17 March, 2015

Spanish tax system for inbound expatriates

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The so-called “Beckham Law” allows new resident individuals to be taxed on Spanish source income, at the non – residents flat income tax rate of 24%, while being considered as Spanish tax resident.

This system, that was originally applied to the football player David Beckham upon his secondment to Spain to play for Real Madrid, has been recently modified to extend its application to diverse taxpayers.

Let’s see what is it about.

✔This special system applies whenever the secondment to Spain is due to an employment contract or to occupying a director/administrator position in a Spanish entity, as long as the individual does not acquire part of its ownership or, if he does, his participation does not mean that they are related parties under transfer pricing rules, (if the individual owns a minimum 25%, the relationship will be qualified as tax-related).

✔The individual is only taxed on Spanish source income, whereas foreign income is not taxed, except for employment income that is taxed on a world- wide basis.

Sportsmen and women subject to the special labour relationship ruled out in Royal Decree 1006 / 1985, of June 26 are now excluded from this special system. It will not apply either if the individual has a permanent establishment in Spain.

✔ This system is elected by the taxpayer and remains in force for a period of five years, providing the requirements for its application are met within such period.

In order to formulate the election to the Spanish tax authorities (that shall review if the documentation supplied formally meets the requirements to apply this special system), the individual should not be resident in Spain in the 10 fiscal years previous to the secondment to Spanish territory.

✔ If the individual’s income exceeds 600,000.00 Euro, the rate of taxation is 45%. However, for income not exceeding such threshold, the individual is only taxed at a flat 24% rate, which is particularly advantageous if we compare it to the top rates of tax in Spain that can reach almost 50%.


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