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Non-Resident Taxation Manual (February 2024)

Pensions

Internal regulations

Regulations: article 13.1.d) Law IRNR

In accordance with internal regulations, pensions and other similar benefits are understood to be obtained in Spanish territory in the following cases:

  • When they are derived from employment provided on Spanish territory.

  • When they are satisfied by a person or entity resident in Spanish territory or by a permanent establishment located therein.

In addition, the internal regulation contemplates some cases of exempt pensions :

(Normative: article 14.1.a) IRNR Law)

  • Assistance pensions for old age recognized under Royal Decree 728/1993, of May 14, which establishes assistance pensions for old age in favor of Spanish emigrants.(1)

  • Pensions that are exempt for residents by the Personal Income Tax Law, such as, for example: Pensions recognized by Social Security as a consequence of absolute permanent disability or severe disability or by passive classes as a consequence of uselessness or permanent disability.

(1) The current regulation of old age assistance pensions is currently contained in Royal Decree 8/2008, of January 11, which regulates the benefit due to need for Spaniards residing abroad and returning, which repeals the Royal Decree 728/1993, of May 14, which establishes old-age pensions for Spanish emigrants.(Back)

Agreement

If any Convention to avoid double taxation is applicable, it must be taken into account that pensions, understood as remuneration that has its cause in a previously held employment, have different treatment if it is received due to a previous public employment; that is, that which is received by reason of services provided to a State, one of its political subdivisions or a local entity, or if it is received by reason of a previous private employment, as opposed to what has been identified as public employment. .

  • In pensions received by reason of previous private employment, most of the Conventions establish the exclusive right of taxation in favor of the State of residence of the taxpayer. Some agreements (for example, those signed with Germany and Finland) provide for shared taxation between the State of origin of the pension and the State of residence of the taxpayer and establish taxation limits in the State of origin (for example, the one signed with Germany).

  • In pensions received due to previous public employment, in general, the right is held by the State from which they come, except in the case of residents and nationals of the other State, in which case the right of taxation will correspond to it.

However, due to existing particularities, each specific Agreement must be consulted.

Taxation

Regulations: articles 24, 25 and 26 IRNR Law

When, in accordance with internal regulations and, where applicable, the applicable Convention, the pension is subject to Spanish tax, it will be taxed according to the following tax scale :

Annual pension amount
Up to euros
Fee
euros
Rest of pension
Up to euros
Applicable Type
Percentage
0 0 12,000 8%
12,000 960 6,700 30%
18,700 2,970 upwards 40%

Deductions: Only the following may be deducted from the tax rate:

  • Deductions for donations, in the terms provided in the Personal Income Tax Law and in the Law on the tax regime of non-profit entities and tax incentives for patronage.

  • The withholdings that would have been made on the income.

Example:

Mr. JCG, resident in Paraguay (a country with which there is no Agreement), during 2019, receives a retirement pension paid by the Spanish Social Security whose total monthly amount amounts to 1,100 euros. Collect 12 payments.

Determine the amount of tax corresponding to the pension obtained by said taxpayer.

Solution :

  1. Determination of the annual amount of the pension for the application of the tax scale.

    1,100 x 12 = 13,200

  2. Application of the tax scale.

    Up to 12,000 at 8%: 960

    Rest 1,200 (13,200 – 12,000) at 30%: 360

    Resulting fee: 1,320

  3. Determination of the average tax rate (TMG).

    TMG = (1,320/13,200) x 100 = 10%

  4. Determination of the amount of tax corresponding to the monthly pension.

    1,100 x 10% = 110 euros

Note to example : As it is an income subject to and not exempt from IRNR, the entity that pays the pension (Social Security) as withholding entity, must withhold an amount equivalent to the taxpayer's tax. That is, on the full amount of the pension (1,100 euros), a withholding percentage of 10% (110 euros) will be applied, resulting in a net amount to be received by the taxpayer, once the tax has been deducted, of 990 euros.