Paying income tax on foreign pensions in Spain – don’t get caught out!

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Any taxpayer who is resident in Spain and is claiming a pension from abroad must make a number of considerations to avoid any nasty surprises, especially regarding taxation.

When in your home country – that’s to say the country from which the pension is being claimed – income tax is often withheld automatically in advance by the entity disbursing the pension. However, if that entity is not operating within Spain, this entity is not compelled to do so.

Therefore, if you’re required to fulfil personal income tax obligations in Spain, either due to provisions in the Double Taxation Agreement (DTA) with the pension’s country of origin or due to the absence of such an agreement, you need to understand your tax obligations.

What is the tax threshold on foreign pensions in Spain?

The amount of tax you need to pay on a foreign pension depends on a number of factors.

Principally, the threshold changes depending on whether it is the claimant’s sole source of income, or otherwise.

When a foreign taxpayer resident in Spain earns a pension from a foreign source, according to Article 96.3 of the Income Tax Act, the threshold to declare this income is currently set at 15,000 euros.

However, this changes if an individual’s entire earned income comes from a single source. Here, the threshold mandating the duty to declare stands at 22,000 euros per annum (as per Article 96.2.a and 3 of the Personal Income Tax Law).

That said, this threshold is generally not applicable to taxpayers who receive income from multiple payers. This is primarily due to the discrepancy that often arises between the taxes already remitted through periodic payments by the withholder or payer, and the eventual tax liability. However, there are instances where this threshold applies. These include:

  1. If the combined sum of earnings from the second and remaining payers, in order of amount, does not surpass 1,500 euros annually.
  2. In situations where employment-based earnings encompass pensions and passive benefits as defined in Article 17.2.a of the Income Tax Act, and the determination of the appropriate withholding rate adheres to the specialised procedure to be established by regulation.

The information is in accordance with the Central Economic Administrative Court ruling dated 28 June 2022.

How much tax do I need to pay on my pension?

In Spain, income tax is charged at the same rate for both general income and pensions.

Therefore, pensions in Spain are subject to progressive tax rates ranging from 19% to 47%, as follows:

  • Up to €12,450: 19%
  • €12,451 – €20,200: 24%
  • €20,201 – €35,200: 30%
  • €35,201 – €60,000: 37%
  • €60,001 – €300,000: 45%
  • Over €300,000: 47%

Your tax experts in Spain

If this all sounds very confusing to you, don’t worry – we’re here to help! At CostaLuz Lawyers, we make Spanish tax and pensions straightforward for you.

So, if you’re planning on moving to Spain for your twilight years – or you’re already in Spain and are approaching retirement age – don’t hesitate to get in touch for any assistance you need.

Maria Luisa Castro

Director and Founder
María founded CostaLuz Lawyers in 2006 and is the Firm’s Director. María is registered Lawyer number 2745 of the Cadiz Bar Association and is licensed to practice in all areas of law throughout Spain. Working closely with her team, María has developed the firm into one of the most highly regarded and trusted Spanish Law Firms acting for English-speaking clients with legal problems in Spain. We’re here to help. Contact us today for a free, no-obligation, initial legal orientation.
 

6 thoughts on “Paying income tax on foreign pensions in Spain – don’t get caught out!”

  1. I will be moving to Spain, my UK pension is from one source and less than Euro22,000 per year. From the information above does that mean I will not have to pay any Spanish tax on my income? Many thanks

    1. Maria Luisa Castro

      Dear Karen:

      Based on your situation—moving to Spain with a UK pension as your sole income source, totaling less than €22,000 per year—you might not be required to pay Spanish income tax on this income. Spain’s tax system includes thresholds for income taxation, and incomes below a certain level may not be taxable. However, tax residency status and international agreements, such as the double taxation treaty between the UK and Spain, can influence your tax obligations.

      It’s crucial to note that tax regulations can change, and individual circumstances can significantly impact tax liabilities. Therefore, while you might fall below the threshold for income tax based on the information provided, it’s highly recommended to seek advice from a tax professional familiar with both Spanish and UK tax laws for accurate and personalized guidance. We can offer personalised advice if you need it and help you to submit taxation every year.

      Best regards,

      Maria

  2. I pay tax on my Teachers Pension in the UK but when my old age pension is due later this year will I pay income tax on it in Spain? My State Pension falls below the 15000 euro threshold.

    1. Maria Luisa Castro

      Dear Caron:

      If you’re a tax resident in Spain, you must declare worldwide income, including UK pensions, subject to Spain’s tax rules due to the Spain-UK DTA ( Double Taxation Agreement).

      The need to file a tax return depends on your pension income: €22,000 annually from a single payer, or €14,000 if from multiple payers with additional income over €1,500. We can assist you if you need assistance for filing your tax returns

      Best,

      Maria

  3. My spouse and I are considering retiring early to Spain. We expect to withdraw $80,000 USD dollars from both our employment-related pensions, and eventually including our government pension, when that begins when we reach our government’s retirement age. Does that mean we would owe $36,000 USD (converted to equivalent Euros) for the rest of our lives if we become Spanish tax residents? If for example, we owed $8000 USD on those same funds on our U.S. tax filing, would that be deducted from our Spanish tax debt in the equivalent Euros? Thanks in advance. We are also looking finding a good tax attorney should we decide to make this life change, so I am glad we found your site.

    1. Maria Luisa Castro

      Dear Steve:

      Retiring to Spain and understanding the tax implications, especially for U.S. citizens, requires careful planning. Spain and the U.S. have a Double Taxation Agreement (DTA), which is designed to prevent the same income from being taxed by both countries. Here’s a brief overview based on your situation:

      Taxation of Pension Income:

      As Spanish tax residents, you would be taxed on your worldwide income, including your employment-related and government pensions. The tax rate in Spain varies depending on the amount of income and the region where you reside, as each autonomous community in Spain sets its own tax rates within the framework of the national tax system.

      Double Taxation Relief:

      Under the Spain-U.S. DTA, tax paid in one country can often be offset against tax due in the other, to prevent double taxation. This means if you pay tax on your pension income in the U.S., you can typically claim a credit for this tax against your Spanish tax liability on the same income.

      Example Calculation:

      If you owe $8,000 USD in U.S. taxes for your pension income, and your Spanish tax bill on that same income is $36,000 USD (converted to Euros), you should be able to deduct the $8,000 USD you paid in the U.S. from your Spanish tax bill, reducing your tax liability in Spain accordingly. However, the exact amount of relief you get will depend on the specific details of your income and the tax rates that apply in the Spanish region where you reside.

      We will be pleased to assist you further on this if needed

      Best regards,

      Maria

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