Question re Whether U.S. VA Disability Pay is Taxable in Spain

3POSTS

3 months ago

Greetings all:

Are there any U.S. military retirees with a VA Disability rating and receiving pay while living more than 183 days in Spain? My wife and I look to move to either Santander or Tarragon in 2027, but I need to know whether VA Disability pay is considered taxable income by Agencia Tributaria. I will engage a Spanish attorney, if necessary; however, in anyone has first-hand experience with this, I would greatly appreciate any information. I have read the on-point legal/regulatory documents, and Agencia Tributaria states that residents must declare all worldwide income, but disability‑related income can be non‑taxable if it fits the categories defined in Spanish law. The exception I am looking at is "Benefits or incomes related with situations of disability which are not subject to Personal Income Tax." Thank you in advance for your assistance. SFK

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SimCityAT Expert

13662POSTS

3 months ago

Your VA disability is likely considered taxable by Spain unless you can successfully argue for an exemption by equating it to a local Spanish disability pension, so professional tax guidance is strongly recommended.

katherman69 New member

3POSTS

3 months ago

@SimCityAT

Thx. Was leaning in that direction but was hoping someone already walked that trail. Cheers!

Forcam Lawyers Member

12POSTS

3 months ago

@katherman69

This is a very common question for U.S. retirees moving to Spain.

In Spain, once you become tax resident (more than 183 days), worldwide income must generally be declared. That said, Spanish tax law does exempt certain disability-related benefits, but the exemption is not automatic for foreign payments and does not depend only on the name of the benefit.

In practice, VA disability compensation may or may not be treated as tax-exempt depending on its legal nature, the level of disability, and how it compares to Spanish exempt disability pensions. There is no blanket rule, and cases are reviewed individually.

If you are planning to move in 2027, it’s worth getting specific advice before becoming tax resident to avoid surprises later.

katherman69 New member

3POSTS

3 months ago

@Forcam Lawyers

Thanks for that! I sent a message a couple days ago to an attorney who practices Spanish tax law. I actually drafted a letter (Consulta vinculante request for the Direccion General de Tributos) for him to use, if he so chooses. I submitted three Questions Presented:

First. For personal income tax purposes, should the military retirement pension described as a public pension subject to taxation in Spain be classified in accordance with domestic regulations and the Agreement for the Avoidance of Double Taxation between Spain and the United States?

Second. Should the disability compensation received from the Department of Veterans Affairs be considered as income subject to Personal Income Tax, or can it benefit from any of the exemption cases provided for in the Personal Income Tax regulations, in particular those relating to benefits for absolute permanent disability or severe disability, or benefits of a similar nature recognized by foreign public systems?

Third. If disability compensation is exempt, should this income be declared for information purposes only, even if it is not included in the personal income tax base?

I have not heard anything back yet. Perhaps, if I do not hear back, your firm handles such matters? If yes, let me know how to contact you outside of this channel so we can discuss retainer and other relevant matters in this regard. Again, thanks for the input.

V/r,

Scott