Cross-border retirees: Taxation

Natural persons resident for tax purposes in Spain must pay tax in Spain on their worldwide income, i.e. they must declare in Spain the income they receive from any part of the world, without prejudice to the terms of the international double taxation agreement signed between Spain and the country from which the pension is received.

Account must be taken of the country from which the pension is received, as Spain may have signed a double taxation agreement with that country and, if so, the article of the agreement applicable to the pension must be consulted.

Agreements signed by Spain generally follow the Organisation for Economic Co-operation and Development (OECD) Model Convention, and thus there are usually two articles dedicated to pensions, one on pensions from former employment in the public sector (State, political subdivisions, local authorities) and another on private sector pensions.

To obtain information on the taxation powers of each State over pensions:

• Check the provisions of the agreement.
• Where applicable, consult the measures applicable to avoid double taxation.
• It is necessary to check the specific applicable agreement in case it contains any particular details.

In the event of double taxation:

• As the country of residence, it will be Spain who decides on the measures.
• Measures normally consist of the application of a deduction.
• In certain cases, the agreement may provide for an exemption for a pension received in the country of residence (Spain), although this would be on a progressive basis, meaning that the exempted income would be added to the person’s remaining income in order to calculate the rate of tax applicable to their remaining income.

If the pension is also taxed in the country of origin, the taxpayer may apply the deduction for international double taxation.

Regarding the obligation to file a tax return for IRPF, account must be taken of the thresholds set for each year, and there are a number of issues of note:

• pensions are considered to be income from work,
• exempt income is not taken into account when determining the obligation to declare, and
• a non-resident entity paying a foreign pension is not obliged to withhold IRPF tax.

This means that the income threshold from which the obligation to declare arises is lower than for other types of income from work.

The activity of the tax authorities is regulated. Tax legislation provides that tax assessments issued by the tax authorities may be challenged by the parties concerned in the event of a disagreement, pursuant to Article 222 et seq. of the Spanish General Tax Law, and the relevant implementing regulation on administrative review. The statements notifying the result of a tax assessment always state how to appeal and include the relevant deadline.

Anyone wishing to challenge the assessment must choose, within a maximum period of 1 month from the day following the date of notification, between:

• An administrative appeal, filed in writing and addressed to the authority who issued the assessment, stating the arguments and attaching documents in support of the claims made, or
• An economic-administrative claim before the corresponding Tax Disputes Board, which is independent of the Tax Office. With this latter option, the appeal will be filed with the authority who issued the assessment, who will forward the appeal to the competent court.

Both appeals may be filed via the Tax Office website, using the digital signature systems permitted.