The Beckham Law : Tax benefits for expats

“Beckham Law” is the name given to the Spanish Royal Decree-Law 687/2005, which intends to attract highly skilled professionals from abroad through tax benefits. This special tax regime treats foreign workers moving to Spain as non-resident tax payers. In this way, their tax rate is reduced from the usual 45-47% to 24% – concerning the income tax (IRPF). As the purpose of the Beckham Law is to attract high-income earners, the tax rebate only applies to expats who earn a maximum of €600,000 per year. However, in 2017 the average salary in Spain was €26,730.

According to LIRPF article 93.1 foreigners moving to Spain for work purposes can benefit from the Beckham Tax Law:

1. If they haven’t been residents in Spain during the 10 last years prior to moving. With the new law amendment, the number of years is reduced to 5 years.
2. They must have relocated to Spain on behalf of a work contract or after being appointed administrator of a business in Spain (but should not own more than 25% of the business assets). With regard to company directors, another important novelty introduced in the Start-Ups Law is the elimination of the 25% shareholding requirement for non-resident individuals who moved to Spanish territory as a result of being appointed as a director of a company and who opted for the impatriates regime; as of 2023, this 25% limitation will only apply to directors of asset-holding companies.
3. The employment income cannot be exempt from the Spanish income tax law.
4. Their employment duties don’t need to be carried out in Spain neither for a Spanish company.
5. From 2023, those who apply for the Digital Nomad Visa and meet the tax requirements may be also eligible for the Beckham Law.  Each specific case must be studied as it is not always the case.
6. Equally, access to the Beckham Law will also be allowed for international citizens, both European and non-EU, who operate as highly qualified professionals when they provide services to emerging companies located in Spain, through economic activities (self-employed) or conduct an activity classified as an entrepreneurial activity.
7. Finally, the Beckham Law allows access to the Beckham Law for spouses and children under 25 years of age, if they meet certain requirements established by regulation.

Depending on whether we apply the general tax regime or the impatriates tax regime, there can be significant differences in taxation. Whereas the general IRPF tax rate ranges between 45-47%, taxpayers subject to the Beckham rule will be taxed in this way:

• The first €600,000 will be taxed at 24%
• If the income is over €600,001, it will be taxed at 47%. To calculate the taxable income, besides the employment income we will need to consider any existing shares, stocks, savings, capital gains, surplus values (plusvalia) and earnings generated by real estate will need to be considered (with a 19-26% tax rate).

According to the Beckham Law, capital gains from the sale of real estate, interest, and dividends generated in Spain will be taxed at a rate different from that of earned income in 2022.

Keep in mind that capital gains earned outside of Spain must still be paid to the source country in accordance with its tax laws. Even though you did not pay taxes on all your money earned outside of Spain, you still need to pay taxes somewhere else.

All taxpayers covered by the Beckham Law would be subject to this tax if the value of the assets and rights situated in exceeded certain levels (property, savings, bank account, bonds, shares, cryptocurrencies…) However, if the taxpayer is subject to the general IRPF system (Model 100), he must report and pay the wealth tax on all worldwide assets.

Example: As you can see in this example of the Beckham Law Spain, the tax reduction becomes most interesting for high-earners.

Net salary after discounting expenses and Social Welfare

As soon as it is accepted, the Beckham Law is put into effect for the application year and the next five years. The 149 Form should be submitted during the first six months of employment in Spain. Complete the application with the information required about the business, the start date, the nature of the activity, and the employment offer (in written).

The Spanish tax office must issue a certificate upon the submission of Form 149 within 10 days of receiving the application under the Special Regime of Inpatriates; however, in practice, this typically takes between 1 and 2 months.

The Spanish Tax Office will issue a document certifying that the taxpayer has opted for the application of the special regime for impatriates.The document will serve to prove his status as a Beckham Act taxpayer.

Hereinafter, by way of example, the reader is shown an example of such a resolution.

Beckham law certification document

According to the Supreme Court’s ruling on May 18th, 2020, if Form 149 is submitted after the 6-month window has passed, the expatriate regime will not be applicable, and the taxpayer must pay taxes under the Personal Income Tax General Regime (Model 100). It is important to keep in mind that since the general regime has a higher tax rate, taxpayers with high income from work are not likely to be interested in using it. For this reason, at Tejada Solicitors, we study and prepare a simulation for (Model 100).

According to this model, taxpayers are required to disclose their Spanish-sourced income each year. The submission deadline will generally be the same as that which is authorized each year for tax returns. Model 151 must be declared from April to the 30th of June.

The taxpayer does not have to submit the annual Overseas Assets declaration if the Beckham Law is in effect (Form 720 Spain). However, once the Beckham Law’s six-year period of application has passed, you begin paying taxes under the General Income Tax Regime (Model 100). We advise you to speak with a tax advisor because if the value of your asset exceeds the thresholds outlined in the tax regulations, you will need to submit Form 720.

Bear in mind, if your spouse is a tax resident of Spain and the General Income Tax Regime (Model 100) is applied to them, in this case, as long as the value of your asset exceeds the limits established in the tax regulations, you would be obliged to present form 720.

In accordance with tax consultation CV 0589-20 of the General Directorate of Taxes, taxpayers covered by the Beckham Law can enjoy the tax incentive of flexible remuneration regulated in articles 42.2 and 42.3 of the Personal Income Tax Law.

The tax benefit consists of applying an exemption for remuneration in kind, the Personal Income Tax Law defines remuneration in kind as:

“The income derived from labor relations between a company and its employees, consisting of the use, consumption or obtaining by them, and for private purposes, of certain goods, rights or services free of charge or for a price lower than the normal market price., in principle, constitute, for those, income from work in kind”

Thus, once it has been verified that the employees covered by the Beckham Law meet the requirements, certain income, such as childcare, health insurance, and restaurant checks, will be exempt from this tax, up to the limit established.

The tax consultation V0384-10 of March 02, 2010, resolves a very interesting question about the possibility of applying the exemption for reinvestment in a primary residence in taxpayers covered by the Beckham Law, in such situations, these taxpayers may not benefit from the exemption for reinvestment in habitual residence.

However, at the end of the period of application of the Beckham Law, the taxpayer will be subject to general income tax (Form 100) and it will be under this regime, as long as it meets the requirements established when the exemption can be applied. for reinvestment of habitual residence, as established by the tax consultation V1953-10 of September 9, 2010.

We are going to develop the income in kind exempt from taxation under the Beckham Law that we believe are most interesting:

• The premiums or fees paid to insurance companies for health coverage, when the requirements established in the standard are met.
• The service provision of pre-school, infant, primary education, compulsory secondary education, high school and professional training by authorized educational centers, to the children of its employees. (Nursery checks).
• The amounts paid to the entities in charge of providing the public service of collective passenger transport, with the limits and requirements established in the standard.
• Delivery of shares or participations (Stock Option) to employees. Section f) of article 42 regulates that these deliveries will be exempt as income from work in kind to the employees of shares (stock option), which the employees receive free of charge or for a price lower than the normal market price, provided that the offer is carried out under the same conditions for all the employees of the company, group or subgroups of the company, with the limits and requirements established in the fiscal regulation.
• The amounts allocated to the training of the employed personnel.
• The direct and indirect formulas for expenses for company canteens (restaurant tickets).

There are some drawbacks to the Beckham Law as well. The employee must also pay in Spain for the income from work generated worldwide. Aside from that, local laws will determine how taxes are applied in the nation of origin. The tax burden will also be significantly impacted by the existence of treaties and agreements against double taxation between Spain and the country of origin. The Beckham Law clearly benefited the wealthy and well-known football players from the Spanish Liga. The initial cap of €600,000 per year was put in place in 2010 and changed in 2015 to exclude professional athletes.

The Beckham Law is still a viable option today for highly skilled individuals and businesses seeking to open or develop operations in a southern European nation like Spain.

The tax agency will understand that if you have asked to be considered for this rule, your status will remain the same for the next 5 years. If for any circumstance the worker returns to his country of origin or decides not to apply this regime, he/she must notify the tax agency through form 149 during the months of November and December and it will be effective in th following year. Failing to complete procedure can lead to high tax penalties.

In accordance with the binding consultation V2663-19 of 30 September 2019, the AEAT (Spanish Tax Agency) resolves that according to article 118 of the RIRPF (Regulation for the Income Tax Payment) the obtaining of income through a permanent establishment located in the Spanish territory is a ground for exclusion from the special scheme, in this tax consultation it is analysed the tax situation of a taxpayer who was covered by the special scheme of Inpatriates for the fiscal years 2015 to 2020.

However, in 2019, the employment relationship with the company that originated the inclusion in the said scheme has been terminated and a self-employed professional activity has begun, said new situation as self-employed is classified by the administration as an income obtained through a permanent establishment in Spanish territory, which according to article 93.1 c) of the LIRPF (Law for the Income Tax Payment) would cause the taxpayer’s exclusion from the special scheme of inpatriates.

In accordance with the binding consultation V0432-17, the fact that the Beckham Law taxpayer remains unemployed for a short period of time does not determine the automatic exclusion of the inpatriate regime whenever a new employment relationship is started again. Taxpayers in the inpatriate regime who were turned down will not be permitted to apply for it again.

Author: Rosana Tejada

Biographical Info: Rosana Tejada Crespo is a tax advisor holding a Master’s Degree in International Taxation. She specialises in companies and freelancers, tax regulations concerning foreign employees (Beckham Law), non-resident tax, inheritance tax and Spanish income tax. She is one of the founders of Tejada Solicitors, which comprises a group of English speaking solicitors, economists and architects.

The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issue
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