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Legal Tax Reduction

Spain’s Special Expat Regime: The Ultimate Guide

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This article discusses Spain’s special expat tax regime. It’s known colloquially in Europe as the “Beckham Law”, named for the famous English soccer star, David Beckham, one of the more high-profile beneficiaries of the tax regime.

We kick off with a look at how this law works, and how it ties in with Spanish tax law generally, to help you discover how you too can benefit.

Looking for tax advice in Europe but don’t speak the lingo? Get straight-talking tax advice as a Nomad Capitalist client and discover how you can legally reduce your taxes.

Tax in Spain: Why Spain?

Spain is a popular destination for expats worldwide and is a fantastic gateway to explore fellow countries in the European Economic Area or European Union.

The special tax regime established in the early noughties by Spanish tax law states that, if you are employed by a Spanish company through a Spanish employment contract, or employed by a foreign company that assigns you to work in Spain, you can qualify when you’re resident in Spain. By being treated as if you’re one of Spain’s non-residents.

You cannot amass 50% of the share capital (you can be the owner of the foreign entity, but you must qualify in Spain as an employee, e.g., CEO of that company).

You can qualify for this tax regime as an employee of a foreign company provided that the foreign company has assigned you to Spain through a letter of assignment, which needs to be based on actual circumstances (e.g., new market, finding clients in Spain, expanding the business).

Under this special tax regime with its low tax rates, property tax will only be applied to Spanish properties.

Everyone has to file a Spanish tax return in the first year of tax residency. Following the first year, you don’t have to file a Spanish tax return if your income from all sources is under €8,000 and your bank interest or investment income is less than €1,600.

In spite of changes made to Spain’s special tax regime for assignees in 2015, the tax regime still offers significant benefits for all employees who qualify by virtue of an employment contract.

The Spanish Tax Agency applies the Beckham Law if you have tax residence status in Spain

Tax in Spain: Spain’s Special Tax Regime

You must fill out a form to qualify for this preferential income tax rate. The form in question is Spanish Tax Form 149, your entry to this special tax regime in Spain that treats successful applicants as non-residents.

This allows you to pay less Spanish income tax on any employment income obtained if you’re a non-resident who has obtained a tax address in Spain due to a posting in Spanish territory.

It also means that, for the duration of the tax period corresponding to your change of residence and the following five tax periods, you, as a tax resident, pay non-resident income tax rates.

It wasn’t David Beckham who was the architect of what has become known as the Beckham Law, but he was the first high-profile person to take advantage of it for tax purposes, so the name stuck.

Easing the Tax Pain in Spain

There are no CFC rules under the special tax regime, but you cannot manage a foreign company in Spain, or else it will be deemed a Spanish tax resident (permanent establishment in Spain).

You pay tax in Spain only on Spanish-sourced income; everything else is exempt and not required to report in Spain.

For personal income, there is a flat rate of 24% on taxable income up to €600,000. Beyond that flat rate, it is taxed at a 45% applicable tax rate.

Taxable income is the income remaining after deductions for pension, personal allowance, professional cost, and social security contributions.

Instead of being taxed as the Spanish with a tax rate of between 19 and 45% on your worldwide income, you will be taxed in Spain with a reduced Spanish non-resident tax rate.

You are taxed only on Spanish source income and gains rather than worldwide income. This includes investment income, such as dividends and interest from bank deposits.

Residents in Spain ordinarily pay Spanish income tax on their worldwide income. Could you become one of the Spanish non-resident exceptions, enjoying a lower tax rate in the process?

Foreign salary remitted to Spain is taxed in Spain even under the regime. However, the Spanish tax system will not tax foreign dividends in Spain under this rule.

Under this regime, your worldwide assets and employment income obtained (not remitted to Spain) are tax-free.

Wealth tax for worldwide assets is not applied to an individual under this regime by the Spanish government. Still, it is advisable to establish residency in a region that does not have a wealth tax, such as Madrid. Wealth tax is only related to Spanish-sourced assets under this tax in Spain regime.

HNWI Tax in Spain Benefits

You have to show employment income obtained by you to be eligible for this special tax regime. This Spanish non-resident setup is meant for high-net-worth individuals.

Under this tax resident in Spain regime, dividends, capital gains, and foreign income obtained outside of Spain are tax-free in Spain.

Property rental income is included in the general revenue and therefore is taxable at prevailing progressive tax rates.

Therefore, the sale of assets abroad, for example, the sale of a property, or any income from capital gains abroad, are not subject to Spanish income tax.

Taxes on foreign capital gains only apply if you are not a beneficiary of the Beckham Law.

In order for you, as a high net-worth individual who owns a foreign company, to qualify for this regime, you need to appoint another director (can be a nominee director).

The director can’t be a family member because the Spanish tax authority will check family connections, so it is not advisable.

Special Tax Regime Duration

You can take advantage of this favorable tax in Spain to the maximum limit for six whole tax years.

No wonder it’s called a special tax regime.

Don’t worry. You won’t need to fill in the dreaded Form 720 that Spanish tax residents use to inform the authorities of their assets outside Spain.

You are still tax residents in Spain, but you enjoy this privilege thanks to submitting Form 149.

Special Tax Regime And Double Taxation

One downside of the special tax regime is that as you pay non-resident income tax in Spain, you won’t be able to benefit from double taxation agreements.

You won’t be able to benefit as you have become a non-resident for tax purposes despite being a tax resident in Spain.

Double taxation agreements won’t exist for you. So, you won’t be able to take advantage of lower tax rates on dividends and investment interest.

Special Tax Regime Taxable Income

For tax purposes, the Spanish Tax Agency considers you and your family non-residents in Spanish territory.

As you’re considered a non-resident in Spain, you only pay tax in Spain on Spanish income. This also includes potential rental income on Spanish property.

Something else to take into consideration is that tax rates can vary across Spain as Spanish taxes are divided between state and regional governments. So, levels of capital gains tax, inheritance tax, and Spanish property tax rate can fluctuate for Spanish residents.

Tax in Spain: Special Tax Regime Requirements

If you acquire tax residence in Spain as a result of traveling to Spanish territory, you may, for tax purposes, opt to pay non-resident personal income tax on your employment income in the tax year that you acquire your residency.

Special Tax Regime Special Conditions For Tax Residents

However, Spanish tax authorities require you to meet the following conditions:

  • You have not resided in Spain during the ten tax periods prior to the tax year in which you move to Spanish territory
  • You are now resident in Spain because of any of the following circumstances:
  • As a consequence of an employment contract, with the exception of the employment relationship of professional athletes regulated by Royal Decree 1006/1985
  • By becoming an administrator of an entity that you are not a shareholder of or one fulfilling the terms provided in Article 18 of the Corporate Tax Law
  • You do not obtain employment income that would qualify as employment income obtained through a permanent establishment situated in Spanish territory.

Tax in Spain: Net wealth tax obligations

If for tax purposes, you choose this special tax regime, you become liable to pay the Wealth Tax in Spain.

However, this wealth taxation would not be applied to any wealth you have outside Spain.

This net income Wealth Tax is due only on Spanish assets.

Tax in Spain: Spanish Tax Residency Forms

As tax residents, you and your dependents will need to spend more than 183 days a year in Spanish territory. 10 business days after submitting Form 149, should you qualify, you will receive accreditation for exercising the option for this special tax regime.

All taxpayers subjected to this regime will need to submit a Spanish tax return for income tax using Form 151.

When are Spanish tax returns due? There is a tax return deadline. You need to file the annual tax return before 30 June, following the calendar year when the income was earned. The earliest you can file this tax return is April 6th.

Eligible residents have to file Spanish tax returns between April 6th and June 30th of the year following the tax year. There are no extensions on filing tax returns in Spain.

This special taxation for expats allows you to cut your personal income tax in Spain in half as a Spanish resident. There are no deductions or reductions on your taxable income though, except donations.

Without the Beckham Law, you would become a tax resident by residing in Spain for more than six months in a tax year. You would be subject to the ordinary Spanish tax rate when you obtain income.

You can obtain a tax credit for foreign taxes paid up to a maximum limit of 30% of the Spanish tax due on the total employment income for the tax year, courtesy of this special tax regime.

Foreign workers can qualify as non-resident taxpayers in Spain thanks to the Beckham Law

Special Tax Regime Submissions

The Spanish tax system accepts Form 149 special tax regime submissions online through:

  • A recognized electronic certificate, which may be associated with the National Document of Electronic identity (DNI-e) or any other recognized electronic certificate that is admissible by the Tax Agency
  • A PIN code.

You will need to provide complementary documentation to benefit from these special Spanish taxes. Applications are accepted from taxpayers and their representatives.

Special Tax Regime Taxpayer Submissions

As a Spanish resident taxpayer living in a Spanish property, you need to prove inclusion in the Census of Taxpayers to qualify for this special tax regime. You will also need to supply the following information to ensure you are eligible for this tax regime:

  • NIE (your tax in Spain identification number)
  • Surname, first surname, and, where appropriate, second surname
  • First name
  • Home and mobile telephone.
Special Tax Regime Taxpayer Submissions

Special Tax Regime Representative Submissions

If you appoint a representative to accelerate your progress to this tax regime, they will need to present their address in the Spanish territory, along with the following:

  • NIE, their tax in Spain identification number
  • Surname, name, or company name:
  • For natural persons, their first surname and, where appropriate, the second surname
  • For legal persons and entities, their company name or full name of the entity, without acronyms
  • For natural persons, their full name
  • Address:
  • Type of road: Street, square, avenue, road, passage, promenade, boulevard, etc
  • Type of numbering: number (NUM), kilometer (KM), no number (S/N), etc
  • Additional address information: (Urbanization, Edificio etc)
  • City or town
  • Home and mobile telephone.

Special Tax Regime Smallprint

Suppose you’re a worker displaced to Spanish territory. In that case, you must notify Spanish tax authorities by six months from when you start to pay taxes on the employment income already recorded through your Spanish social security system registration.

Displacement as a consequence of an employment contract

You must share your employer’s NIF, first name, surname, or business name.

If you receive employment income from a Spanish company, you need to attach a supporting document issued by the employer expressing:

  • The recognition of the labor or statutory relationship with the taxpayer
  • The start date of the activity that appears in the registration with Spanish social security authorities
  • The work center and its address
  • The duration of the employment contract.

In the case of a displacement ordered by your employer, you need to attach a copy of the letter of posting from the employer, as well as a supporting document issued by this non-Spanish company expressing:

  1. The start date of the activity that appears in registration with Spanish social security authorities
  2. The work center and its address
  3. The duration of the work order displacement.

Displacement By Becoming An Administrator Of An Entity

You must clarify the entity’s NIF and name or trading name.

Attach a supporting document issued by the entity stating:

  1. The date of acquisition of the condition of the administrator
  2. Last country or territory of residence
  3. Tax residence of the taxpayer.

Exercising a Waiver of the Special Tax Regime

Taxpayers who have opted for this special tax regime may waive their application. If you choose to resign from this tax regime, you will not be able to apply again. You need to communicate your resignation during November and December prior to the tax year you want to leave the special tax regime.

Exclusion from the Special Tax Regime

Taxpayers who have successfully applied for this tax regime and who fail to comply with any of the determining conditions will be excluded from the regime. The exclusion will take effect when the breach occurs.

If you are excluded from this special tax regime, you will not be able to apply again.

The notification of the exclusion will be submitted within one month of non-compliance with the conditions that determined the application of the tax regime.

For tax purposes, the special tax residence is ideal for reducing tax in Spain

Termination of Special Tax Regime

When your arrangement ends you must notify the Spanish tax system. You must communicate this development within a month of the ending of your transfer to Spanish territory.

The ETVE tax regime is another special tax regime in Spain

Spain’s Other Special Tax Regime

The special expatriate tax regime isn’t Spain’s only special tax regime for tax residents in Spain facilitated by Spanish tax law.

Foreign Securities Holding Entities (ETVE), also known as Spanish holding companies, are companies that benefit from a special tax regime consisting of an exemption from dividends or capital gains obtained from holding shares or holdings in foreign companies.

These are, therefore, companies with a large capacity for foreign investors, who, by funneling their capital through a holding company established in Spain, develop their international investments without having to pay taxes on the income derived from them.

The ETVE tax regime has been regulated in Spain since 1995 and was created with the aim of eliminating international double taxation with respect to shares in non-resident entities that carry out business activities, thus competing with similar regimes implemented in other countries of the European Union, such as the Netherlands or Luxembourg.

One of the benefits of the special ETVE regime is being exempt from Income Tax on Non-Residents (IRNR) in the case of distribution of profits or profits from divestment obtained by foreign partners, which makes it easier for the foreign investor to invest and disinvest in the ETVE without worrying about taxation in the Spanish IRNR.

The ETVE offers an advantageous tax regime for those companies that want to use Spain and Spanish territory as a platform for investment abroad and whose main characteristic lies in the tax exemption regarding dividends and capital gains obtained by holding shares in foreign companies.

Go Where You’re Treated Best

We advise wealthy expats on double taxation, permanent establishment, property tax, rental income tax rates, and tax returns. Nomad Capitalist can help you locate a favorable tax regime for you and your business

Whatever your next step as tax residents, we are here to guide you. Ensuring your capital gains don’t become losses, that you make the most of your investment income, that you avoid tax liability, reduce your taxable income, and that you qualify for every available tax credit.

Income tax is a minefield. We are happy to help you negotiate it. Don’t fear the tax year.

Let us help you go where you’re treated best.

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