Will my US retirement income be taxed by spain

GuestPoster101448 Guest

0POSTS

5 years ago

Wondering if I will be taxes twice. By Spain and by US.

The Murcia expat guide

Comprehensive and free

Read it now

Virgil_4 Member

1POSTS

4 years ago

Hello! I wonder if you found an answer for your question? I have the same concern...

BarcelonaSteve New member

4POSTS

4 years ago

There's no single answer covering all retirement income. The US-Spain tax treaty treats pensions (including retirement account withdrawals) differently according to whether they derive from public or private employment. If public, only the US will tax the pension of someone residing in Spain (unless that person is a citizen of Spain or has immigration status like being a lawful permanent resident). If private, only Spain will tax the pension.

These rules also apply to US social security benefits, I recently learned. This surprised me since "social security" is dealt with in the treaty as though its one thing, but it looks like soc sec benefits are categorized by Spain as either public or private pensions depending on the employment held while paying in. A practical problem is being able to establish what portion of the benefit derives from public employment (if any) and what portion derives from private employment (if any). Obviously, this information isn't preserved by the US government since it is irrelevant under US law. A tax advisor here in Spain mentioned using a spreadsheet for this purpose.

Income from retirement account withdrawals are taxed by Spain, I believe, under the treaty as private pensions. A recently adopted protocol amending the treaty at least eliminates having to pay taxes on dividends etc. generated by investments contained in retirement accounts. I can't remember how the treaty deals with the sale of investments within these accounts when there is no distribution and whether capital gains taxes would be due to Spain.

Some retirement account benefits are completely lost, like tax free withdrawals from a Roth account. Spain will treat those withdrawals like any other income.

I recently read that it may be possible to receive a foreign tax credit against US taxes owed based on taxes paid to Spain by taking a "treaty position" and "resourcing" the income that Spain taxes as foreign income despite it coming from the US. If I understand this correctly (and I am nowhere clear that I do, if I have to pay Spain taxes on income, I can the next year apply for a tax credit to US income taxes based on the Spanish taxes paid the previous year. I am not sure how this works in practice.

Key provisions to look at are Article 20 (private employment remuneration and social security) and Article 21 (government service). Also, as always, look at the saving clause (Article 1, paragraph 3, and the saving clause exceptions in paragraph 4).

Note that you'd be hard pressed to find something that would actually be subject to double taxation given the treaty provisions which include clauses designed to eliminate double taxation either by giving one country sole authority to tax a given income stream or, if both countries can tax it, determine which country has to give a credit on taxes owed based on taxes paid to the other country. The real concern is that if Spain gets to tax a given income stream, chances are you're going to pay more because Spanish taxes are usually higher than the US.

You can find a lot of helpful information on this in the form of articles and videos at htj.com.

optimist55116 Member

16POSTS

4 years ago

I am also trying to learn all of this as we contemplate retiring to Spain. I haven't run across this tax distinction between public and private retirement income sources before, so I can't confirm that. If this is the case, it may be useful to know that the US SSA has very detailed (and printable) records of every source contributions one has made.

In case the original poster is unaware, there is also a wealth tax in Spain. (It is one of the few remaining countries having one.) Basically if you are a tax resident (i.e., in Spain for 183+ days in a year), your world wide assets are considered. The amount levied varies by the autonomous region. (Madrid is currently zero.)

It is complicated enough that I personally would hire someone to sort it out (and I RARELY hire someone to do these things).

There are some really great posts in this forum that cover this subject.

1 member reacted to this post

mpsmithobrien Member

10POSTS

3 years ago

Extensive reading of the Spanish government taxation regulations reveals a taxation burden that is overwhelmingly excessive and higher than I ever heard seen or reported.

1) ALL WORLDWIDE INCOME regardless of source is taxed for fiscal residents of Spain regardless of the US taxation. (Double taxation treaty only prevent an additive burden of paying both countries as if the other never existed; that is you will always pay Spain as the higher tax collector!)

Be forewarned; that if the average retirement income in Spain for Spaniards is approximately less than 3000 euros/ month…AND the taxation chart tops out at approximately 47% with only a relatively small individual or couples personal exemption…Only the expat with a global income of $ 3000/ month could find the tax payments reasonable. Proof of this income must be documented and approved by Spanish authorities through a very challenging process.

Wealth tax is alive and thriving in Spain; all personal property and especially real estate including your US primary residence is TAXED heavily in Spain IN ADDITION TO YOUR GLOBAL INCOME.

You may ask, “How do Spaniards make it work?”

A poor Spaniard lives on less in Spain than a poor US. Citizen due to benefits to all citizens resulting from the high taxation tables. Free nationalized medical care, education and generous paid vacation time off work . Numerous national holidays and easily accessed mass transit at a very reasonable cost; alleviates need for cars and car insurance, health insurance payments, deductibles and copays. Many family members have second jobs and a second income to create a above average lifestyle and retirement. Finally, life is Spain is by comparison, less convenient and less comfortable. Apt living is predominant and smaller living space with much less storage due to relatively high cost requires each to live with less ‘stuff’! (reference George Carlin’s comedic standup routine on YouTube)

I am a retired US expat married to a Spanish citizen 44 years. We both worked in careers in the US. I married in Spain and visited yearly until retirement in 2018. With retirement have spent months in Spain each year but maintain a primary permanent residency in the US. I have for over 40 yrs wanted to relocate permanently in Spain but cannot conceive of giving up a more than doubling of my taxation burden to any dept of revenue. I worked and sacrificed time and energy during my career to build a nest egg to cover my retirement expenses. I may only pay 20% taxes to the US, none on my future Roth IRA disbursements, but over 47% would be a nightmare for me. Do not misunderstand my intent in writing this. I am still examining the option to relocate and find away to avoid that nightmare. So far none has been discovered. My son lives i Spain and is a Spanish citizen, living every minute of his life here since relocation 8 years ago. I envy his life.

Spain has tourism as its primary industry. That alone my explain the massive obstacles for expats attempting to do more than visit Spain . I am not surprised that the Spanish government restricts the expat movement to Spain through such a heavy taxation burden. It’s working well enough and tourism is booming.

ADDENDUM

“pensions” of any kind or source, social security benefits, distributions or withdrawals from retirement accounts are treated as INCOME!

Dividends and wealth tax are potentially dealt with differently.

I am bilingual and a former Spanish language teacher with years of study and living in Spain. Married to a Spaniard and all3 children are bilingual with Spanish as their first language during preschool years. I regret that I have no secret formula to offer unless the focus is on Portugal . There is a much less heavy tax burden there. Until recently the retirement income was not taxed for expats. That is now in the past yet for the initial 10 yrs in Portugal there is a ceiling on retirement income. See the numerous postings from th experienced expats there! Good luck!

Mick, The Irish Troll