Pensioners who wish to relocate their residence to Spain may generally receive their pension either into a German or a Spanish bank account. Where your pension is taxable depends primarily on when you started, or will start, receiving your pension. In certain cases, it may be necessary to file an income tax return in both Germany and Spain.

Until 2015, pensions were generally taxed only in the country of residence (Spain). Consequently, it was not necessary to file a German income tax return in respect of pension income.

German pensioners residing in Spain who started receiving a German pension for the first time on or after 1 January 2015 are now required to pay tax on part of their pension in Germany and must therefore also file a German income tax return. Under the applicable Double Taxation Agreement, the tax paid in Germany may be credited against the Spanish income tax liability, meaning that the overall tax burden generally remains unchanged. Under the revised Double Taxation Agreement, pensions commencing from 2015 onwards are taxable in Germany at a rate of up to 5%, increasing to up to 10% from 2030. This rule only applies if you retire after 1 January 2015 and are tax resident in Spain.

Tax Residence in Spain

For the purposes of the Double Taxation Agreement, you are regarded as tax resident in Spain if, under Spanish tax law, you are liable to tax there by reason of your residence, habitual abode, place of effective management or any other similar criterion.

If you maintain a residence in both Germany and Spain (for example, as a long-term seasonal resident), you will be regarded as resident in the country with which your personal and economic relations are closer (centre of vital interests). As a general rule, your centre of vital interests is deemed to be in Spain if you spend more than 183 days per calendar year there.

Taxation in Spain and Germany

If, based on the above, you are tax resident in Spain, you are fully liable to Spanish Personal Income Tax (IRPF) on your worldwide income. In relation to retirement income, it is necessary to distinguish between a state or private pension and a civil service pension.

A) Pension

As explained above, pensions first received from 2015 onwards are taxable in both Germany and Spain. The tax paid in Germany is credited against the Spanish income tax payable. To ensure that the portion of tax already paid in Germany is not taxed again in Spain, it is essential to file the appropriate income tax return in both countries.

This rule also applies to occupational pensions and Riester pensions where contributions were supported by German state incentives for a period exceeding twelve years. All pension schemes that have not benefited from German state subsidies continue to be taxed exclusively in the country of residence, i.e. Spain.

B) Civil Service Pension

If, instead of an ordinary pension, you receive a civil service pension, it is generally taxable exclusively in Germany, even if you are permanently resident in Spain. It is irrelevant whether the pension is paid by the German Federal Government, a Federal State (Land) or any other public-law entity or authority. The only exception applies where you are resident in Spain and also hold Spanish nationality. Only in this case is the pension taxed exclusively in Spain.

 

Income Tax Return and Taxation in Spain

According to the current Spanish Personal Income Tax Act (Ley del Impuesto sobre la Renta de las Personas Físicas – IRPF), individuals who are tax resident in Spain, whether Spanish nationals or foreign citizens, are liable to Spanish income tax on their worldwide income.

However, you are generally exempt from the obligation to file a Spanish income tax return if your total annual pension income is less than €11,200 and your pension is not subject to taxation in Germany.

If your annual pension exceeds €11,200 and/or part of your pension is taxable in Germany, you should in any event file a Spanish income tax return so that the tax already paid in Germany can be credited against your Spanish income tax liability under the rules on international double taxation. (See Article 96 of the Spanish Personal Income Tax Act and Article 61 of the Personal Income Tax Regulations.)

Where Is the Pension Declared in the Spanish Tax Return?

A pension received from Germany must be declared in the Spanish income tax return as cash remuneration (retribuciones dinerarias) under the section relating to employment income (rendimientos del trabajo).

If your pension is not taxable in Germany because you started receiving it before 2015, the full amount is taxed in Spain in the ordinary way. If, however, tax has already been paid in Germany (currently up to a maximum of 5%), this amount may be credited against your Spanish income tax liability.

For this purpose, both the amount of the pension and the amount of tax already paid in Germany must be declared in the section relating to Foreign Tax Credit (Deducciones por doble imposición internacional).

Conclusion

If you started receiving your pension on or after 1 January 2015, you should generally file an income tax return in both Spain and Germany.

Our law firm will be pleased to analyse your individual circumstances, carry out the necessary administrative procedures on your behalf and assist you with the preparation and filing of the corresponding tax returns. If you require further information or have any questions regarding the taxation of pensions in Spain, please do not hesitate to contact us by email or telephone.

Author:

Christoph Sander
Lawyer and Tax Advisor
CEO, Partner, Director
info@sspartners.es
Tel: (+34) 951 12 13 06
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