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:
- If the combined sum of earnings from the second and remaining payers, in order of amount, does not surpass 1,500 euros annually.
- 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
