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V0907-16 10 March 2016 · SG de Fiscalidad Internacional Criterion in force
IRPF · incapacidad permanente absoluta

Luxembourg disability pensions may be exempt from Spanish IRPF under certain conditions

The DGT addresses the taxation of a Luxembourg-based absolute permanent disability pension received by a resident in Spain. It states that such income may be exempt from IRPF if the disability is classified as absolute or severe disability and the paying entity acts as a substitute for Social Security.

The question raised

Taxation regime for a pension due to absolute permanent disability recognized abroad.

The DGT's ruling

If the taxpayer is a resident in Spain, the Luxembourg pension may be taxed in both countries pursuant to the Double Taxation Convention. The income shall be exempt from Personal Income Tax (IRPF) if it is proven that the degree of disability is equivalent to absolute disability or severe invalidity and that the Luxembourgish entity is a substitute for Social Security. Should these requirements not be met, the income must be included in the taxable base, applying the international double taxation deduction if necessary.

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