Why self-employed persons cannot benefit from the Beckham Law

Spain’s impatriate special tax regime, commonly known as the Beckham Law, is one of the country’s most attractive tax incentives for expatriates. Since its introduction in 2004, it has successfully drawn thousands of highly skilled individuals, contributing to the internationalization and economic growth of Spain.

To qualify for the Beckham Law, an individual must meet all the legal requirements. This article focuses on one frequently overlooked criterion: the individual must not generate income from an economic activity through a permanent establishment in Spain.

Understanding the detailed rules is crucial, as errors in applying the Beckham Law can lead to significant financial consequences. If a person fails to meet the requirements before relocating or ceases to meet them after arrival, they will:

(i) Lose the benefit of being taxed on a territorial basis for personal income and wealth tax purposes, becoming subject to worldwide taxation instead. (ii) Face higher tax rates under the Personal Income Tax Law (“PIT Law”).

Legal Framework

An individual can benefit from the Beckham Law if all of the following conditions are met:

• They establish tax residency in Spain.
• They have not been tax residents in Spain for the previous five years.
• The relocation is due to one of the following reasons:
  1. An employment contract (excluding professional athletes).
  2. Appointment as a director in a company. If the company does not engage in economic activities under Spanish tax law, the person must not be a related party to the company.
  3. Self-employment in an entrepreneurial economic activity, as defined by law, requiring prior approval from ENISA, Spain’s national innovation corporation (e.g., establishing a qualifying technology startup).
  4. Self-employment as a highly qualified professional providing services to certified emerging companies. More than 40% of the individual’s income must derive from qualifying activities (e.g., a freelancer offering technology consulting to a qualifying startup).
  5. Self-employment in highly qualified training, research, investigation, development, or innovation activities. More than 40% of income must come from qualifying activities.
• The individual must not generate income that qualifies as obtained through a permanent establishment in Spain.

This article focuses on the last requirement: income cannot be derived through a permanent establishment in Spain.

While the PIT Law’s wording is open to interpretation, it is generally understood that this restriction applies to income generated “in a self-employed capacity” through a permanent establishment. The PIT Regulations confirm this interpretation by stating that, under the special regime, only the specified entrepreneurial and professional activities are permitted.

Therefore, self-employed individuals such as freelancers, consultants, doctors, and lawyers generally do not qualify for the Beckham Law unless they meet one of the three specified exceptions. However, if they are employees (e.g., a lawyer employed by a firm or a consultant working for a company), they could qualify, provided they meet the other requirements.

Importantly, there is no minimum revenue threshold for disqualification. Even earning just one euro from non-qualifying economic activities could result in ineligibility. The law remains unclear on whether a person who earns no revenue at all would still be excluded, but general anti-avoidance and transfer pricing rules prevent artificial arrangements.

Once a person fails to meet the conditions, they become ineligible from that year onward, but there is no retroactive effect.

Interpretation by Tax Authorities

The Spanish General Tax Directorate (GTD), an independent government body, has issued several rulings on the Beckham Law. Some relevant cases include:

• V1902-17: A person owning real estate and holding shares in a Spanish company that leases the property was deemed eligible, as they did not conduct an economic activity through a permanent establishment.
• V2817-23: A person leasing real estate through a permanent establishment was deemed ineligible.
• V0619-24: A director of a Spanish company who also provided professional services to the company was deemed ineligible for the portion of income derived from those services.
• V2248-24: An employee who later became self-employed and provided general services to clients was deemed ineligible from the year they transitioned to self-employment.

A notable court ruling by the Audiencia Nacional (19/09/2012) determined that the status of an individual at the time of relocation is what matters. A person previously registered as self-employed but who became an employee upon relocating was considered eligible.

Common Pitfalls and Mistakes

The most frequent mistake among individuals seeking to relocate to Spain is lacking sufficient knowledge about the regime’s requirements.

In our experience, many individuals who have already relocated are unknowingly benefitting from the Beckham Law without meeting the criteria. While tax authorities do not audit every case, they do conduct periodic reviews.

Additionally, not all tax advisors thoroughly inform their clients about the details of the regime. Some situations that typically result in ineligibility (unless falling under one of the exceptions) include:

• Having additional freelance or consulting work alongside an employment/director role.
• Being a self-employed digital nomad.
• Entrepreneurs providing services to their own companies (even if no formal payments are made, transfer pricing rules may attribute remuneration).
• Owners of tax-transparent entities (e.g., LLCs, LLPs, partnerships), as income is attributed directly to them, making them self-employed in tax terms.

Tax Policy Considerations

The current framework excludes most self-employed individuals from the Beckham Law, except those who qualify under narrow exceptions. This distinction—where employees, directors, and certain highly qualified self-employed individuals benefit while other self-employed persons do not—raises tax policy questions.

In our experience, the typical person exploring the Beckham Law is highly skilled, entrepreneurial, and engaged in multiple activities (e.g., coaching, consulting, event participation). Many countries would actively compete to attract such individuals.

A 2014 expert report commissioned by the Spanish Government (“Informe Lagares”) recommended expanding the Beckham Law to self-employed individuals. While the law was amended in 2023, the changes were minimal.

Expanding eligibility slightly could benefit Spain. However, unrestricted inclusion of all self-employed individuals might be excessive and open to abuse. A balanced approach could be to:

• Ease the conditions under the existing exceptions.
• Introduce a new exception allowing impatriate status for self-employed individuals who hire a certain number of employees in Spain.
• Clarify that directors may provide any type of service to their companies without losing eligibility.

Lastly, the Beckham Law raises broader debates on tax fairness. Critics argue it creates disparities between ordinary tax residents and special regime beneficiaries, reducing tax progressivity. However, international competition for skilled professionals means that tax incentives are often necessary to attract talent.

Ultimately, the question is whether special tax regimes exist because tax systems are too burdensome. Would it not be preferable to create a more competitive tax system for everyone, reducing the need for exceptions?

If you are considering relocating to Spain and applying for the Beckham Law, proper planning is essential to ensure compliance and avoid costly mistakes.