Obtaining pensions from another country

If a natural person is a tax resident in Spain, he/she must pay taxes in Spain on his/her worldwide income , that is, he/she must declare in Spain the income he/she obtains anywhere in the world, without prejudice to the provisions of the Convention to avoid international double taxation signed between Spain and the country of origin of the pension.

The country of origin of the pension must be taken into account, in case Spain has signed an agreement with it to avoid double taxation and, if so, look for the article of the agreement applicable to the pension.

The Agreements signed by Spain, in general, follow the OECD (Organization for Economic Cooperation and Development) model agreement, so there are usually two articles dedicated to pensions, one to those derived from previous employment in the public sector. (State, political subdivisions, local entities) and another to those derived from previous employment in the private sector.

• Pension from a country with which there IS an Agreement to avoid double taxation  

  It is necessary to refer to the provisions of the Convention to find out the tax authority of each State over the pension and, where appropriate, the applicable measures to alleviate double taxation.

  Conventions normally contain two provisions relating to pensions, one general and one for pensions resulting from having provided services as an employee in the public sector, and establish, with respect to each of them, the tax powers that correspond to each signatory State. Depending on the type of pension, the corresponding article applies and may be determined:

  • In some cases, exclusive power for the taxpayer's country of residence (in this case, Spain),

  • In others, exclusive power for the country of origin of the income and,

  • Finally, in some cases, shared power between both countries, with both being able to tax the pension, but with the obligation, in general, for the taxpayer's country of residence to take measures to avoid double taxation.

  In general, in the case of double taxation, it will be up to Spain as the country of residence to decide on these measures, which normally consist of the application of a deduction. In certain cases, the Agreement may provide for an exemption from the pension in the country of residence (Spain), although with progressive application, which means that the exempt income is added to the rest of the income to calculate the tax rate applicable to the rest of the income.

  When a Convention is applicable, it is always necessary to consult the specific Convention because it may contain particularities.

• Pension from a country with which there is NO agreement to avoid double taxation  

  If the pension is also taxed in the country of origin, the taxpayer may apply the deduction for international double taxation provided for in article 80 of Law 35/2006, of November 28, on Personal Income Tax (IRPF).

Regarding the obligation to declare for personal income tax , it is necessary to pay attention to the limits set for each year, highlighting several issues: that pensions are considered income from work, that exempt income is not taken into account when determining the obligation to declare and that the non-resident payer of a foreign pension is not obliged to withhold income tax, so the income limit from which the obligation to declare begins is lower than for other income from work.