Finnish pension income received in Spain

A new tax treaty has been concluded between Finland and Spain, and it has been applied as of 1 January 2019. The new tax treaty provides that if you receive pensions from Finnish sources and live in Spain, you must pay tax to Finland. 

However, pensions paid due to motor insurance or other comparable insurance policies are taxed by Spain only.

Pensions from the private sector are taxed by Spain the first 3 years

The new arrangement involves a three-year transition period in 2019–2022, during which beneficiaries of pension from the private sector do not yet have to pay tax to Finland. However, this requires that your pension from Finland is treated as taxable income by Spain.

If the pension that you receive from the private sector is not subject to taxes in Spain, it is taxed by Finland starting 1 January 2019 with no transition period.

In other words, for the three-year transition period to be applied, your pension from Finland has to be from the private sector and be treated as taxable by Spain. The transition period rule may apply to your Finland-sourced pension income even if you do not actually pay tax on the pension to Spain because your total income stays below a certain limit or you have a lot of deductions, as long as your pension is taxable in Spain.

However, you must pay the Finnish health care contribution to Finland, if Finland reimburses your medical costs to Spain.

Tax paid to Spain is deducted from tax imposed in Finland

The standard practice under tax-treaty provisions is that the individual’s country of residence will remove any double taxation. However, according to what is agreed in the treaty with Spain, elimination of double taxation on pension income is carried out in the country of source. This is called reverse credit. In 2019–2021, however, the reverse credit applies only to pensions to which the three-year transition rule does not apply, i.e. the following types of pensions:

  • pension based on a voluntary pension insurance taken out by the taxpayer
  • pension based on a YEL/MYEL insurance contract
  • national pension

If you live in Spain and you receive one of the pensions listed above from a payor in Finland, then the tax you have paid to Spain on it will be deducted from Finnish tax. Make an estimate of how much tax you must pay to Spain and report it in MyTax or on Form 6207a.

Calculate the Spanish tax on the pension in the same proportion as is the proportion of the pension in all your income taxable in Spain.

Example: You receive €20,000 in pension from Finland based on a voluntary pension insurance contract that you have taken out yourself. Additionally, you receive €30,000 a year in earnings-related pension, to which the transition rule applies. You have no other income subject to tax in Spain. You pay a total of €15,000 in tax on your pensions to Spain. The Spanish tax on the pension based on your voluntary pension insurance is €6,000 (= €20,000/€50,000 × €15,000).  

Note: However, if your pension income is related to employment in the public sector, elimination of double tax is carried out in the country of residence, i.e. Spain.

Tax cards for 2021

In December or January, you receive information regarding your tax card by post. Please check that the information is correct. 

Example 1: You were employed in the private sector in Finland, and now you receive pension income. The Tax Administration has prepared a 2020 tax card for you taking into account that you are not to pay tax to Finland on this pension income. Consequently, the card you receive is only based on a calculation of your health care contribution payment.

Example 2: You were self-employed in Finland and are now a recipient of pensions paid to private entrepreneurs. On this category of pension income, you must pay tax to Finland, because the three-year transition rule does not apply. The Tax Administration has prepared a tax card for you that contains the information that your pension income is subject to Finnish tax.

Example 3: Disability pensions are not always treated as taxable income in Spain. In that case, the individual must pay tax on the pension to Finland. The Tax Administration has prepared a tax card for you that contains the information that your disability pensions are subject to Finnish tax.

You received a decision letter in December or January containing documentation on your withholding. Please check that the information is correct. If something has to be corrected, please get in touch with the Finnish Tax Administration so that the matter can be cleared up and you get a new tax card.

If necessary, call our service number (International income taxation of individuals).

The tax return for the 2020 tax year

Pre-completed tax returns are sent to individual taxpayers in spring 2021. After you have received yours, please check that the information is correct.
 
If the three-year transition period is not correctly accounted for, log in to MyTax to send a correction (or fill out Form 50A), please tick the box for “I am asking to be considered non-resident under a tax treaty”. Add a free-text letter to explain your circumstances.  
 
If necessary, enter the correct amount of taxes you have paid to Spain; fill it in under Crediting of tax paid abroad (reverse credit), either in MyTax or on Form 50A.

If you own an apartment in a housing company in Finland, read more:

Taxation of Finnish pensions up until 2018

The previous tax treaty between Finland and Spain prevented Finland from imposing tax on national pensions and on earnings-related pensions from the private sector.

Pensions earned in the service of the State or a municipality were taxed in Finland. However, if your employer was a public entity operating a business – such as VR, the Finnish State Railways – the pension income was taxed in Spain. Spain also collected tax on the pension if you were a Spanish national.

Transfer of the right to levy taxes to Spain, your country of residence  

If you were employed by a private sector enterprise, the right to tax your pension may transfer to Spain (during the three-year transition period 2019–2021) only if you move to live in Spain on a permanent basis. The authorities would generally consider your residence in Spain to be permanent if you no longer have a home in Finland. If you still have living quarters in Finland and you also often stay in Finland, it will be more complicated to determine where your pension income is to be taxed. Determining your country of residence requires careful consideration of your overall situation.

If the you provide sufficient proof of your move to Spain, the right to tax Finnish private-sector pension is transferred to Spain if all the following conditions are met:

  1. You have submitted a notification of move from Finland to live permanently in Spain to the Digital and Population Data Services Agency.
  2. You have a permanent place of residence in Spain.
  3. The Spanish tax authorities consider you a Spanish tax resident. Note that if this is the case, your other income sourced in Finland may also be taxed in Spain.

Ask the Finnish Tax Administration for a tax card

If you want your pension to be taxed in Spain, you can request a Finnish tax card for this purpose. File your application in MyTax or on Form 6207a. Attach a document issued by the Spanish tax authority about your liability to pay tax on your worldwide income to Spain (a certificate of residence). Also attach proof of your having a permanent home in Spain, for example a copy of the deed of sale or rental contract. You should also provide proof that you no longer have a home in Finland. Acceptable proof is, for example, a copy of the deed of sale, a statement showing that you have given notice on your rental contract, or an account stating that you have rented out the apartment you own.

Health care contribution payable to Finland

Even when you live in Spain on a permanent basis, Finland usually reimburses your medical costs to Spain. Because of this, you must pay the insured person’s health care contribution, which is less than 2% of the pension, to Finland. The reimbursement of medical costs is governed by the EU regulations on social security.

Checklist for persons moving abroad

File a notification of move to the Finnish Digital Agency.

  • If you file a notification of permanent move, information about your move is forwarded to the Tax Administration automatically.
  • If you file a notification of temporary move to the Digital and Population Data Services Agency, you should inform the Tax Administration separately. Print a form for reporting a temporary change of address (3817). If you do not want to use the form, you can send us a letter with the following details: your name, personal ID, new address and the date of move. 

If you live abroad

  • If your address abroad changes during your stay, you must inform both the Digital and Population Data Services Agency and the Tax Administration. 
  • If you are a Finnish citizen, report to the Digital and Population Data Services Agency (DVV) any changes to the following information: address, marriage, divorce or children. See DVV’s website for more information about living abroad

Check with the Social Insurance Institution (Kela) whether you continue to be covered by the Finnish social security or whether Finland will reimburse your medical costs to your new country of residence.