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Non-Resident Taxation Manual (January 2023)

Pensions

Internal regulations

Regulations:article 13.1.d) Law IRNR

According to Spanish law, pensions and other similar benefits are understood to be obtained in Spanish territory in the following cases:

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

  • When they are paid by a resident person or organisation or by a permanent establishment situated in Spanish territory.

In addition, the domestic legislation provides for some cases of exempted pensions :

(Regulations:article 14.1.a) Non-Resident Income Tax Law)

  • Old-age pensions recognised under Royal Decree 728/1993 of 14 May 1993, which establishes old-age pensions for Spanish emigrants.(1)

  • Pensions that are exempt for residents under the Personal Income Tax Act, such as, for example:Pensions recognised by Social Security as a consequence of absolute permanent disability or severe disability or for retired public servants as a consequence of being unfit for work or permanent disability.

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

Agreement

If an agreement to avoid duplicate taxation is applicable, it must be taken into account that pensions, understood as payments due to formerly performed employment, are treated differently if they are public or private.i.e., that which is received by reason of services rendered to a State, one of its political subdivisions or a local authority, or if it is received by reason of previous private employment, as opposed to what has been identified as public employment.

  • For private pensions, most of the Agreements establish the right to impose taxation exclusively in favour of the State of residence of the taxpayer.Some Conventions (e.g. those 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 set limits for taxation in the State of origin (e.g. the one with Germany).

  • In general for public pensions, the State where the pension comes from has the right to tax it, except in the case of residents and nationals of the other State, in which case the right to tax will correspond to that State.

However, the particular characteristics of each agreement should be consulted.

Taxation

Regulations:articles 24, 25 and 26 Non-Resident Income Tax Law

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

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

Deductions:of the tax liability may only be deducted:

  • Deductions for donations, under the conditions described in the Income Tax Act and in the Act on the tax regime of non-profit organisations and of tax incentives for patronage.

  • Tax withholdings that have been applied on the taxpayer's income.

Example:

Mr. J.C.G., resident in Paraguay (a country which does not have an agreement with Spain) during 2019, receives a retirement pension paid by Spanish Social Security, which yields a gross monthly amount of €1,100.He receives 12 payments in the year.

Determine the amount of the corresponding tax on the pension obtained by this taxpayer.

Solution:

  1. Determination of the annual pension amount 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

    Remaining 1,200 (13,200 - 12,000) at 30%:360

    Resulting quota:1,320

  3. Determination of the average tax rate.

    Average tax rate = (1,320/13,200) x 100 = 10%

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

    1,100 x 10% = €110

Note to example:As this is income subject to and not exempt from non-resident income tax, the organisation making the pension payment (Social Security), as the Withholder organisation, should withhold tax of an amount equivalent to the tax due by the taxpayer.In other words, 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.