Detailed Information on Your Pension

Pensions, understood as remuneration resulting from previous employment, are treated differently depending on whether they are granted for services rendered in the private or public sector:

• Pension received due to previous employment in the private sector (including those generally paid by Social Security): Most treaties establish the right to tax in favor of the state of residence of the person receiving the pension.
• Pension received due to dependent work provided to the state, a political subdivision, or a local entity (e.g., pensions for public servants): The right to tax typically belongs to the state from which the pension originates, except in some treaties where, if the recipient is a national of the state of residence, the tax jurisdiction corresponds to that state.

Pensions in OECD Convention Model

The MCOECD dedicates two articles to pensions based on whether they are public or private. It should be noted that the concept of public or private for these purposes differs from the generally understood definition.

A pension is considered private when the right to receive it arises from having worked for a private employer, and public if the employer was a public entity. It is evident that the relevance is not in the nature of the payer of the pension, but rather in the nature of the employment that now gives rise to the pension.

For example, benefits paid by Social Security to a person who worked for a private company are considered private under the MCOCDE and are regulated by Article 18. However, if there were no treaty, these would be considered public since they are paid by a public entity.

Article 18 establishes that, for private pensions paid to a resident of a contracting state for previous dependent work, they can only be taxed in that state. Therefore, the exclusive taxing rights rest with the state of residence of the recipient.

Article 19, which regulates “Public Functions,” dedicates section 2 to “public pensions.” In this case, the exclusive taxing right generally belongs to the paying state. However, there may be an exception if the recipient is a national and resident of the non-paying state, in which case the taxing right will belong to the state of residence.

Example

Jochen, a retired German national residing in Mallorca, has two sources of income from two separate pensions:

• A pension of 2,000 euros per month. This pension derives from work performed as a engineer for a private company.
• A pension of 1,00 euros per month corresponding to work as a civil servant.

Pensions in IRNR, Spanish Legislation

Article 13.1.d establishes that pensions and other similar benefits received by a non-resident are considered to be obtained in Spanish territory when they arise from employment carried out in Spain or when they are paid by a resident or an establishment located in Spain.

Pensions are defined as remuneration paid for previous employment, regardless of whether they are received by the worker themselves or another person.

Examples of similar benefits are found in Articles 17.2.a) and f) of the LIRPF: mutual funds for civil servants, pension funds for retired officials, compensatory pensions, and alimony payments.

The taxable base is the full amount, and the tax rate is determined by applying a scale ranging from 8% to 40%.

Pension Taxation Scale

Annual Pension Amount (up to euros)	Fee (euros)	Rest of Pension (up to euros)	Applicable Rate (%)
0	0	12,000	8%
12,000	960	6,700	30%
18,700	2,970	above	40%