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If you earn income flowing between Spain and Germany — dividends from a subsidiary, royalties from a licensee, or a capital gain on the sale of shares — there’s one document that determines how much tax you actually pay: the Spain–Germany double taxation treaty.
The Spain–Germany tax treaty, signed in 1966 and updated by subsequent protocols, governs how income and capital between the two countries is taxed. It determines which country has taxing rights, and at what rate — preventing the same income from being taxed twice. Here is a practical breakdown of what it means for businesses and individuals.
Overview of the Spain–Germany tax treaty
The treaty between Spain and Germany follows the OECD Model Tax Convention. It covers residents of one or both countries who earn income from the other state. Both countries are EU members, which means EU Directives (such as the Parent-Subsidiary Directive and the Interest and Royalties Directive) also apply and can provide additional relief beyond the treaty in specific situations.
Withholding tax on dividends under the Spain–Germany treaty
When a Spanish company pays dividends to a German shareholder (or vice versa), the treaty limits Spain’s withholding tax to the following rates:
- 5% if the beneficial owner is a company that holds at least 10% of the share capital of the paying company
- 15% in all other cases
Without the treaty, Spain’s domestic withholding rate on dividends paid to non-residents is 19%. The treaty rate of 5% or 15% can represent a meaningful saving — especially on significant dividend flows between group companies.
EU Parent-Subsidiary Directive: potentially zero withholding
For cross-border dividend flows between parent and subsidiary companies within the EU, the Parent-Subsidiary Directive may reduce the withholding rate to 0% — provided the parent holds at least 5% of the subsidiary for a minimum of 1 year. This Directive takes precedence over the treaty when its conditions are met, making it even more favourable than the Spain–Germany treaty rate in qualifying cases.
Withholding tax on interest
Under the Spain–Germany tax treaty, interest paid from one country to a resident of the other is taxed at a maximum of 10% in the source country.
Again, the EU Interest and Royalties Directive may provide a complete exemption (0%) for interest paid between associated EU companies, provided the minimum shareholding (25%) and holding period (2 years) conditions are met.
Spain’s domestic rate for non-resident interest is 19% — so the treaty (and especially the EU Directive) can result in substantial savings for groups with intercompany financing arrangements.
Withholding tax on royalties
Royalties — payments for the use of intellectual property, software licences, patents, trademarks, and know-how — are taxed at a maximum of 4% in the source country under the Spain–Germany tax treaty.
This is one of the most favourable royalty withholding rates in Spain’s treaty network. Spain’s domestic non-resident rate for royalties is 24%, making the treaty an essential planning tool for companies with IP flows between the two countries.
The EU Interest and Royalties Directive may again provide a 0% rate for qualifying payments between associated EU companies.
Capital gains under the Spain–Germany treaty
The treatment of capital gains depends on what is being sold:
Sale of real estate
Gains from the sale of real property (or shares in companies that derive more than 50% of their value from real property) located in Spain can be taxed by Spain — regardless of whether the seller is German or Spanish.
Sale of shares and other assets
For gains on the sale of shares in companies (other than real estate-heavy entities) or other business assets, the treaty generally gives the right to tax to the country of residence of the seller. This means a German resident selling shares in a Spanish company would typically pay capital gains tax in Germany — not in Spain.
However, if the shares relate to a permanent establishment of the German entity in Spain, Spain retains taxing rights on the gains attributable to that establishment.
Permanent establishment rules
A key concept in the Spain–Germany tax treaty — as in all OECD-based treaties — is the permanent establishment (PE). A German company that conducts business in Spain through a fixed place of business (an office, branch, factory, or construction site lasting more than 12 months) will be deemed to have a PE in Spain and will be subject to Spanish corporate income tax on the profits attributable to that PE.
The PE threshold is particularly relevant for German companies sending employees to Spain for extended projects, providing services through dependent agents, or maintaining warehouses or servers in Spain.
Tax residency tiebreaker
If an individual could be considered a tax resident of both Spain and Germany under each country’s domestic rules, the treaty provides a tiebreaker test to establish a single country of residence. It looks at: permanent home, centre of vital interests, habitual abode, and nationality — in that order of priority.
Frequently asked questions
How do I claim treaty benefits in Spain as a German resident?
To apply a reduced withholding rate, you generally need to provide a certificate of tax residence issued by the German tax authority (Finanzamt) to the Spanish paying entity. This certificate confirms that you are a German tax resident entitled to treaty benefits. Without it, Spain’s domestic rates apply by default.
Does the Spain–Germany treaty apply to individuals or only to companies?
It applies to both individuals and legal entities (companies). The treaty covers all types of income: employment income, business profits, dividends, interest, royalties, pensions, capital gains, and more — for both residents and companies of either country.
What if Spain withholds more than the treaty rate?
If Spain has withheld tax above the treaty rate, you can file a refund claim using Spain’s Modelo 210 form, within 4 years from the date of withholding. Your German tax adviser may also be able to credit the excess Spanish tax against your German liability in the meantime.
Applying the Spain–Germany tax treaty correctly can make a significant difference to the tax cost of cross-border structures. At Capital Auditors & Consultants, we help German-Spanish groups and individuals navigate both countries’ rules with precision. Contact our international tax team for a consultation.
