So, You Want to Retire in Spain.

We get it: nice weather, good food, high quality of life. But, let’s talk about the less appetizing stuff: Spanish tax rates for pensioners. 

You’re probably scratching your head, wondering how pensions are taxed in Spain, and if you’ll end up paying taxes twice – once in Spain and once back in your home country. And hey, what about filing tax returns? Does that apply to your pension too?

Don’t worry! Lexidy’s tax experts in Spain can answer all your questions.

How are Pensions Taxed in Spain?

If you receive pensions corresponding to former employment in another country, you will only have to consider it for Spanish tax purposes if you are a Spanish Tax Resident. For the years that you are a Spanish Non-Tax Resident, lay back and relax. There are no taxes to be paid on these pensions in Spain.

Also note that, if more than 183 days in one calendar year are spent in Spain, you are a Spanish Tax Resident. This could also happen if your spouse and minor dependent children are Spanish Tax Residents.

Tax on Pensions in Spain: Public VS Private

Public Pension Tax in Spain (Civil Servants)

• Who’s affected?: Civil servants like teachers, police officers, doctors, military personnel, etc.
• Taxation: These pensions are not taxed in Spain. Taxation occurs only in the country where the pensions are paid.
• Impact on Spanish Taxes: The pension amount is used to determine the progressive tax rate if filing a Personal Income Tax Return in Spain is required.
• Spanish Nationals: For Spanish citizens, these pensions are subject to taxation only in Spain.

Private Pension Tax in Spain (Private Sector Jobs)

• Taxation: Private sector pensions are taxable in Spain.
• Avoiding Double Taxation: You can deduct taxes paid in another country from your Spanish Personal Income Tax. The maximum deduction is limited to the equivalent Spanish tax amount.
• Varies by Country: The specifics depend on the tax treaty between Spain and the country where the pension originates.

Double Tax Treaties

• General Rule: Spain has double tax treaties with many countries to avoid double taxation.
• Variations: Each treaty has its own terms and conditions.
• Expert Consultation: Understanding your tax obligations in Spain is crucial. Get a free consultation from our experts in the field and clarify the details of your financial responsibilities for pensions in Spain.

Personal Income Tax Return Filing Obligations

Let’s simplify and clarify the rules for filing Personal Income Tax Returns in Spain, especially if you’re receiving private pensions:

Single Source

• If your private pension exceeds €22,000 in a year from just one source, you must file a Personal Income Tax Return.
• Remember: Public pensions don’t count towards this €22,000 limit.

Multiple Sources

• If you get pensions from several sources and the amount from each payer after the first is under €1,500, you only need to file a tax return if the combined total exceeds €22,000.
• If any additional pension is more than €1,500, the threshold to file a tax return drops to €12,643 for the total annual amount.

The following amounts are calculated for individuals who only receive pensions in Spain. In the case that you do receive another kind of income, you may or may not have to pay. 

We recommend requesting a free consultation from one of our tax advisors in Spain to help with the preparation and filing of your Personal Income Tax Return.

How to file your pension taxes in Spain

Each year, from April to June, you’ll need to file your income tax return for the previous year. This is when you declare your pension and any other income.

The process is now digital, with all tax returns filed online. You’ll start by requesting a draft of your return.

Payment and Reimbursement

• Direct Debit System: The Spanish Tax Authorities will handle payments or refunds through direct debit, using your bank account information.
• Automatic Transactions: They will automatically deduct or deposit the correct amount based on your tax declaration.

Splitting Payments

• Option for Partial Payments: If you owe taxes, you can opt to pay in two installments: 60% after you file and the remaining 40% by November 5th.

Navigating Spain’s pension tax system can be complex, so it’s wise to seek professional help. Our tax lawyers offer guidance to ensure you understand your obligations, meet deadlines, and explore potential savings through allowances and deductions. 

With our assistance, you can confidently manage your pension taxes.

Spanish Tax Rates for Pensioners: A Practical Example

Mike is a U.S. national who is considering retiring, using his pensions in Spain. He receives €30,000 in the year for a pension corresponding to his former job as a civil servant for the state of Missouri. 

He has paid €5,000 to the IRS in taxes. Additionally, he receives €25,000 that year from a private pension. He has been adding to it for the duration of his life and has paid €4,300 in total.

Does Mike have to file a Personal Income Tax in Spain?

To answer this question, we will exclude considering public pensions, as they are exempt from taxes.

He has been receiving “employment income”, which, in this case, comes from his pension plans. This is when there is more than one payer, and the total amount received from the second to the last payer is €25,000. 

The total amount is over €1,500, so the applicable category threshold for filing a Personal Income Tax for Mike is €12,643. As he received more than this amount, he therefore has to file a Personal Income Tax Return on his pensions in Spain.

What is the applicable tax rate?

To speak about the applicable tax rate, we will elaborate on both public and private pensions. Spain taxes employment income at a progressive rate ranging from 19% to 45%. In this situation, an annual income of 55,000 euros corresponds to a tax rate of 26%.

This 26% will only apply to the taxable income, which is €25,000 for private pensions.

How much tax will Mike have to pay?

The tax liability (once he deducts his personal allowances) is €4,667.

However, the taxpayer will be able to deduct the amount of taxes paid abroad on these pensions in Spain, which is €4,300.

The final tax amount he must pay in the taxpayer’s Personal Income Tax Return will be a mere €367.

Frequently Asked Questions about Spanish Tax Rates for Pensioners

What is the tax free allowance for pensioners in Spain?

If you’re a Spanish tax resident, you’re eligible for a personal allowance on your Spanish income tax. This includes income from savings and other general sources.

Pensioners receive a higher personal allowance. Those aged 65 to 74 are entitled to an allowance of €6,700 annually. If you’re over 75, this allowance increases to €8,100.

What is the Spanish Tax Rate for Pensioners?

In Spain, pensions are considered income and are taxed accordingly. The tax rates for pensions align with standard income tax rates, which currently range from 19% to 47%.

What is the deadline for filing income tax returns in Spain?

The annual deadline for filing income tax returns in Spain typically falls between April and June of the year following the tax year. However, it’s essential to verify the specific dates each year, as they may change.

Now You’re the Expert on Taxes in Spain for Retirees

Take advantage of the resources at your disposal to assist you and make the process much easier. Taxes can be complex, that’s for sure. But with help from an experienced tax advisor in Spain, they become much more simple.

Need help with your Spanish tax filings? Simply fill out the form below, and a member of our expert tax law team will contact you within 24 hours. We’re here to help make the process smooth and stress-free.

(Blog updated by Lexidy Staff December 2023)