The ‘Beckham Law’ Explained (Non-Domiciled Tax Scheme in Spain)
Introduction
In 2015, Spain introduced a special tax regime for wealthy EU expatriates who relocate to Spain, following in the footsteps of other countries. This tax scheme is modelled after the UK’s successful non-domiciled scheme, and takes its name after England’s famous footballer.
The self-declared goal of this programme is to attract EU high achievers to relocate to Spain on the back of a job offer. The typical taxpayer profile that qualifies would be a high-profile artist, techy, or high-ranking corporate employee. Over 10,000 foreigners settled in Spain have benefitted from this special tax arrangement.
In a nutshell, this tax scheme allows EU nationals to make huge tax savings on paying Income Tax in Spain (IRPF). If you opt into this scheme, you stand to benefit from substantial tax breaks, on both income derived in Spain as well as worldwide income.
A legal fiction applies whereby EU expats are treated (for admin purposes) as if they were resident taxpayers in Spain. Albeit in practice, for tax purposes, taxpayers are regarded as non-resident. The latter has huge tax implications which translate into paying few taxes. Meaning you get the best of both worlds; you get all the perks from being legally resident in Spain, yet you pay a substantially lower tax bill, as you are deemed in practice a non-resident taxpayer.
Who can apply?
- Any European Union national relocating to Spain as a result of a professional contract. You need to be hired by a Spanish company or else by a foreign company with a permanent establishment in Spain. The contract is the core requirement to opt into this tax scheme. Non-EUs may also apply but may require a visa to live and work in Spain. Non-EUs are advised to benefit instead from a Digital Nomad Visa, which offers almost identical tax benefits and is also a visa permit.
- Not to have resided in Spain on the previous 10 years.
- No earnings derived from a permanent establishment in Spain.
Tax advantages
- Spanish income. The first €600,000 derived within Spanish territory will be taxed at a flat rate of 24% (in lieu of the standard top marginal rate of 47%). As can be surmised, even for earnings whose source is in Spanish territory, the tax savings are huge.
- Worldwide income. However, it is here where this tax scheme truly shines and comes into its own. Spanish Tax Authorities only tax you on your income derived within Spanish territory. Meaning, any other source of worldwide income or assets is tax-free (just like with the popular UKs non-dom tax scheme). Needless to say, this unique tax advantage offers a hugely attractive prospect for those taxpayers with substantial earnings, assets, and interests overseas. The only exception is any income derived abroad from working.
- Exempt from submitting tax return 720
- Exempt from submitting Wealth tax *
- Five years plus one. Because of its outstanding tax advantages, the government time gates the tax benefits. It applies on the fiscal year of relocation, as well as on the following five years (total up to six years).
*contingent on the value of your Spanish estate.
Potential disadvantages
- As written above, a legal fiction applies whereby you are regarded as a non-resident taxpayer (non-domiciled). The implication of this is that, as you are not regarded as a tax resident, you may not benefit from lenient tax allowances on personal income tax as would be standard practice.
- This tax scheme only works out if the taxpayer’s country of origin has a double taxation treaty in place with Spain.
In conclusion
Beckham’s Law addresses a gap for high-end professionals who wish to relocate to Spain (on the back of a job offer), alone or with their families, and enjoy all the country has to offer, including ultra-low taxes. The tax benefits collated above apply nationwide, regardless of where you settle down in Spain.
If you are a high-flyer, and don’t fancy paying taxes, and wish to relocate to Spain (legally), this is the right tax scheme for you. Give us a call!
In effect, this blue-ribbon tax scheme rolls the red rug, allowing you, and your family, to get the best of both worlds; you get to enjoy all the perks of being legally resident in Spain albeit you are fiscally treated as a non-resident taxpayer, meaning you pay little to no tax.
