BECKHAM LAW 2024: FEATURES, REQUIREMENTS AND TAX BENEFITS FOR EXPATS
If you are thinking about moving to Spain to work, then you should check out the Beckham Law. Maybe you end up saving some money on taxes!
The key of the special regime is that when you are taxed as a non-resident you will most likely end up paying less taxes than a “regular” tax resident in Spain.
Normally, when someone becomes a tax resident in Spain, their income is subject to Spanish Personal Income Tax (“PIT”) or Impuesto sobre la Renta de las Personas Físicas («IRPF») in Spanish. In other words, they are taxed in the same way as any other resident in Spain. This means, for example, that employment income will be subject to progressive tax rates of up to 48%. The Beckham Law, or Special Expats’ Tax Regime (“SETR”) from Spanish Régimen Especial para Trabajadores Desplazados, exists for those who move to Spain to work and become tax residents in Spain. The special expats tax regime, unlike PIT, gives those who have moved to Spain the option of paying tax as non-residents. This means, for example, that their income from employment is taxed at a fixed rate of 24% up to 600,000 euros of income, and 47% thereafter.
BENEFITS OF THE BECKHAM LAW
Almost flat tax rates
One of the benefits of the Beckham Law, perhaps the main advantage, is that incomes in the general tax base (employment income, rents, etc.) are taxed at an almost fixed rate. In other words, the first 600,000 euros of income are taxed at 24% and the excess over this amount at 47%. On the contrary, if the SETR were not applicable, it would be taxed at a progressive tax rate that could reach up to almost 50%.
The fact is that the semi-fixed tax rate could be beneficial if the volume of income included in the general tax base is high, but counterproductive if it is low. The reason is that PIT tax rates can even be 0% for low-income taxpayers. As income grows, so do tax rates.
It is not easy to say where the threshold lies between the two regimes, among other reasons because the tax rates applicable with PIT depend on each autonomous community. For example, Balearic Islands has different tax rates than Madrid. However, and only to give a general idea, the threshold is usually between 50,000 and 60,000 euros of income (in the general tax base). In other words, it is generally better to choose PIT if you receive income below these amounts, while the SETR would be better if you received higher income.
In addition to the general tax base, there is also the savings tax base. The latter includes various types of income such as dividends, interest or capital gains obtained from the transfer of assets (real estate, shares, etc.). These incomes are taxed at the same rates regardless of whether SETR or PIT is applied, i.e., with a progressive tax rate of 19% to 26%.
Only income obtained in Spain is taxed, except for employment income, where income obtained abroad is also taxed in Spain
If you were applying regular PIT, you would pay taxes in Spain for all your worldwide income. Precisely one of the benefits of the Beckham Law is that only local income is taxed, that is to say, income obtained in Spain. There is only one exception to this last rule, employment income. With the SETR, your worldwide employment income is taxed in Spain. This does not necessarily mean that you will pay income tax twice for the same income (in the country where you generated the income and in Spain). This is because there is a mechanism to avoid double taxation whereby the amount of taxes paid abroad can, in certain circumstances, be used as a tax credit in Spain.
The good thing about SETR is that you would not have to pay taxes in Spain on other income generated abroad, such as rental income, dividends, interest, capital gains, etc. You would only have to pay taxes on those types of income in the country in which they are generated, if any, but not in Spain.
Note: Please see our post on Crypto taxation in Spain under the Beckham Law.
Wealth tax only for assets located in Spain
Another of the benefits of the Beckham Law is that you would only have to pay wealth tax in Spain, if applicable, on assets located in Spain. If you were subject to PIT like any other tax resident in Spain, then you would have to pay, if applicable, Wealth Tax on all your assets, regardless of whether they are in Spain or not.
As you know, the Wealth Tax is a tax paid on the net value of your assets (real estate, stocks and other securities, money in current accounts, life insurance, etc.). This type of tax is not so widespread around the world, but Spain is one of the countries where it exists. It is a progressive tax, that is, the greater the wealth, the higher the tax rate. Depending on the autonomous community of residence, the tax rate can reach 3.75%.
Note: Please see our post on Crypto taxation in Spain under the Beckham Law.
REQUIREMENTS OF THE EXPATS TAX REGIME (OR “BECKHAM LAW”)
The regulations of the Beckham Law or Special Expats’ Tax Regime (“SETR”), from Spanish Régimen especial para trabajadores desplazados a territorio español, state that certain requirements have to be met in order to apply the special tax regime (it is not for everyone). The first and most important is that you must acquire tax resident status in Spain. Once it is clear that you are or will be a tax resident in Spain, there are a few more requirements that must be met.
In addition to these requirements of the Beckham Law, in order to apply the special tax regime it is also necessary to make a formal application in which you must provide a series of documents.
The requirement of the tax residence in Spain
The first aspect to be analysed is whether you are or will be considered tax resident in Spain. Why is it important? Because the Beckham Law is an optional regime available only to those who move to Spain to work and become tax residents in Spain. Therefore, it only makes sense to talk about the Beckham Law if you are or will be considered tax resident in Spain.
The SETR is only applicable if the tax residence is acquired through the first way, that is to say, to stay more than 183 days in Spanish territory. The reason for this requirement is that the SETR is intended for those who actually move to Spain. This is why the legislator included this requirement to try to prevent abusive use of the SETR.
The truth is that this can lead to absurd situations. For example, an individual who spends less than 183 days in Spanish territory during the calendar year, but who becomes a Spanish tax resident by any of the other means mentioned (subparagraphs (b) and (c)), would not be entitled to apply for the SETR.
The requirement of moving to Spain to work
One of the requirements of the Beckham Law is that the move to Spain takes place for work reasons.
This requirement may seem quite simple at first glance, but it is usually the most problematic of all. There are, in essence, two elements that must be considered:
Possible types of work
The concept of “working” in the context of the SETR is specifically defined in the regulations, which establish 3 situations in which it will be understood that the individual has started to work in Spain:
- 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.
The move to Spain
The SETR regulations require that the move to Spain takes place as a consequence of the new work in Spain. However, the regulation does not say when this causal link is deemed to exist, so it may be necessary to present evidence to convince the tax authorities.
For example, a long period of time between the two moments (moving to Spain and start working) may be an indicator, among other factors to consider, that there is no such causal relationship.
However, there are also different types of evidence to prove causality. For example, according to the binding consultation V1163/2017 of the General Directorate of Taxes, if the transfer to Spain occurred due to the acceptance of a job offer from a Spanish company, and it can be demonstrated that the job offer was received before the transfer to Spain, that would be sufficient to prove the causal link. Even without a job offer, if the job starts one or two weeks after the move to Spain, the chances of convincing the tax authorities are considerably high.
As mentioned above, this requirement is often the most problematic, as the reality is often more complex than what is provided for in the regulations. This is why the application of the rule sometimes requires interpreting concepts and entering the realm of subjectivity.
The requirement of not having been tax resident in Spain in the last 5 years
You don’t only have to become tax resident in Spain to apply the SETR, it also has to be the first time in 5 years you become tax resident in Spain. In other words, it is not possible to apply for the SETR if you have been tax resident in Spain in any of the last 5 years.
The fact that you may have been paying taxes as a non-resident in Spain, i.e. subject to Spanish Non-Resident Income Tax, is not an obstacle to applying for the SETR.
The requirement of not receiving income through a permanent establishment in Spain
It is incompatible with SETR for you to receive income through a permanent establishment located in Spain (except for the cases mentioned above). Please note that this is not the same as working for a permanent establishment.
In this respect, it is worth mentioning that the term “permanent establishment” means a fixed place of business through which all or part of a business activity is carried out. In other words, it is like doing business on your own.
Although it may seem fairly easy to determine whether or not there is a permanent establishment, the truth is that the limits of the concept can become blurred depending on the case. For example, a website is not a fixed place and yet it is a case where experts often disagree.
If you don’t have any assets in Spain and you don’t receive income (in addition to your employment income) from Spain, then it shouldn’t be a problem. Otherwise, the safest option would be for a professional to analyze your case.
The requirement of presenting the correct documentation in the application process
This is not one of requirements of the Beckham Law per se, but it is essential to correctly complete the application to apply the SETR. That’s why we recommend that you make sure all the necessary documentation is submitted and done correctly.
HOW TO APPLY THE EXPATS TAX REGIME
In order to apply for the SETR, it is necessary to submit an application to the Spanish Tax Agency. This application serves to formally request the application of the special regime, as well as to provide all the documentation that justifies that all the requirements are met. That is why it is important to file the application correctly because, otherwise, the regime will be denied.
Deadline to apply: 6 months
To apply for the SETR, you have to submit the application to the Spanish tax authorities within a maximum period of six months from the date of commencement of the activity recorded in the registration with the Social Security in Spain or in the documentation that allows the maintenance of the foreign Social Security legislation.
It’s not just about how to apply the Beckham Law, it’s also about when to apply. This is absolutely crucial, after that six-month window, you will not be able to apply for the SETR anymore.
Prerequisite: register with the Spanish Tax Agency
Before starting with the SETR application, you must be registered in the Spanish Census of Liable Taxpayers. This is a register, managed by the Spanish Tax Agency, in which any individual or legal entity that has to deal with the Spanish tax authorities must register.
In order to register in the Spanish taxpayers’ registry, you must file a Form 030 (‘Modelo 030’ in Spanish). You can file the Form 030 in person at the Tax Office or online, in which case you will need an electronic certificate.
The application
The most difficult part of the SETR application process is the collection and preparation of the supporting documentation. Such documentation will depend on your specific circumstances, so it is not easy to make an exhaustive list of all the necessary documents. What we can tell you is that some of the documents may have to be issued by third parties (including official institutions) and others may be prepared by yourself or your company.
In addition, as mentioned, you may have to prove the causal link between your move to Spain and your new job. The supporting documentation to prove this depends, of course, on each specific case. The last document you will have to prepare is the official form required to apply for the SETR.
The resolution of the Tax Authorities
The SETR does not apply automatically after the submission of the application but must be expressly authorised by the tax authorities once they have verified that all requirements are met.
In this verification process the tax authorities sometimes believe that the supporting documentation provided is not sufficient and ask for further clarification or documentation. If this is the case, you will only have a few days to reply.
At the end of the process, the tax authorities will have to decide whether to authorise or reject the application. They have a legal deadline of 10 working days to do so. However, you will know the result only after you are notified of the resolution, which may require more or less time depending on your circumstances.
In light of the above, taking into account the whole new Expats Tax Regime, if you are interested in coming to Spain from 2023 onwards, we strongly recommend contacting us to apply successfully for this special tax regime.
