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Finance

How to Pay Low Taxes with Spain’s Beckham Law

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The Special Regime for Displaced Workers, or Beckham Law, as it has become known, was introduced by Spain in 2004 to attract talent and qualified workers from overseas. 

The law, famously created to bring David Beckham to Real Madrid, has ironically been axed for professional athletes. 

However, it now helps thousands of foreigners live and work in Spain and legally pay low taxes. As part of a carefully planned strategy, it can also help high-net-worth individuals realize the best combination of tax planning, dual citizenship, and asset protection strategies.

In this article, you’ll learn about the requirements, leading benefits, application processes, and recent changes. 

Nomad Capitalist is a turnkey solution for offshore tax planning, dual citizenship, asset protection, and global diversification. 

This article is not professional tax advice. It will help you decide if Spain’s Beckham law is broadly interesting. If you need a detailed tax planning strategy based on your individual needs, you can find out more here

What Is The Beckham Law?

It is a special tax regime that applies to all foreigners who, for work reasons, move to Spain and want to enjoy a tax deduction. It applies for five years plus the year you apply for residency in Spain. 

To understand why this tax regime is so advantageous, it’s essential to know the general tax regime for immigrants. Once you move to Spain and obtain residency, you automatically become a tax resident when you spend more than 183 days per year in the country. 

This means you will pay income tax on the income you generate in Spain and that which you generate worldwide, at rates that can reach as high as 50%, depending on your income bracket. So, as a tax resident, you pay taxes on all the income you generate, both Spanish-sourced and foreign-sourced. 

Potentially, that could be a large tax bill from the Spanish Government, but what the Bechkam law tries to do is save you. 

Under the law, which applies to income generated in Spain for six years, individuals who move to Spain and become residents can pay a fixed, significantly reduced tax rate.

This offers three main tax advantages:

Income Tax: As a tax non-resident, instead of paying a progressive rate of income tax, you will pay a flat rate of 24% on earnings up to €600,000. 

Then, you would not pay taxes for income generated abroad; no regional or state tax is applied to income you generate outside Spain.  

Capital Gains: You only pay tax on capital gains on assets located in Spain. You won’t pay any tax if you sell any asset or receive dividends from assets abroad. The CGT on income from investments within Spain is 19%.

Wealth Tax: You will enjoy better conditions and only pay taxes for properties in Spain. The applicable tax rate is from 0.2% to 2.5%, depending on the property’s value. It doesn’t apply to property owned abroad.   

Who Does the Beckham Law Apply To?

The first requirement is that you can’t have lived in Spain and become a resident in the previous ten years from when you applied. 

The second requirement is the reason you are moving to Spain. In this case, it must be work. You must be coming to Sain because you have received a job offer and are coming for a work opportunity.  

Thirdly, the hiring company must be Spanish; you can only receive income from a company resident in Spain. 

The last requirement is about your application; you must submit your application within six months of being employed by the company. 

Then there is the digital nomad visa, where remote workers who have applied to Spain can obtain a residence permit for three years and use the Beckham Law. This can significantly benefit those who want to work remotely from Spain. 

You can qualify for the Beckham Law if you move to Spain to provide services or research and development training to start-ups and early-stage companies.

The Application Process

One of the main advantages is that it can be done entirely online. First, you must download, fill out, and submit Form 030. Once you get initial approval from the tax office, you must download and submit Form 149 with all the proper information. 

You must also include your Foreigner Identity Number, your passport, your job contract, the reason for coming to Spain, and finally, your Social Security Number.  

It usually takes one to two months to be processed, and after you receive a positive resolution, you must give it to your company so they can start applying it to your salary and tax base. Lastly, the only legal requirement is submitting a yearly tax return from April to June using Form 151.

Who Cannot Apply?

Three groups of foreign workers cannot apply for the Beckham Law:

  • Freelance and self-employed workers (not counting digital nomads and remote workers.) 
  • Sportspeople and professional athletes. 
  • Directors of passive holding companies who hold more than 25% of the assets of that company.

Several minor amendments have occurred since the Beckham Law was passed in  2004. Perhaps the most substantial came into effect in 2015. The original law offered the lowest tax rate of 24% regardless of what qualified foreign workers earned. This made it attractive to wealthy foreign footballers and others who were not the intended target of the measure. 

In 2010, Spain’s left-wing government imposed a series of restrictions, setting an income limit of €600,000 for those hoping to qualify for the lower tax rate. This did little to disincentive those already paying 24% foreign workers, including soccer players. 

In 2014, the Popular Party, a conservative and Christian-democratic party, bowing to pressure from the left, wholly excluded professional athletes from the scheme, raising their tax rate to 47% on income above €60,000, like all ordinary Spanish taxpayers.

Updates on the Beckham Law in 2023

Previously, those who could apply for this special tax regime were those ex-pats who: 

  • Had not lived in Spain in the ten years before their application. 
  • Relocated to Spain for work purposes. 
  • Had a permanent residence or digital nomad permit. 
  • Were classified as highly qualified workers. 

Changes to Spain’s Expat Laws in 2023 include a new digital nomad visa scheme that allows non-EEA freelancers and those who work remotely to live and work in Spain for five years. There are salary requirements that must be met to be eligible. For the digital nomad visa, a minimum monthly salary of €1260, with the addition of 75% for those including family members. 

In terms of the Beckham Law, we understand that recent changes include:

  • The 10-year non-residence before applying period reduces to five.  
  • Some remote workers, entrepreneurs, and freelancers can now apply.
  • Spouses and children under 25 accompanying the worker can join the tax regime.
  • The rules on share ownership of local companies have been relaxed, and some company officials, regardless of the percentage of share capital they hold, are eligible. 

Watch this space for official confirmation of these changes.

Conclusion 

Under the Beckham Law, you must live in Spain and earn an income from employment there. You will pay 24% in taxes on earned income up to €600,000 annually. While this is a favourable tax rate, you will pay taxes there. 

While 85% of the job must be done within Spain, the good part is that your foreign income is not taxed in Spain, including capital gains and dividends. 

Compared to Portugal’s Golden Visa, where foreign source dividends are tax-free, but not Capital Gains, in Spain, you can also avail of tax-free Capital Gains on income made outside the country. 

So, under the Beckham Law, you could have an extensive portfolio and make a lot of money, in addition to dividends and capital gains, and bring that money into the country. Unlike the Non-dom programs in the UK, Ireland, for example, where there is a remittance basis for taxation, and you are taxed on what you bring into the country, in Spain, you can.

In theory, the Beckham Law could be a strategy to diversify your wealth, convert company assets into your personal name, live in a fantastic country for six years, and accumulate wealth personally.  

The scheme is, therefore, of considerable potential benefit to high-paid employees who can become tax residents in Spain yet pay significantly reduced income tax on their earnings and avoid tax on non-Spanish investment income.

If most of your wealth comes from worldwide dividends, from a foreign company, or foreign-source Capital Gains, Spain and its Beckham law could be a good option for you. 

Our Nomad Capitalist philosophy of going where you are treated best can help you realize the best combination of tax planning, dual citizenship, and asset protection strategies. If you want to find out how, please get in touch here

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