hotel does not pay separate taxes in Spain
the taxes the government gets are from the individual owners
I think a trust might be the nearest analogous entity; a "foreign" trust in the US does pay taxes, but it's an actual tax, not withholding.
well, this is a tax
I'm not sure of the difference
this isn't a trust either
it's a family business
I understand it's different than a trust, but a "family trust" in the US is not a legal entity.
which must send to Hacienda 25% from non-residents
I'm not sure that's relevant since the business is not here
The only person paying double taxes here is me.
If this is not something you're familiar with, I understand...
Your accountant may have studies the application of the treaty provisions more than I have, but I don't see how, if you aren't encouraged to file a Spanish tax return to recover the withholding, that the 25% wouldn't be a foreign tax.
I can't file a Spanish tax return because I"m not a Spanish citizen paying for taxes in Spain
this is just the taxes that correspond to the earnings from the business
The question I have is, if there's a treaty to avoid double taxation between the countries...shouldn't the US accept the entire 25% as taxes that I've already paid?
I can't ask for relief from Spain...it would mean the business would not pay anything to the Spanish government
I thought you left me :(
Has the IRS actually objected, or just your accountant?
My computer locked up.
No, the accountant says that when he puts the figures into his computer, it only automaticall accepts 15% of the amount entered, meaning I have to pay the other 10% again
I've not consulted the IRS directly
I was hoping to get the answer here..
Ah. If this is (US) form 1116, it might mean that your overall US tax rate is 15%, so that only 15% of the profit is presently credited to your US tax. The remaining 10% would be available in future years in which the US tax rate is higher.
Sorry. The foreign tax credit (US form 1116) is one of the usual ways of avoiding double-taxation.
I think I filled out a regular 1040 and then TDF90-22.1
Yes, I filled out 1040, 6251, 5691 (for a new AC) and the TDF90-22
Sorry, again. I'm at home, and there was a family problem.
Have you heard the Kate Perry song...you're in and you're out...
just kidding :) hope all is well
Form 1116 allows you to deduct, from your US taxes, the lesser of the foreign tax and the US tax on the same income.
If the foreign tax is more, it can be carried back one year and forward up to 10 years as a credit against years when the foreign tax is less.
what do you mean
I think I'd have to look at your (US) tax return, to see how your accountant has done it in previous years, if you got the full 25% then. (Please redact your name, address, and Social Security number before uploading)
I know I did not get the full 25% credit, only 15%. I can send to you but have to scan it first.
I just see that there was also a form 116 filled out
I have no objection to that. I'm going to need to take off for a birthday party shortly. I should be back by 10pm PDT. If you can have the return uploaded by then, I can look at it.
I've had someone else look over these notes, and he thinks that since you're not really familiar with cases like this it would be best to just get the answer straight from the IRS
I'd actually gone to his house to scan the tax returns because my scanner would not cooperate.
I'd glad paid to get a straight answer, but I think this matter may be too complicated and needs an answer straight from the IRS
I'm not sure how to close this ticket. I don't think I should pay since you're not really familiar on what to do in cases like this one