If you receive pension from Finland to Spain in 2019−2021

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

However, pension based on motor liability insurance or other such risk insurance will be taxed in Spain only.

Pension income from the private sector is taxed only by Spain for the first 3 years

3-year transition period was agreed to apply to pension income received from the private sector in 2019–2021. During the period, you do not pay tax on your pension to Finland. However, this requires that the pension you receive from Finland is treated as your taxable income in Spain.

If the pension you receive from the private sector is not subject to tax in Spain, it will be taxed by Finland starting 1 January 2019, i.e. the transition period is not applied.

In other words, for the 3-year transition period to be applied, your pension from Finland has to be from the private sector and be treated as taxable in Spain. The transition rule may apply to pension you receive from Finland 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. The main thing is that the pension is subject to tax in Spain.

You must pay the health care contribution on the pension to Finland, however, if Finland reimburses your medical costs to Spain.

Tax paid to Spain is deducted from tax imposed in Finland

Usually tax treaties provide that if double taxation occurs, it will be eliminated by the individual’s country of residence. Exceptionally, however, the tax treaty with Spain states that double taxation on pension income will be eliminated in the country of source. This is called reverse credit.

In 2019–2021, however, the reverse credit applies only to pensions to which the 3-year transition period does not apply, i.e. the following pensions:

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

If you live in Spain but receive Finnish pension on which you must pay tax to Finland, the tax you have paid on the pension to Spain will be credited to you in your taxation in Finland. Calculate the Spanish tax on the pension you receive from Finland 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 calculated as follows:

The pension based on voluntary insurance received from Finland (€20,000) is divided by the total amount of income taxable in Spain (€50,000). The result is then multiplied by the total amount of tax paid to Spain (€15,000). 

€6,000 (20,000 / 50,000 x 15,000).  

The Spanish tax on the pension based on voluntary insurance received from Finland is thus €6,000. 

Note: However, double taxation of pension income from the public sector is normally eliminated in the country of residence, i.e. Spain.

Tax return for 2021

You receive a pre-completed tax return in spring 2022. Check that the details are correct.

If the 3-year transition rule has not been taken into account correctly, tick the box “I am asking to be considered non-resident under a tax treaty” in MyTax or on Form 50A, and add a free-form explanation.   

If necessary, correct the amount of tax you have paid to Spain in the section Crediting of tax paid abroad (reverse credit) either in MyTax or on Form 50A.

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.