Due to curiosity I asked ChatGPT how Swiss 2P and 3P withdrawals would be taxed after becoming resident in Spain. It said that these would be taxed as “renta general”.
I asked ChatGPT whether it was sure. Below is the detailed explanation it gave:
"Yes, in Spain, lump-sum withdrawals from Swiss 2nd and 3rd pillar pension plans are indeed taxed as general income (“renta general”) rather than as savings or investment income (“renta del ahorro”). Here’s how Spain categorizes this type of income and why it is taxed under the general income scale:
### 1. Spanish Income Tax Categories
Spain distinguishes between:
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- General Income (“renta general”): Includes income from employment, pension payments, and other sources such as freelance income or rental income. This is taxed on a progressive scale, which can go as high as 47-52% depending on the region.*
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- Savings or Investment Income (“renta del ahorro”): Includes capital gains, dividends, and interest. This income is taxed at lower, progressive rates from 19% to 28% depending on the amount.*
### 2. Pension Withdrawals as General Income
For tax purposes, Spain generally considers foreign pension plan withdrawals (including Swiss 2nd and 3rd pillars) as ordinary pension income, which falls under general income, subjecting it to the higher progressive tax scale. This treatment is standard for both local and foreign pension plans.
### 3. Why Swiss Pension Withdrawals Are Treated as General Income
- Nature of the Pillars: The Swiss 2nd and 3rd pillars are regarded in Spain as retirement plans, similar to annuities or pension schemes. This is unlike investment income, as the contributions were likely tax-advantaged in Switzerland and are meant to fund retirement.
- Progressive Income Tax Law in Spain: Spanish law applies the progressive income tax rate to lump-sum pension withdrawals since they fall into the category of “earned income.”
### 4. Capital Gains Treatment Exclusions
*The lower tax rate for capital gains or investment income would typically apply to withdrawals from private savings or investment accounts, but not to pension accounts, whether domestic or foreign, structured as retirement savings. *
### Tax Implications of This Distinction
If you withdraw the entire amount in one year, the €1 million [I asked ChatGPT about an example of a 1 million pension fund ] will be added to your taxable income for that year, likely placing you in the highest tax bracket in Catalonia. To avoid such a high rate, some individuals consider staggered withdrawals, which can spread the tax liability over several years and reduce the overall tax burden.
To ensure you fully optimize the withdrawal strategy under both Swiss and Spanish tax laws, consulting with a cross-border tax specialist would be invaluable. "
I asked Chat GPT what it’s source was:
" what is your source for this information?
###### ChatGPT said:
ChatGPT
My response is based on an understanding of Spanish tax law, specifically how it applies to foreign pensions, and the framework provided by tax treaties between Switzerland and Spain. Here’s how I compiled this:
1. Spanish Income Tax Law: Spain’s tax code (Ley del Impuesto sobre la Renta de las Personas Físicas, or IRPF) provides definitions for “general income” and “savings income.” The law states that pension withdrawals fall under general income because they are categorized as earned income, not as capital gains or investment returns, which would qualify as savings income.
2. Double Taxation Treaty: The Switzerland-Spain Double Taxation Agreement clarifies which country has taxing rights over pension income. According to this treaty, Switzerland has initial withholding rights on the pension withdrawal, while Spain reserves the right to tax it as general income for residents. This arrangement prevents double taxation, allowing for any Swiss withholding tax to be potentially refunded once taxed in Spain.
3. Tax Treatment Consistency: In practice, both local Spanish pension income and foreign pension income (including from Swiss pillars) are typically taxed similarly, especially lump-sum withdrawals. For instance, guidance from tax advisory firms with expertise in Swiss-Spanish cross-border taxation—such as BDO, KPMG, and PwC—affirms that Swiss pension lump sums are treated as general income upon relocation to Spain.
For the most up-to-date and personalized tax guidance, consulting a specialist in cross-border pensions and the Switzerland-Spain taxation relationship would be wise, as they can provide specific references to the latest applicable rulings or regional variations."
