If you are moving to Spain to work, this will really help you out. Because there’s nothing worse than taxes. But fortunately for all expats, the Spanish tax system creates great opportunities to save some money. And that is what we are going to explain throughout this article: a special tax regime that can help you avoid paying taxes in the Spanish territory. So let’s dive into everything you need to know about the Beckham Law in Spain and how to easily apply.
What is the Beckham Law?
The Beckham law in Spain is a special tax regime that enables foreigners who move to the Spanish territory to pay a flat fee of 24% only on the incomes they obtain in Spain instead of a progressive tax on their worldwide incomes (19-45%).
So, basically, this special tax regime for expats make it possible to end up paying much lower taxes, hence being able to save huge amounts of money. It allows all the workers who reside abroad that want to come to work in Spain to pay income and wealth tax as if they were non-residents during the first 6 years.
This normative is regulated on section number 93 of the Spanish Income Tax Act and was published in 2004.
It was created to attract talent and qualified workers into Spain; and got its name after the famous football player David Beckham (the first one to take advantage of it).
Taxes for foreigners in Spain before and after the Beckham law
Just so you can understand how much you can benefit from this tax rule, let’s see which was the situation of foreigners before it’s application.
Until 2005, all foreigners who moved to Spain and spent more than 6 months (183 days) per year in the country became tax residents.
As we carefully explain in our article about all the taxes that any foreigner resident must pay in Spain, when you become a resident two things happen:
- You start paying income tax on your worldwide income. This includes money you obtained both in Spain and in any other country.
- The exact percentage you pay is progressive, increasing as your income increases. It goes from 19% on the lowest income gap and rises to 45% when you earn more than € 60,000.
Nevertheless, after the Beckham rule came into play, things changed completely. Now expats can pay much less during their first 6 years in the country. And they can save taxes provided that they apply for this regime, because:
- Under the Beckham law, no matter if you spend over 183 days in the country (hence becoming a tax resident), you will pay taxes under taxation rules similar tho those who are non-residents
- This basically means that you just pay Spanish income tax on the income you obtain in Spain.
- Furthermore, instead of paying that tax at a progressive rate that grows at the same time your income increases, you just pay a flat rate of 24% up to the amount of €600,000. In the case that income exceeds the top amount, the worker will be charged a fixed type of 45%.
So, as you can see, the Beckham Law implies, without any, doubt a great advantage for tax savings, as the flat tax rate of 24% is much lower than the rates that Spanish residents do face, which can rise up to 45%. A reduction of 21%!
Do you have any doubts so far? Ask our lawyers anything (or continue reading for more information):
All the tax reductions under this law
This regime won’t just benefit you when it comes to the income tax. There are other applications that will help you optimize your taxes further.
Inheritance and Donations tax
As the applicable tax is the non-resident tax, this transfers to the inheritance and donations tax as if the individual was a Spanish resident.
Capital gains are not exempt either. Dividend gains, as well as profits obtained through the sale of both movable and immovable properties, will be charged at a variable rate that ranges from 19% to 26% depending on the base amount.
Nevertheless, bear in mind that capital gains obtained outside Spain must be still paid to the corresponding country following their taxation rules. Not having to pay in Spain all those incomes obtained abroad does not mean they are not taxable elsewhere.
Under this special regulation for foreigners, property tax will only be applied to properties held in Spain. Therefore, a wealth tax in a portfolio of 3 million will only amount to approximately 1.79%.
If you want to learn more about the Spanish taxation system, do not hesitate to visit our guide regarding the Spanish tax system and which are all the taxes paid in Spain.
Taxation of Worldwide Income
But the Beckham rule presents additional advantages. The worker will just need to pay for the incomes generated in Spain. This eradicates the need that tax residents have when paying taxes on their incomes obtained worldwide.
There is no denying the fact that this is a completely benefiting point. You will be able to diversify your sources of income and investment so you pay the lowest possible amount. Therefore, apart from reducing the taxable amount, this possible diversification will help you reduce risk.
For more information regarding how does the worldwide income taxation work, do not hesitate to visit our blog post in which we specifically target everything related to the income tax.
Be careful: double taxation agreements won’t exist
Even though this regime will really benefit you, there is one important downside. You won’t be able to benefit from double taxation agreements.
Because, as we have said, you will become a non-resident for tax purposes. That is why you can’t eliminate double taxation issues: the tax residency that is required for that won’t be granted to you.
Who can apply for this special tax regime?
Basically, any foreigner who moves to Spain and is under the following rules (or under any of the following reasons that made him move to the country) can apply:
- Foreign workers who have just moved to Spain to carry out an economic activity (working for a company)
- Wealthy expats who hold management or positions
- Those who move to the Spanish territory to perform a remote work
- Highly qualified professionals who either provide services to emerging companies or carry out training or R&D&I activities. 40% of the income from economic activities must come from the invoicing of these activities.
- Administrators that come to work for a company, with a participation requirement of less than 25% in the case of patrimonial companies.
- Relatives of the remote workers (spouse and descendants)
Conversely, the following individuals are excluded:
- Self-employed workers
- Professional sport athletes
Main Requirements for the application of the Beckham Rule
- The first and most important requirement is that the expatriate can’t have been a resident in Spain during the past 5 years.
- The foreigner must have a job contract. This means that she is moving to the Spanish territory due to work reasons.
- This job contract must be signed with a Spanish company.
- For those who come to Spain to work as administrators, they can now possess more than 24% of the company
- The core of the workers’ professional activities must be in Spain. Nevertheless, it is possible to get work and get incomes from abroad, as long as they do not represent more than 15% of the total income.
How to apply for the Beckham Law
Finally, let’s move to another crucial aspect: the application process.
It must be noted that the application needs to be submitted within 6 months starting from the date of the inscription in Social Security as an employee for the Spanish company. Doing it afterwards will imply getting a denial.
In order to star benefit from this regime, you must inform the Spanish tax agency by filling out and sending the model 149, which you can find here. Furthermore, you will also need to include:
- Your passport and NIE number
- Social security number
- Job contract
From then on, you will be able to benefit from this rule for a total of 6 years. During each of them, you must yearly formalize your non-resident tax declarations using the model 151.
Get legal assistance from our tax lawyers
If you are an expat who is moving to Spain to work and wants to save taxes… Then you can (and should) welcome the Beckham Law.