Expatriate Law in Spain
A Comprehensive Guide on the “Beckham Law”
The special tax regime applicable to workers relocated to Spanish territory, also known as “Expatriate Regime”, or commonly referred to as the “Beckham Law”, presents an appealing opportunity for foreigners looking to move and work in Spain. This special tax regime provides a favorable tax environment, streamlining integration and maximizing economic benefits for new residents.
What is the Expatriate Regime or “Beckham Law”?
The Expatriate Regime allows foreign workers, who for employment reasons move their tax residence to Spain, to opt for a preferential tax regime by being taxed as non-residents for their first six years of residence in Spain. The latest reform of the regime took place in 2023, improving access to include professionals from various sectors with the aim of attracting talent to Spain.
Where is the “Beckham Law” regulated?
The legal regulation of the “Beckham Law” is found in Article 93 of the Law 35/2006, of November 28, on Personal Income Tax (“IRPF” by its Spanish acronym), as well as in Articles 113 to 120 of the Royal Decree 439/2007, of March 30, which approves the IRPF Regulation.
What are the advantages of the Expatriate Law?
The main advantages offered by the Expatriate Law are as follows:
- Reduced Tax Rate: The Expatriate Law establishes a fixed tax rate of 24% for employment income up to 600,000 euros and 47% for higher incomes. This fixed rate is significantly lower than the progressive rates applicable to “ordinary” tax residents, resulting in considerable tax savings, especially for those foreigners who will earn high incomes. Only income earned in Spain is taxed: While “ordinary” residents are taxed in Spain on their worldwide income, those under the “Beckham Law” are only taxed in Spain on Spanish-sourced income and not on that earned abroad, except for employment income. Also, regarding the Wealth Tax / Solidarity Tax on Great Fortunes, they only pay on the net value of assets and rights located in Spain, being taxpayers by real obligation in these taxes.
- Simplification of Tax Obligations: One of the major benefits is the simplification of tax obligations. Beneficiaries are not required to declare their assets outside Spain through Form 720 of Declaration of Assets Abroad. This relieves administrative burden and is particularly advantageous for those residents who apply the Expatriate Regime with investments or international assets.
- Family Benefits: Since 2023, the “Beckham Law” also extends its benefits to the beneficiary’s spouse and children under 25 years of age, allowing them to enjoy the same tax benefits, subject to meeting certain requirements. This includes the application of the reduced tax rate on their income in Spain, which can represent a significant incentive for families considering moving to Spain.
- Attractive to Qualified Professionals and Digital Nomads: The “Beckham Law” is particularly appealing to highly qualified professionals, especially in sectors such as technology, R&D, and finance. This not only benefits individuals but also Spanish companies and the business ecosystem, fostering the attraction of talent and specialized knowledge.
Individuals moving to telework from Spain without their relocation being ordered by their employer, also known as Digital Nomads, obtaining the visa for international teleworking, can benefit from the application of the “Beckham Law”.
What are the main requirements to opt for the “Beckham Law”?
The requirements to apply for the “Beckham Law” or Expatriate Regime are as follows:
- No Previous Fiscal Residence: It is essential that applicants have not been fiscal residents in Spain during the five years prior to their application. This applies to both foreigners and Spaniards who have not been fiscal residents in Spain in the last five years.
- Circumstances of Relocation to Spain: The move to Spain must occur as a result of one of the following circumstances:
- A work contract, excluding special employment relationships of professional athletes.
- An international telework visa, also known as a Digital Nomad Visa.
- Acquiring the status of a director of an entity, with certain limitations if the entity is asset-holding.
- Carrying out in Spain an economic activity qualified as entrepreneurial.
- Carrying out an economic activity by a highly qualified professional providing services to startups or developing training, research, development, and innovation activities.
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Adequate Documentation and Compliance with Deadlines: The documentation to be provided is specific for each case depending on the circumstances of the move to Spain. To benefit from the “Beckham Law”, it is crucial to submit all required documentation within six months following the start of the employment activity registered with the Social Security in Spain or in the corresponding justifying document.
With regards to deadlines and due to the approval of the new Ministerial Order regulating this regime, the deadline to opt for applying the “Beckham Law” has been extended until June 16, 2024, for those taxpayers acquiring residence in Spain during 2023. This applies to both individuals relocated to Spain in the second semester of 2022 and those relocated during 2023. - Not obtaining income through a Permanent Establishment: Applicants may not earn income classified as obtained through a Permanent Establishment located in Spanish territory. However, the “Beckham Law” does allow applicants to be employed by a Permanent Establishment of a foreign company in Spain.
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Frequently Asked Questions about the “Beckham Law”
Can I apply for the “Beckham Law” if I moved to Spain during 2022 or 2023?
This issue is particularly relevant, as with the entry into force of the new Ministerial Order, there is a transitional regime that allows those taxpayers who acquired residence in Spain during 2023 to opt for the special regime until June 16, 2024.
How long can the “Beckham Law” be applied?
The “Beckham Law” applies during the year of residence change and the following five years (6 years in total). Thus, if you arrived in Spain in December 2023, the duration of the regime will be until 2028.
What happens with income earned outside of Spain?
Under the special regime, income earned outside of Spain, (with the exception of employment income), is not subject to taxation in Spain. This represents a significant benefit for expatriates who maintain income or investments abroad, as they can manage their global assets more efficiently without the concern of double taxation.
How is the transition managed after six years?
Once the six-year period has elapsed, beneficiaries of the Expatriate Law transition to being taxed as “ordinary” residents in Spain. This implies an adaptation to progressive taxation scales and the obligation to declare their global income in Spain. Therefore, it is advisable to plan this transition in advance to effectively manage the specific tax implications for each client.
Are there income limits to benefit from the “Beckham Law”?
There is no income limit to benefit from the “Beckham Law”. Employment income up to 600,000 euros is taxed at 24%, while income exceeding this amount is taxed at 47%. On the other hand, dividends, interest, and gains derived from the transfer of shares in companies are taxed in the savings income base at tax rates ranging from 19% to 28% for income over 300,000 euros.
What happens if I change jobs in Spain after having applied for the “Beckham Law”?
According to the Spanish Tax Agency in numerous binding consultations, you can maintain the Expatriate Regime if you remain for a brief period of time in a situation of unemployment or inactivity and then start a new employment relationship.
Are there any exceptions or special cases?
There are many special situations and exceptions that require individualized advice, such as in the case of making real estate investments in Spain. Each case may have its own particularities that affect the application of the Regime. Therefore, it is advisable to consult with an expert in international taxation like ours for accurate advice.
What are the disadvantages of opting for the “Beckham Law”?
Despite its many benefits, the “Beckham Law” also has some disadvantages. Among the main disadvantages, we can point out that Double Taxation Agreements do not apply. Thus, as workers are considered non-residents, the expenses they have incurred during each fiscal year are not deductible in the income tax return. Moreover, in case of dismissal, the potential compensation would be taxed in its entirety (the exemption cannot be applied).
Can I renounce the “Beckham Law”?
Yes, the employee can renounce the special regime. This renunciation must be communicated to the Tax Agency during the months of November and December and is applicable from January of the following year. However, in case of renunciation, the taxpayer cannot reapply for this regime later.
How does it affect employees of new emerging companies?
The Expatriate Regime is an important incentive to attract talent to startups and emerging companies in Spain. It offers an attractive tax environment for professionals seeking opportunities in the burgeoning sector of new companies.
Are there additional obligations under this regime?
Although the tax regime is simplified under the “Beckham Law”, it is essential to comply with all applicable tax regulations. This includes timely filing of tax returns and compliance with any other tax obligation in Spain.
Do benefits apply to Social Security?
The benefits of the Expatriate Regime focus on taxation, not on Social Security contributions. Expatriates continue to be subject to the standard regulations of Spanish Social Security, which means they must contribute according to the provisions of the current laws in the matter, without additional benefits in this area.
