For Americans contemplating a move to Spain, understanding the intricacies of the Beckham Law is essential.
This specialized tax regime, officially known as the Spanish Royal Decree-Law 687/2005, offers a host of advantages for foreign workers in Spain, potentially resulting in significant tax savings and regulatory benefits.
In this comprehensive guide, we’ll delve into the nuances of the Beckham Law, its eligibility criteria, application process, and implications for US expatriates.
Background and Evolution of the Beckham Law
The colloquial term “Beckham Law” traces its origins to the introduction of the Spanish Royal Decree-Law 687/2005, which aimed to attract skilled foreign workers to Spain by providing favorable tax treatment.
Named after the renowned soccer player David Beckham, who became its inaugural beneficiary upon joining Real Madrid, this legislation has since evolved to become a cornerstone of Spain’s efforts to attract talent from around the world.
Understanding the Beckham Law’s Tax Benefits: Tax Rates
One of the primary attractions of the Beckham Law is its provision for significant tax reductions on Spanish-sourced income.
Foreign workers covered under this regime benefit from a flat tax rate of 24% on income (employee income) earned worldwide, a substantial decrease from the standard progressive tax rates that can reach up to 47%.
Moreover, most worldwide income remains exempt from Spanish taxation for up to six years, offering expats considerable financial relief.
There are a few things worth noting about the Beckham Law’s benefits, however:
- The flat tax of 24% only applies up to €600,000 (~$651,147); anything over is taxed at a rate of 47%;
- Certain types of income do not qualify for the 24% flat tax, including:
- Spanish-sourced gifts/inheritances: Taxed at 7.65% to 34%, depending on the value. In Mallorca 0% in certain cases;
- Spanish-sourced capital gains: Taxed at 19% to 26%, depending on the value;
Beckham Law Eligibility criteria for US expats
To be eligible for the Beckham Law, US expats must:
- Have moved to Spain to work, either as:
- New Spanish employment with an entity registered with the Spanish Tax Agency. You would be in this situation if you moved to Spain to start a new employment relationship with an employer in Spain. This applies to all types of employment relationships, including ordinary, special relationships (company managers, artists, prisoners, longshoremen, etc.) or statutory relationships (mainly public servants), except for special relationships of professional sportsmen, which are expressly excluded from the SETR.
- Relocation to a Spanish entity maintaining the original employment relationship. You would be in this situation if your employer from another country moved you to Spain, without being hired by another company. In other words, you would keep the same employment contract that you had (without prejudice to the corresponding modifications to take into account the circumstances of the transfer). In this case, in order to fulfil the requirement, you would need a letter from your employer ordering the transfer to Spanish territory. Your employer must register with the Spanish Tax Agency.
- Remote worker in Spain for a foreign entity (New 2024). You could in principle move to Spain and keep your foreign employment. This would be the case if the work activity were carried out remotely, by telematics means.
- Becoming the director of an entity in Spain. You would be in this situation if you moved to Spain because of the acquisition of the status of director of a Spanish company. The governing body of a company is ultimately responsible for the management and representation of the company, in accordance with the provisions of the Spanish Corporations Act and the company’s bylaws. This body may consist of a single member (sole director) or a group of members (board of directors). In both cases, you would become a director (it is not an employment relationship, although it is compatible with one). Regarding the Spanish company, in order to meet the requirement, it cannot be considered an asset-holding entity (“entidad patrimonial”) under the terms provided in article 5, section 2, of the Spanish Corporate Income Tax Act.
- Starting an entrepreneurial activity (New 2024). Regarding the freelancing option, until recently it was completely incompatible with the Beckham Law, however, the Spanish Parliament approved some amendments of the Beckham Law whereby certain cases of freelancing (those deemed as entrepreneurial activity) would be allowed. An entrepreneurial activity shall be understood as that which is of an innovative nature with special economic interest for Spain and for this purpose has a favorable report issued by the “Oficina Económica y Comercial” of the geographical demarcation area or by the “Dirección General de Comercio Internacional e Inversiones”.
- Working as a highly qualified professional freelancer who provides services to emerging companies (New 2024). This option requires three things: working as a freelancer (“autónomo”); Being considered a highly qualified professional; and Providing services to emerging companies within the meaning of Article 3 of Act 28/2022, of December 21.
- Working as a freelancer who carries out training, research, development, and innovation activities (New 2024). In this case, the income derived from this activity has to represent more than 40% of the total business, professional and employment income.
- Not have lived in Spain within the last five years
- Not have their income fall into a tax-exempt category (such as grants)
- Perform at least 85% of their work in Spanish territory
- Apply for the regime within six months of registering with the Spanish social security system
Navigating the Application Process
Accessing the benefits of the Beckham Law requires adherence to a structured application process.
Before doing so, you must already possess a few documents:
- An employment contract;
- A NIE (foreigner ID number);
- A valid Passport;
- A residence card (e.g. TIE), or proof that you have applied for one if you haven’t received it yet;
Then, you will:
- Register with Spain’s tax office (Agencia Tributaria) by submitting Modelo 030 online, in person (by appointment), or via mail ;
- Receive your social security identification number (SSN);
- Submit Modelo 149 to the Agencia Tributaria online, in person (by appointment), or via mail (no later than six months after initially registering with the tax office);
- Receive a certificate of approval;
- Present your certificate to your employer;
Compliance & reporting obligations under the Beckham Law
As a beneficiary of the Beckham Law, you must report your income on Modelo 151 each year. Beckham Law beneficiaries are, however, exempt from having to declare their overseas assets via Modelo 720.
Note: After six years of Beckham Law treatment, you will be subject to Spain’s standard tax regime. As such, you will fill out Modelo 100 and Modelo 720 when filing your tax return.
To file, simply submit the form on the Spanish tax agency’s online portal. You can also have a Spanish tax professional do so on your behalf. In either case, you should file your return by June 30th.
Filing accurately and on time is critical.
For each month that you file your taxes late in Spain, you will face a 1% surcharge. After a year, that surcharge increases to 15% plus interest. If the government has to reach out to you to enforce tax compliance, you may have to pay up to 50% in penalties.
The Beckham Law & US tax implications
Even if you live and pay taxes in Spain, you’re not free of your US tax obligations. Anyone who exceeds the minimum income reporting thresholds must file a federal return and potentially pay taxes. The good news, though, is that there are ways to avoid double taxation.
The two key tax breaks the US offers expats are:
- The Foreign Tax Credit (FTC): The FTC gives Americans abroad US tax credits for every dollar of foreign income taxes they pay. This essentially “subtracts” what you’ve spent in foreign taxes from your US tax bill. Note that if you fall into a US tax bracket above 24%, the foreign tax credits you apply from the Beckham Law will only partially cover your US tax liability.
- The Foreign Earned Income Exchange (FEIE): The FEIE allows Americans who pass either the Physical Presence Test or Bona Fide Residence Test to exclude up to $120,000 for tax year 2023 ($126,500 for tax year 2024) from taxation.
Conclusion: Maximizing Opportunities under the Beckham Law
In conclusion, the Beckham Law presents a compelling opportunity for US expats considering a move to Spain. By leveraging its favorable tax provisions and regulatory benefits, expatriates can enhance their financial well-being and streamline their transition to life in Spain.
However, thorough understanding of the law’s requirements, diligent compliance with reporting obligations, and strategic tax planning are crucial for maximizing the benefits and ensuring long-term financial stability.
If you need legal advice in order to fully understand the requirements you must meet and how does the process work, we strongly recommend contacting us to apply successfully for this special tax regime.
