Discover the Beckham Law: Tax Benefits for Expatriates in Spain

Are you an expatriate moving to Spain for work? Understanding the Beckham Law, also known as the "Impatriate Law," can help you save significantly on taxes. This special tax regime allows qualifying individuals to benefit from a lower tax rate on their global employment income, making Spain an attractive destination for foreign professionals.

Whether you’re a high-level executive, digital nomad, or newly appointed company administrator, this guide will walk you through the benefits, eligibility criteria, and application process of the Beckham Law.

What is the Beckham Law?

In Spain, there is an opportunity to benefit from a special tax regime, commonly known as the "Beckham Law," which allows individuals to be taxed at a lower rate on their global employment income. This applies if they have not been a resident in Spain for the last five years and are moving to Spain for work purposes.

Although there is no official law named "Beckham Law," it is referred to as such because it was introduced to benefit the football player David Beckham when he started playing for Real Madrid. However, the legislation has since been modified, and athletes can no longer take advantage of this regime.

What was the Tax Situation Before the Beckham Law?

Before 2005, foreigners who stayed in Spain for more than 183 days were considered tax residents and had to pay Spanish income tax (IRPF) on their global income, with rates reaching up to 47%. This high tax burden led to complaints from many expatriates, prompting the introduction of the Beckham Law.

Main Benefits of the Beckham Law

The Beckham Law offers several significant tax benefits for qualifying individuals moving to Spain for work. Here’s a detailed explanation of the primary advantages:

Flat Tax Rate

• Simplified Taxation: Individuals who qualify and earn less than 600,000 euros in employment income benefit from a flat tax rate of 24%. This is lower than the progressive tax rates that apply to Spanish residents, which can reach up to 47%.
• Predictable Tax Liability: The flat rate simplifies tax planning and provides certainty regarding the amount of tax to be paid.

For example, John, a high-level foreign executive, earns a gross annual salary of 100,000 euros. If he moves to Spain under this regime, he would be taxed at 24% on his income, instead of the 32% applicable to Spanish residents.

Exemption on Foreign-Sourced Income

• Non-Taxation of Non-Spanish Income: Dividends, interest, rental income, and other earnings sourced from outside Spain are not taxed in Spain. This is particularly advantageous for expatriates who maintain investments or rental properties in other countries.
• Global Employment Income: Only the global employment income and qualified entrepreneurial activities are taxed in Spain. This means that other forms of income, such as capital gains or foreign-sourced investment income, remain untaxed by Spanish authorities, provided they are not earned within Spain.

No Obligation to Declare Foreign Assets (Form 720 and Wealth Tax)

• Simplified Reporting Requirements: Under the Beckham Law, there is no requirement to declare foreign assets using Form 720 or include them in the Wealth Tax return in Spain. This exemption reduces the administrative burden and complexity for expatriates who hold significant assets abroad.
• Privacy of Foreign Holdings: This benefit ensures that expatriates can maintain privacy regarding their foreign investments and assets.

Long-Term Benefits

• Extended Duration: The benefits of the Beckham Law apply during the first tax year when the individual becomes a Spanish resident and for the subsequent five tax years. This extended period allows expatriates to enjoy significant tax savings over several years.

Incentives for High-Earning Professionals

• Attraction for Talent: The regime is designed to attract high-earning professionals, such as executives, engineers, and digital nomads, to Spain. By offering a favorable tax rate and exemptions, Spain becomes a more attractive destination for skilled workers.

Limitations

• No Deductions or Allowances: It is important to note that individuals under this regime cannot deduct expenses such as social security contributions or apply the standard tax-free allowance (5,550€) or reductions.

Eligibility Criteria for the Beckham Law

To qualify for the Beckham Law, any foreign worker relocating to Spain for employment must meet the following criteria:

1. Non-Residency: The individual must not have been a tax resident in Spain during the five tax years preceding their move.
2. No Permanent Establishment: Income should not be generated through a permanent establishment in Spain.
3. Main Relocation Reasons:

• • Due to a new employment contract with a Spanish employer (e.g., Juergen, a German engineer, moves to work for a Spanish company).
  • Employer-mandated transfer to Spain (e.g., Juergen's company requires him to move to Spain).
  • Relocation as a digital nomad, working remotely for a foreign company using exclusively digital means.
  • Becoming an administrator of a Spanish entity.

How to Apply for the Regime

If you meet the eligibility criteria, you must submit your application using form 149 within six months from the start of your activity and registration with Spanish Social Security. The necessary documents include:

• Passport and NIE
• Social Security number
• Employment contract with a Spanish company

Once residency in Spain is established, income must be declared using form 151, not the regular IRPF declaration.

At IberianTax, we offer a quick and cost-effective way to file form 151. Additionally, if you meet the requirements, we can assist in registering for the regime using form 149.

For more information or assistance, please contact us at support@iberiantax.com.