With the arrival of remote work in all areas, many people are considering job opportunities that involve moving residence, even from one country to another. That is why many countries have established attractive tax regimes to attract professional talent to their territory.
In Spain, there is the inbound expatriate tax regime, commonly known as the "Beckham Law" because footballer David Beckham was one of the first to benefit from it, which offers a tax incentive for high-income workers.
In addition, following the approval of Law 28/2022, of 21 December, on the promotion of the startup ecosystem, known as the "Startups Law", since 1 January 2023 the application of the regime has been extended and it is now called the "Special tax regime applicable to workers, professionals, entrepreneurs and investors posted to Spanish territory" and is regulated in article 93 of the Personal Income Tax Law.
This regime allows individuals who apply it and become tax residents in Spain to opt to be taxed as non-residents. And, as we indicated, following the Startups Law it no longer applies only to workers who move to Spain to start an employment relationship with a Spanish employer, but also to digital nomads who move to Spain to work remotely from here, even if it is not preceded by a request from the employer.
What requirements must a person meet to opt for the regime?
The inbound expatriate tax regime applies to those who acquire tax residence in Spain as a result of moving to Spanish territory, provided that the following requirements are met:
(i) Not having been resident in Spain during the five tax periods prior to the year in which they move to Spain (before 1 January 2023, 10 years were required)
(ii) That the move to Spain actually takes place. This move may take place either in the first year of application of the regime or in the previous year, which allows those who moved to Spanish territory during 2022 to benefit from the regime.
(iii) That the move to Spain takes place as a result of:
a) An employment contract.
To this end, an employment or statutory relationship must begin with an employer in Spain, or it may also apply when the move to Spain is ordered by the person's current employer and there is a secondment letter from the employer, without a change of employer being necessary in this case.
b) By acquiring the status of director.
The Startups Law has made the regime more flexible and has eliminated the relationship requirement, so the director may have a relationship with the company (for example, being its majority shareholder), provided that it is not an asset-holding entity, in which case the director may not have a relationship with the company, in accordance with the Corporate Income Tax regulations).
c) As a result of carrying out in Spain an economic activity classified as an entrepreneurial activity [1]
d) As a result of carrying out in Spain an economic activity by a highly qualified professional who provides services to startups or who carries out training, research, development and innovation activities.
(iv) What not obtaining income through a permanent establishment located in Spanish territory.
(v) And, obviously, being a tax resident in Spain in the year in which it is applied.
In addition, after the regime was used by numerous professional footballers, the regulation was amended to expressly exclude professional athletes from its application
The option to apply the inbound expatriate tax regime will take effect in the year in which Spanish tax residence is acquired and the following 5 tax periods.
And what about other family members?
Before 1 January 2023, the regime only applied to the worker who met the requirements. With the relaxation of requirements following the approval of the Startups Law, the option to apply the regime has been extended to the taxpayer's spouse[2] who meets the requirements of the previous section, and their children[3], with the following limits and requirements:
Time limit on the move: The family members must move to Spanish territory together with the main taxpayer who opts for the regime or, if they do so later, before 31 December of the first tax period in which the special regime applies.
Tax residence limits: Family members who wish to opt for the special inbound expatriate regime
- Must also acquire tax residence in Spain
- And must also not have been tax residents in Spain in the previous 5 tax periods
- Nor obtain income through a permanent establishment located in Spanish territory.
Quantitative limit: That the sum of the total taxable bases of these other family taxpayers who move to Spain (children, spouse or parent) is lower than the taxable base of the taxpayer who gives rise to the application of the special regime.
Family members may apply the regime for the same tax periods in which they meet the requirements indicated and in which the "main" taxpayer can also apply the special tax regime
What are the advantages of the inbound expatriate regime or Beckham Law?
A taxpayer who meets the requirements indicated may opt to be taxed under the Spanish Non-Resident Income Tax Law[4], with a series of special features regulated in the aforementioned article 93 of the Personal Income Tax Law.
The main advantage is that, although all income from economic activities classified as an entrepreneurial activity or income fromemployment obtained by the taxpayer while applying the special regime is deemed to be obtained in Spanish territory[5], it is taxed at a fixed rate of 24% up to a limit of 600,000 euros, and at the marginal rate of 47% on the amount exceeding that figure.
Likewise, withholdings on account of the Tax will be calculated at a fixed rate of 24% and, on the amount exceeding 600,000 euros, at 47%.
On the other hand, other types of income such as dividends, interest and capital gains would only be taxable in Spain if they come from a Spanish source, and must be taxed according to the general savings scale of the Personal Income Tax Law, which applies rates from 19% to 28% (from 1 January 2023 for income above 300,000 euros)
Likewise, the individual will be subject to the Wealth Tax Spanish (and the recently introduced Temporary Tax on Large Fortunes for those whose assets exceed 3.7 million euros) under real rather than personal obligation, which means that they would only be taxed for the assets and rights they hold in Spain and not for their worldwide assets.
Likewise, they would not be required to file the return on assets and rights held abroad (form 720), according to rulings issued by the Directorate General for Taxes.
This regime therefore has clear tax advantages for workers or self-employed business owners and professionals who expect to earn high incomes and who would otherwise be taxed in Spain in their Income Tax Return above the 24% rate
It is important to note that applying the non-resident regulations prevents the application of many of the exemptions and tax benefits that the Personal Income Tax Law provides for its taxpayers; the Courts have sometimes denied, for example, the exception to the obligation to impute income for the property that constitutes the taxpayer's main residence, or the right to apply the main residence reinvestment exemption.
However, the DGT, in its ruling V0589-20, of 16 March, accepted the right of the inbound expatriate to apply the exemptions for income in kind provided for in article 42 of the Personal Income Tax Law regulating flexible remuneration systems, for example.
In addition, consistent with the above, taxpayers who choose this option are not considered residents for the purposes of applying a Double Taxation Treaty as they are taxed exclusively on income obtained from sources located in Spain.
How is the regime exercised? Can I voluntarily stop applying it?
In order to apply the tax regime known as the Beckham Law, you must opt for it by filing form 149 established by the Spanish Tax Agency within a maximum period of six months from the start date of the activity shown in the registration with Social Security in Spain[6]
Even after having opted for it, the taxpayer may waive it, by notifying this in November and December prior to the start of the period in which they wish to stop applying the inbound expatriate tax regime, using the same informative return form and providing a copy stamped by the employer, who must have been informed beforehand
Compliance with the established deadlines is essential for the effective application of the regime, as the Supreme Court ruled, concluding that the theory of tax options applies in this case, so failing to notify the option for the special inbound expatriate regime within the stipulated 6-month period must be understood as the taxpayer having opted for the general regime.
Exclusion from the inbound expatriate regime
Apart from the possibility of voluntary waiver, exclusion from the regime is possible if any of the required conditions are not met for its application. The exclusion will take effect in the tax period in which the non-compliance occurs and taxpayers must notify it to the Tax Administration using the aforementioned form 149 within one month of the non-compliance with the conditions.
It should be remembered that, if excluded from the regime, it would not be possible to opt again for its application, even if the requirements were met again at a later date.
One of the most common reasons that raises the possibility of being excluded from the inbound expatriate regime is the termination of the employment relationship that led to the move to Spain. In that case, in the event of dismissal or voluntary resignation, the Directorate General for Taxes has adopted a broad interpretation, based on the spirit of the regulation which seeks to attract talent to Spain, and concludes that if the situation of unemployment or inactivity occurs "temporarily for insignificant periods of time" and a new employment or directorship relationship subsequently begins that allows them to continue meeting the requirements of the regulations, the individual would not be excluded from the aforementioned tax regime.
As we have analysed, the inbound expatriate tax regime, also known as the Beckham Law, has a multitude of particularities regarding compliance with the requirements and the right to apply exemptions, deductions, allowances, etc., so we always recommend that taxpayers seek advice by carrying out a detailed analysis of their particular situation before opting for it and act with the utmost prudence as regards deadlines and tax consequences.
[1] "Entrepreneurial activity shall be understood as activity that is innovative and/or of special economic interest for Spain and, for this purpose, has a favourable report issued by ENISA", in accordance with the procedure described in article 70 of Law 14/2013, of 27 September.
[2] Or, if there is no marriage, the parent of the children of the "main" taxpayer
[3] Under 25 years of age, or with no age requirement in the case of disability
[4] Royal Legislative Decree 5/2004, of 5 March, approving the consolidated text of the Non-Resident Income Tax Law and its implementing regulations
[5] However, the individual would not be taxed in Spain on income obtained before moving to Spanish territory, nor on income obtained after moving out of Spain in the year in which they remain a tax resident in our country, provided that they notify the Spanish Administration in accordance with article 119.3 of the Personal Income Tax Regulations.
[6] Or, in the case of a move to Spain without a change of employer, from the date of the documentation that allows, where applicable, the original Social Security legislation to be maintained.
