Spanish Income Tax on Military Retired Pay and Social Security
Under the U.S.-Spain tax treaty, military retired pay is taxable only by the United States unless the retiree is a Spanish national, and the exemption is lost to a retiree with Spanish immigrant status. U.S. Social Security may be taxed by the United States and, for a Spanish resident, by Spain as well.
Also called: tax, income tax, IRPF, Agencia Tributaria, tax treaty, military retired pay, Social Security, dual citizen.
Military retired pay. Article 21(2) of the 1990 U.S.-Spain income tax convention makes a pension paid by a government in respect of services rendered to it taxable only in that country, unless the recipient is both a resident and a national of the other country. A U.S. retiree living in Spain owes no Spanish income tax on retired pay; one who is also a Spanish national is taxable on it in Spain, and the United States, which keeps taxing its citizens, gives credit.
The exemption has a condition. The saving clause in Article 1(3) lets Spain tax its residents as if there were no treaty, and Article 1(4)(b) keeps the Article 21 exemption only for individuals who are neither citizens of Spain nor have immigrant status there. A retiree who acquires Spanish immigrant status loses the treaty's protection and is taxed under Spanish law. Ask a Spanish tax adviser how your residence permit is classified before relying on the exemption.
U.S. Social Security. Article 20(1)(b) says social security benefits paid by one country to a resident of the other, or to a U.S. citizen, "may be taxed" in the paying country. Unlike the treaties with Mexico or Australia, it does not say "only", so Spain, as the country of residence, may also tax U.S. Social Security received by a Spanish resident, with relief from double tax under Article 24. The protocol notes extend the same rule to pensions from publicly administered funds for non-governmental service, such as Railroad Retirement.
VA disability compensation is not named in the treaty, and Spain's treatment of it was not researched for this entry. It is exempt from U.S. tax under 38 U.S.C. 5301.
Thresholds
Thresholds for Spanish Income Tax on Military Retired Pay and Social Security
Gate
Rule
No rating requirement
The treaty turns on the kind of payment, nationality and immigration status, not on any disability percentage.
Spanish nationality or immigrant status changes the answer
Article 21(2)(b) shifts retired pay to Spain for a Spanish national resident there, and Article 1(4)(b) withdraws the exemption from anyone with Spanish immigrant status.
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Disclaimer
VetTOC is not affiliated with the U.S. Department of Veterans Affairs or the Department of Defense. Information is for reference only and is not an eligibility determination. Verify with VA, the relevant state or territory, or an accredited VSO.