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I originally received my Schengen Visa for my upcoming 11 days trip to Italy, however I have 6 hours layover in Madrid and was planning to checkout madrid during that time. I just realized that they only granted me single entry and now I am worried that if I visit Madrid during my transit, Italian immigration can resufe my entry when i get there.

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    If your flight is from Madrid to Italy, you will pass immigration in Madrid anyway, not in Italy. – fkraiem Nov 24 '14 at 15:27
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    fkariem, you should post that as an answer. Tara, he's correct - your first entry into the EU is all you need. Once you're inside the EU, your Schengen visa allows you to travel freely within the Schengen Area. – Jon Story Nov 24 '14 at 15:30
  • @fkraiem, yes, it's an answer. Suggest you write it up before somebody snipes it. – Gayot Fow Nov 24 '14 at 15:47
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    You might struggle with the timing abit, since most European airports require you to be present 2 hours in advance, and you also need about an hour to get to and from downtown Madrid. 3 hours is not that much to visit Madrid. – Nzall Nov 25 '14 at 8:58
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    I don't know a European airport that requires you to be present two hours in advance for a European flight - the actual safe minimum time would depend on the airport though, and I don't know Madrid. – nekomatic Nov 25 '14 at 9:20
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As a general principle, the entire Schengen area is considered one country for immigration purposes. This means in particular that a flight between two Schengen countries (in your case, Spain and Italy) is considered a domestic flight and there is no immigration control before or after the flight.

Hence, in your case you will enter the Schengen area and pass immigration when you arrive in Madrid, regardless of whether you exit the airport or not. There will be no immigration control in Italy at all.

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