In recent months, Spanish tax authorities, led by the State Tax Administration Agency (AEAT), have intensified tax audits targeting individuals who have opted for the special tax regime known as the “Beckham Law.” Designed to attract foreign talent, this regime allows qualifying expatriates to be taxed as non-residents during their first six years in Spain, applying a reduced flat rate of 24% on employment income earned in the country, up to an annual limit of €600,000.
However, the recent increase in scrutiny by the AEAT reflects growing concerns over potential abuse or misuse of this special tax regime. In this article, Lullius Partners analyzes the implications of this trend, highlights ways to protect yourself during an inspection, and shares our extensive experience in defending clients in these procedures.
The Beckham Law
The special expatriate tax regime, commonly referred to as the Beckham Law, was introduced in 2005 and reformed in 2015. Its primary goal is to provide a tax incentive to attract highly skilled professionals, executives, and foreign athletes by offering them a significantly lower tax burden compared to regular Spanish tax residents.
Key Requirements for Eligibility:
- The individual must have moved to Spain for work, which may include:
- A new employment relationship with a Spanish entity registered with the Spanish Tax Agency.
- Relocation to a Spanish entity while maintaining the original employment relationship.
- Working remotely in Spain for a foreign entity (new as of 2024).
- Becoming a director of a Spanish entity.
- Starting an entrepreneurial activity (new as of 2024).
- Working as a highly qualified freelance professional providing services to emerging companies (new as of 2024).
- Engaging in freelance activities related to training, research, development, and innovation (new as of 2024).
- The individual must not have been a tax resident in Spain in the previous five years.
- Income must not fall into tax-exempt categories (e.g., grants).
- The application must be submitted within six months of registering with the Spanish Social Security system.
Why Are Tax Audits Increasing?
In our experience, we have observed that the Spanish Tax Agency (AEAT) has identified areas of potential tax abuse linked to the use of the tax regime for inbound expatriates (Beckham Law):
- Lack of Causal Connection Between Relocation to Spain and the Start of an Employment or Commercial Relationship
This requirement is challenged by tax authorities when, for example, they find that the primary purpose of the individual’s relocation to Spain was not the start of an employment relationship. Specifically, in cases where an individual moves to Spain and subsequently—after several months—finds a job and seeks to apply for the special Beckham regime, the authorities argue that the causal connection is broken, as the relocation was not motivated by employment. - Absence of Business Activity by the Employer (Usually a Non-Resident Company)
This requirement is questioned when authorities detect that the employer (typically a foreign entity located in “tax-friendly” jurisdictions such as the UAE, Cyprus, Malta, Singapore, or certain offshore islands) lacks the structure, material resources, or human capital necessary to conduct genuine business activities. In such cases, Spanish tax authorities may request corporate documentation to prove that the employer has sufficient infrastructure to carry out real business operations. This scrutiny often targets “shell” or “empty” companies used to channel income into low-tax jurisdictions. - Absence of Business Activity by the Spanish Company Where Administrative Functions Are Performed
Authorities may challenge cases where the Spanish company in which the individual performs administrative functions does not have sufficient structure, material resources, or human capital to carry out genuine business activities. The goal is often to penalize “shell” or “empty” entities used to channel income and apply reduced corporate tax rates instead of taxing the administrator or sole shareholder under the personal income tax regime (IRPF). - Single-Member Companies Where the Sole Shareholder (or Majority Shareholder/Spouse) Is Also the Employee
Spanish tax authorities may question the use of structures where the foreign (or Spanish) employer is owned more than 50% by the same individual who is relocated to Spain.
As noted, these types of issues are subject to review by the Spanish Tax Administration. Proper analysis and tax planning before applying for the special regime are essential to avoid a tax inspection after approval.
Consequences of Non-Compliance with the Beckham Law
If the Tax Administration concludes that a taxpayer does not meet the requirements for the Beckham Law, the consequences can be significant from both an economic and tax planning perspective. Key implications include:
- Taxation Under the Ordinary IRPF Regime
The primary effect is that the taxpayer will no longer benefit from the special regime—offering flat rates on employment income at reduced marginal rates—and will instead be subject to the ordinary rules of the Personal Income Tax (IRPF). This means their worldwide income will be taxed at progressive rates, often significantly higher, with marginal rates exceeding 45%. - Impact on Global Wealth Taxation
Under the Beckham Law, taxpayers only declare assets located in Spain, exempting foreign-held assets from wealth tax. If the Tax Authority determines the regime does not apply, the taxpayer will be subject to wealth tax on their entire global estate, potentially leading to a significant increase in tax liability, especially for those holding real estate, bank accounts, investments, or other foreign assets. - Effects on Other Income and Assets
Under the special regime, foreign income is generally not taxed in Spain, except for income directly tied to work performed within the country. Without the regime, all worldwide income and assets become subject to Spanish taxation, increasing both the complexity of compliance and the overall tax burden. This may also require substantial adjustments to the taxpayer’s financial and estate planning strategies. - Review and Adjustment of Prior Years
If the Tax Authority finds that the special regime was improperly applied in previous years, it may initiate a review of the past four non-prescribed tax years. This could result in the payment of additional taxes (the difference between what was paid under the special regime and what would have been owed under the ordinary regime), interest on overdue payments, and even tax penalties (ranging from 100% to 150% of the unpaid amount). - Risk of Criminal Tax Offenses
If the revocation of the special regime results in unpaid tax exceeding €120,000 per tax year, the Tax Authority may deem the taxpayer to have committed a tax offense, as outlined in Article 305 of the Spanish Penal Code. - Impact on Tax Planning and Legal Certainty
Losing eligibility for the Beckham Law affects not only the taxpayer’s immediate finances but also their long-term planning and legal certainty. Many individuals design their tax strategy, investments, or relocation plans based on the benefits of the regime. A change in eligibility may require a comprehensive reassessment of tax residency, corporate structures, and succession planning.
How to Handle a Tax Audit Under the Beckham Law
At Lullius Partners, as a firm specializing in the Beckham Law and Tax Dispute & Resolution, we have successfully managed numerous cases of defense in tax audits related to this special regime. Our expertise has helped clients protect their tax positions and avoid penalties. Here are the key steps to navigate a tax audit:
- Pre-Audit Documentation Review
It is essential to have documentary evidence proving the effective relocation to Spain, the employment relationship justifying the application of the regime, and compliance with the legal requirements.
At Lullius Partners, we not only assist with the submission of the Beckham Law application (Form 149), but as a preliminary step, we conduct a thorough analysis of each client’s context and situation to ensure they meet the requirements established by current regulations and administrative criteria. This process helps us identify and mitigate any tax risks—not only the denial of the special regime but also potential future tax audits.
- Risk Assessment
Before a potential audit, conducting an internal audit is highly recommended to identify possible risk areas and implement corrective measures.
- Professional Support During Tax Audits
Having tax experts is crucial in any dispute with the Spanish Tax Agency (Hacienda), as these situations can have significant financial implications and require deep technical knowledge to achieve a favorable resolution.
The success of resolving tax disputes begins with effective management of communications with Hacienda. This process involves not only meeting established deadlines but also presenting well-documented arguments aligned with current regulations.
At Lullius Partners, our team of experts not only masters applicable legislation but also specializes in identifying strategic pathways to defend our clients’ interests—from the initial stages of a tax audit to the conclusion of the process.
Our experience handling complex audits related to tax residency, international structures, and aggressive tax planning allows us to anticipate potential arguments from the Tax Administration, maximizing the likelihood of success.
In this context, Lullius Partners has established itself as a leader in Tax Dispute & Resolution and Tax Litigation. Our success stems from combining extensive experience, a strategic approach, and an in-depth understanding of Spanish and international tax regulations.
Legal Defense Against Tax Penalties
In cases where Hacienda imposes tax penalties, it is vital to have a legal team capable of identifying errors in the justification of such penalties or violations of fundamental taxpayer rights.
Lullius Partners is recognized for its technical expertise in interpreting and applying tax regulations. We have successfully achieved the annulment of unjustified penalties and the reduction of significant economic sanctions.
Our strength as a boutique firm specializing in Private Wealth and Tax Litigation lies in our ability to provide a personalized approach for each client, combined with the technical expertise typical of larger firms. This has made us the preferred choice for High-Net-Worth Individuals (HNWIs), expatriates, and family businesses requiring agile and effective defense against tax actions.
Why Lullius Partners Is a Leader in Tax Dispute & Resolution and Tax Litigation
- A Technical and Strategic Approach Backed by International Expertise
Based in Mallorca, Lullius Partners serves a global clientele, advising expats and HNWIs on a wide range of international tax matters. This specialized knowledge positions us as leaders in complex cases involving the interpretation of double taxation treaties, cross-border structures, and tax residency disputes.
- Proven Experience in High-Profile Disputes
We have successfully represented clients in significant tax disputes, including numerous proceedings related to the Beckham Law, corporate restructurings, and expatriate taxation. Our ability to understand the individual and business needs of our clients, along with adapting to evolving legal environments, enables us to deliver exceptional service.
- Recognition and Proven Results
Our firm is known for its results-driven approach. The cases we have handled have set favorable precedents in Tax Litigation, establishing us as a leading firm in Spain. Furthermore, the inclusion of our lawyers in international rankings underscores our commitment to technical excellence and client satisfaction.
Lullius Partners, Your Trusted Partner in Tax Audits
The increase in tax audits under the Beckham Law highlights the importance of rigorous compliance and the support of experienced Spanish tax lawyers. At Lullius Partners, we are experts in international taxation and audit defense, offering comprehensive and tailored services to expatriates and tax residents in Spain.
If you need advice on the Beckham Law or are facing a tax audit, do not hesitate to contact us. Our experience and success in resolving such cases position us as one of the leading firms in this area.
