Taxation of Spanish private pensions for residents in Costa Rica

The Directorate General of Taxation (DGT) has issued a relevant ruling for Spanish citizens who move their tax residence to Costa Rica and continue to receive income from private retirement pensions in Spain.

What the DGT has ruled

The inquiry focuses on determining the taxing power over private retirement pensions paid from Spain to a natural person resident in Costa Rica. After analyzing the applicable regulations, the DGT has determined that, as it concerns a private retirement pension, Article 18 of the Convention between Spain and Costa Rica must be applied.

This provision, which has not been modified by the Multilateral Instrument (MLI), establishes a clear rule: pensions paid by reason of past employment may only be taxed in the State where the beneficiary is a resident. Consequently, if the beneficiary has their tax residence in Costa Rica, said pension will only be taxed in that country, leaving Spain without the power to tax such income.

What it means for you

This ruling has a direct impact on Spanish expatriates who decide to establish their domicile in Costa Rica. If you receive a private retirement pension of Spanish origin, the application of this convention avoids double taxation, allowing the tax to be settled exclusively in your country of residence.

It is fundamental to distinguish between the different types of pensions, as the application of this specific article depends on the nature of the benefit and the effective tax residence of the recipient.

What should be done

To ensure the correct application of this ruling, it is necessary to have official accreditation of tax residence in Costa Rica. The correct management of documentation certifying your status as a resident before the paying entities in Spain is essential to avoid undue withholdings regarding Non-Resident Income Tax (IRNR).

Each personal situation presents technical nuances that require a detailed analysis of residence and the nature of the pension. It is recommended to assess your particular case to confirm that you meet the requirements of the Convention between Spain and Costa Rica.