Pension from foreign country and moving to Spain. What to do?

If you're planning to move to sunny Spain but are concerned about the tax implications of your pension from your country of origin, it’s important to thoroughly analyze the applicable regulations and the rules for avoiding double taxation.

Spain is becoming an increasingly popular choice for retirement. Mild winters, over 300 sunny days per year, and a healthy lifestyle are attracting more and more foreigners to move permanently to the country. However, one should not forget about tax obligations.

To declare or not to declare?

Although a pension paid from the public system in very often already taxed in the home country, there is still a possibility that you will be required to declare it on your Spanish tax return (of course, provided that you officially become a fiscal resident of Spain—this is explained in a separate article on who qualifies as a resident and when they become one).

If your pension comes from the public contributions, does not exceed 22,000 euros, and comes from only one payer, you do not need to pay tax on it in Spain or even include it in your tax declaration.

Double Taxation Agreement

But what if your pension is higher or comes from multiple payers? Does this mean it will be fully taxed again in Spain? It depends. Spain has a mutual agreement with various countries that helps avoid its citizens the problem of double taxation. Both countries protect citizens from being taxed twice on the same income, but up to a certain amount.

The Spanish Agencia Tributaria will consider the tax already paid in the country of your origin and may only apply additional taxation to the difference, according to the following scale:

• Up to 12,450 €: 19%

• From 12,450 € to 20,200 €: 24%

• From 20,200 € to 35,200 €: 30%

• From 35,200 € to 60,000 €: 37%

• Over 60,000 €: 45%

  
  

However, this still doesn't mean you will be required to pay a large amount, as retirees are entitled to various exemptions, especially for those over 65. These include:

• Higher tax-free allowance: The basic tax-free allowance is approximately 5,550 EUR per year. For individuals over 65, it increases by an additional 1,150 EUR, and for those over 75, it increases by another 1,400 EUR.

• If the retiree owns property in Spain and it is their primary residence, they may benefit from tax relief on local taxes (e.g., IBI – Impuesto sobre Bienes Inmuebles).

• There is an exemption for people over 65 who sell their main property – profits from the sale are exempt from income tax, provided that the property was their main residence for at least 3 years.

  
  

Each case should be treated individually, considering whether the retiree has other income apart from the public pension, whether they qualify for any exemptions, and their overall tax situation. And most of all, where they are from. Here are two typical examples:

• Maria is German and receives an annual gross pension of 20,202.02 EUR. She does not have pension funds. She is a fiscal resident of Spain and permanently resides in Malaga. Maria does not need to declare her pension income on her tax return.

  
  

• Jerzy receives a pension from Poland of 113,636.36 PLN annually. Converted to euros, this amount is 25,252.53 EUR. Since he is over 65, he can deduct 6,700 EUR from the taxable amount. Therefore, his taxable amount is reduced to 18,552 EUR. The amount due to the Spanish tax authorities is 3,830.11 EUR. However, Jerzy is Polish, and although he permanently resides in Barcelona, his pension is already taxed in Poland at 3,030.30 EUR, and both countries have an agreement to avoid double taxation. As a result, after deducting the difference, Jerzy only needs to pay 799.80 EUR to the Agencia Tributaria.

  
  

If you have any further questions, feel free to contact us and take advantage of a free initial consultation.