Spain has a special tax scheme that makes relocating there highly attractive for certain working expats. You might have heard of it – itโs usually referred to as the โBeckham Lawโ, after the English footballer.
The good news is you donโt need the multimillion-euro salary of a global sports star to benefit from the Beckham Law. If youโre a skilled professional, company director or start-up entrepreneur, this could be a rare opportunity to slash your annual tax bill while enjoying a new life in the Spanish sunshine.
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Origins and evolution of the Beckham Law
In a bid to attract business talent and skilled professionals to Spain, in 2004 the government there introduced a so-called โimpatriateโ tax scheme called the Special Expat Tax Regime (SETR). To summarise, it lets qualifying foreigners who live and work in Spain enjoy favourable tax rates and the same tax status as non-residents.
English football icon David Beckham was among the first high-profile foreigners to benefit from it, following his transfer to Real Madrid in 2003. Hence Spainโs SETR quickly became known as the Beckham Law.
Important changes to the Beckham Law
Throughout the years, Spanish governments have made intermittent amendments to the scheme. Somewhat ironically, in 2015 professional sports people became excluded from it. This change was a reaction to the high levels of tax being avoided by the increasing numbers of international footballers transferring to Spanish clubs.
Also that year, the government got rid of the โฌ600,000 cap on the applicantโs permitted annual income, instead introducing a higher tax rate for any income over that amount.
Treated as a non-resident
In effect, the preferential rules of the Beckham Law allow qualifying foreigners to reside and work in Spain legally without being treated as standard tax residents there.
For example, non-EU citizens, including Britons and Americans, who don’t live or have tax residency in Spain are taxed at a flat rate of 24% on any income generated there, for example from holiday rentals. This is reduced to 19% for non-resident EU citizens. These rates are reflected in the Beckham Law.
What are the key benefits of the Beckham Law?
The main tax advantages offered by the Beckham Law are twofold. Firstly, it entitles the applicant to a flat tax rate of 24% on all their Spanish income up to a limit of โฌ600,000 annually. Any income beyond โฌ600,000 is taxed at 47%.
Secondly, it exempts the applicantโs worldwide income and assets from Spanish taxation, including any wealth tax liability. Assets within Spain still fall within the wealth tax net.
There is a small caveat. Any income deemed from employment (as opposed to passive or investment, such as rent, capital gains, dividends, interest etc) coming from abroad remains taxable in Spain too. That said, foreign income will often be taxed at source and thanks to double tax treaties this should be credited against any Spanish liability.
Another benefit is that in many cases an applicantโs spouse and children (under 25 years) can now also benefit from the same preferential tax breaks, provided certain conditions are met.
Should all foreign workers apply for the Beckham Law?
The Beckham Law wonโt benefit all incoming foreign workers in Spain. Only those whose Spanish salary or income is above a certain threshold โ generally regarded as โฌ55,000-โฌ60,000 annually, depending on region of residency โ will gain from the 24% flat rate, many of whom may also have overseas assets or income streams.
Those on lower salaries in Spain will likely be better off taxed as a standard Spanish tax resident outside of the scheme. In this case, your income would be taxed at Spainโs progressive income tax (IRPF) rates, which range from 19% to 47%, with some regional variances. Typically, you would also be liable to Spanish tax on your worldwide income and assets, including dividends and interest, as well as capital gains and potentially wealth tax or the state โsolidarity taxโ.
To be sure of your best option, always crunch the numbers with a specialist before moving to Spain to work.
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Who is eligible for the Beckham Law?
Originally aimed at foreign talent and corporate executives taking up posts with Spanish firms, the Beckham Law has evolved to attract a wider pool of overseas workers and activities. The groups eligible for the scheme are:
- Foreign workers who move to Spain to begin a new employment contract with a Spanish entity.
- Foreign workers assigned/seconded to a Spanish entity by their overseas employer (excluding professional sportspersons).
- Foreign workers who move to Spain and work remotely directly for an overseas employer. The means of conducting their work must rely strictly on telecommunications/digital resources. A digital nomad visa is ideal in this instance.
- Foreigners who acquire a directorship in a Spanish company โ conditions apply re ownership stakes.
- Self-employed professionals/entrepreneurs working in an industry classified by Spainโs Empresa Nacional de Innovacion (ENISA) as being โof exceptional economic interest to Spainโ.
- Self-employed professionals/entrepreneurs providing services to services to start-ups, or companies involved in training, R&D or innovation activities.
Conditions for applying for the Beckham Law
Like all tax regimes, there are conditions attached with the Beckham Law. Here are the most important ones to consider:
- You cannot have been tax resident in Spain in the five tax years previous to your application. This was reduced from 10 years.
- The scheme lasts a maximum six years. Technically, it starts the first year you become tax resident in Spain, followed by the next five consecutive tax years.
- You must apply within six months of registering with the Spanish Social Security, i.e. formally starting work in Spain.
- Outside of the specifically designated activities (as per above), you cannot establish yourself as a freelancer or self-employed contractor within Spain. Care should be taken that your work arrangements and activity do not cross a threshold that excludes you from the Beckham Law. This is due to the Permanent Establishment (PE) rule.
Time your move for maximum impact
Get savvy with the timing of your move to Spain to extend your time there and max out your tax benefits. You can do this by arriving in Spain in the second half of one year and organising your employment and tax residency to start in the first months of the following year.
What to do next?
Ready to make your move to Spain or need more information? Get in touch with the team at Your Overseas Home. One of our specialists will chat through your plans and connect you with an affiliated specialist, including legal and tax experts who can assess eligibility and help with applications for the Beckham Law.
Don’t forget, if you’re moving to Spain for work, it’s likely you’ll need to move funds back and forth from your current country of residence. This could be to transfer wages, pay a mortgage or bills, even complete a property transaction in Spain. For all your cross-border payment requirements, use a currency specialist such as Smart Currency Exchange.
Note, information in this article is provided for general informational purposes only and does not constitute formal advice. Always seek professional advice before making decisions relating to estate planning, inheritance and other related matters.
