In November 2024, the Community of Madrid enacted Law 4/2024, commonly referred to as the “Mbappé Law”, introducing a significant tax incentive aimed at attracting foreign investors and high-net-worth individuals to the region. This legislation establishes a deduction in the regional component of the Personal Income Tax (IRPF) for new taxpayers relocating to Madrid and making qualifying investments. The law is effective retroactively from January 1, 2024, and represents a strategic effort to enhance Madrid’s competitiveness in the global market.
Key Provisions of the “Mbappé Law”
- Eligibility CriteriaTo qualify for the tax deduction, individuals must meet the following conditions:
- Non-Residency Requirement: The taxpayer must not have been a tax resident in Spain during the five tax years preceding their relocation to Madrid.
- Establishment of Tax Residency: The individual must establish tax residency in the Community of Madrid and maintain it for a minimum of six consecutive tax periods.
- Investment Mandate: Qualifying investments must be made within the tax period in which tax residency is established or the subsequent tax period.
- Qualifying InvestmentsThe law specifies that eligible investments include:
- Debt Instruments: Acquisition of securities representing the lending of capital to third parties, regardless of whether they are traded on organized markets.Equity Instruments: Purchase of securities representing participation in the equity of entities, provided that:
- The entity is not domiciled in a tax haven.The taxpayer’s direct or indirect participation, combined with that of related parties, does not exceed 40% of the entity’s capital or voting rights during the holding period.The taxpayer does not hold executive or managerial positions or maintain an employment relationship with the entity.
Notably, investments in real estate properties are excluded from qualifying for this deduction. - Debt Instruments: Acquisition of securities representing the lending of capital to third parties, regardless of whether they are traded on organized markets.Equity Instruments: Purchase of securities representing participation in the equity of entities, provided that:
- Calculation of the DeductionThe deduction amounts to 20% of the acquisition value of the qualifying investments, including associated costs and taxes, but excluding interest expenses. This deduction applies to the regional portion of the IRPF and is calculated as follows:
- Acquisition Value: The total amount paid for the investment, encompassing purchase price, associated costs, and taxes.
- Deduction Application: 20% of the acquisition value is deducted from the regional tax liability in the tax year in which the investment is made, provided all conditions are met.
- Holding Period and ComplianceTo retain the tax benefits, the following conditions must be satisfied:
- Minimum Holding Period: Investments must be held for at least six years.Continuous Tax Residency: The taxpayer must maintain tax residency in Madrid throughout the six-year holding period.
Failure to comply with these conditions necessitates the repayment of the deducted amounts, along with applicable late payment interest.
Strategic Implications for Expatriates and Investors
The “Mbappé Law” offers a compelling opportunity for expatriates and foreign investors considering relocation to Madrid. By aligning investment strategies with the law’s provisions, individuals can achieve significant tax savings, thereby enhancing the financial attractiveness of establishing residency in Madrid.
Navigating the “Mbappé Law” with Lullius Partners
At Lullius Partners, we specialize in providing comprehensive legal and tax advisory services tailored to the unique needs of expatriates and international investors. Our expertise ensures that clients can effectively leverage the benefits of the “Mbappé Law” while maintaining full compliance with Spanish tax regulations.
Our Services Include:
- Eligibility Assessment: Evaluating your specific circumstances to determine qualification for the tax deduction based on residency and investment criteria.
- Strategic Tax Planning: Developing customized investment strategies that maximize tax benefits under the “Mbappé Law.”
- Compliance Support: Assisting with the preparation and submission of necessary documentation to ensure adherence to all legal requirements.
- Ongoing Advisory: Providing continuous guidance to maintain compliance throughout the investment holding period and beyond.
By partnering with Lullius Partners, expatriates and investors can confidently navigate the complexities of the “Mbappé Law,” ensuring a seamless transition to life in Madrid with optimized tax outcomes.
