You’ve come this far tired of paying high taxes. Today, we offer you an effective solution, the Beckham Law or impatriates regime.
Some countries have no taxes at all; they obtain their income from other sources such as annual fees for businesses, the sale of goods and services, etc. On the other hand, some countries consider people as their main source of income and the country’s value. Today, we will talk about one of these countries.
What stands out the most is not how tremendously high taxes are for the locals, but that sometimes having additional income can even lead to debts rather than profits.
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Tax Crisis in Spain
Many of you are Spanish, and our situation is so absurd… How is it possible? We recently had the following case in a consultation: There’s an employee with a very good salary, so the income tax they pay is at the maximum rate.
In addition to this, they wanted to have additional income, just a small portion from secondary jobs, and the income from these side jobs would be minimal. But they still enjoyed what they were doing and wanted to make some extra money. After all, an extra 100 euros is always better than 100 euros less, right?
That’s what common sense tells us. But not the legislation.
To provide services, even as a secondary job, they would have to register as self-employed. And by law, there’s a minimum amount that must be paid each month if you’re self-employed. So, what happened is that their monthly social security expenses would be higher than the income.
When they asked the authorities what they should do to make everything legal, providing the minimum services as a self-employed person while still being employed and actually having income and not just expenses that would be higher than the income, the authorities officially told them:
“Don’t do additional jobs, don’t register as self-employed. Why do you need this extra income if you already have a good job?” As ridiculous as it sounds, that’s the reality.
Introduction to the Beckham Law
So today, we will discuss how to minimize your taxes in Spain and avoid spending all your wealth on taxes. We will look at who can benefit, the process you should follow, and the peculiarities of this special tax treatment.
At the end, I will tell you what to pay attention to if you plan to use it because, in some way, for whatever reason, all the information promoting this tax regime omits this information, and people who have already moved to Spain and find out about it are very surprised.
The special regime known as “Ley Beckham” or Impatriates Regime
Spain has a special tax regime called the Beckham Law. Under this regime, anyone who has not been a tax resident in Spain in the last 5 years can apply for it. Please note that it is not granted automatically. And having a tax number in Spain, if you meet all the criteria and requirements, does not automatically grant you the beneficial tax treatment.
You must apply for it separately within the first 6 months from your registration with Social Security. If you fail to do so in a timely manner, you automatically lose the right to claim any tax benefits.
Who can apply for the BECKHAM LAW, and what requirements must they follow?
- New arrivals in Spain: Foreign workers who have recently arrived in Spain.
- Expatriates with Significant Income: Expatriates with high incomes who hold management or executive positions in companies.
- Remote Work from Spain: Foreign nationals who move to Spain to work remotely.
- Highly Qualified Professionals: Highly skilled individuals who provide services to startups or engage in activities related to training, research, and development (R&D). They must generate at least 40% of their income through these activities.
- Company Managers: Managers who join companies with less than a 25% shareholding, particularly applicable to family-owned companies.
- Relatives of Telecommuters: Spouses and descendants of telecommuters can also benefit from this law.
On the other hand, the following individuals are excluded from this regime:
- Self-Employed Workers
- Professional Athletes
- Company Directors
Changes in the Beckham Law for 2023
Starting in January 2023, certain modifications have been implemented in the Beckham Law. These changes include:
- Reducing the minimum residency period in Spain from 10 to 5 years.
- Expanding the scope of the Beckham Law to include highly qualified professionals who move to Spain to provide services to startups or engage in activities related to training, research, development, and innovation. This includes ‘digital nomads’ and corporate managers, among others.
You should note that your primary professional activity must be carried out in Spain, and only 15% of your total income can come from abroad. Of course, this does not apply to digital nomad visas.
With a nomad visa, your primary source of income must be outside of Spain, and only 20% can come from Spain. You can find more information on this topic in our Blog.
Taxes under the Beckham Law
Personal Income Tax (IRPF)
Under the Beckham Law Standard personal income tax rates in Spain are quite high, ranging from 19% to 47%. For those who are taxed under the Beckham Law, a flat tax rate of 24% will be applied to income generated in Spain for the first 6 years.
This flat tax rate of 24% applies to the first 600,000 euros of income, and any income above this amount will be taxed at 47%.
Inheritance and Gift Tax
Under the Beckham Law Since you will not be subject to Personal Income Tax (IRPF) but rather to Non-Resident Income Tax, this also applies to Inheritance and Gift Tax.
Capital Gains with the Impatriates Law
Capital gains will not be exempt either. Profits derived from dividends or the sale of both movable and immovable property will be subject to a variable tax ranging from 19% to 26%, depending on the amount in question.
However, it is crucial to note that capital gains obtained outside of Spain must still be declared and taxed in accordance with the tax regulations of the respective country.
The fact that you do not have to pay taxes in Spain on all income generated abroad does not mean that they are exempt from taxes in other parts of the world. The Beckham Law can be especially advantageous when combined with countries like Cyprus, where companies enjoy a 0% capital gains tax.
Wealth Tax with the Beckham
Law Under this special regime for foreigners, the Wealth Tax will only apply to properties held in Spain. Therefore, the wealth tax on a portfolio of 3 million euros will amount to approximately 1.79%.
If you wish to obtain more information about taxes in Spain and how they work, do not hesitate to visit our guide on the Spanish tax system.
Taxation of Worldwide Income with the Beckham Law
The Beckham Law also offers another significant advantage.
Workers will not be obliged to pay taxes on income generated worldwide; they will only pay taxes on income generated in Spain. This is undoubtedly a significant advantage, as it allows for income and investment diversification to reduce the tax burden. Additionally, diversification can help reduce risk in the investment portfolio.
Attention: Double Taxation Agreements
Despite the numerous benefits of this regime, it’s important to note that you won’t be able to take advantage of double taxation agreements. By becoming a non-resident for tax purposes, you won’t be able to obtain the tax residence certificate required to access these agreements.
When is the Beckham Law Convenient?
Now, let’s summarize the main advantages of the BECKHAM LAW:
- Another important advantage of the Beckham Law is that income obtained abroad will not be subject to taxation in Spain unless it is employment income.
- You should note that there is no need to consider the 183-day requirement for your tax residence.
- Wealth Tax: Under the impatriates regime, you are only required to pay tax in Spain on the net value of assets located in Spanish territory.
- Model 720: Taxpayers under this special regime are not obliged to file Model 720, which is used to declare foreign assets.
Social Contributions with the Beckham Law
Basically, with this regime, you can reduce your tax rate from 47% to 24%, but as I mentioned before, don’t forget that the 24% is not your final expense. In addition to this 24%, you will also pay social contributions. In Spain, the maximum amount you will pay is 14,000 euros per year.
The exact amount depends on your type of activity and the actual income you receive. But you should be aware that your final tax rate will be higher than 24%.
Apply for the Beckham Law with NOMAD TAX
If you have any additional questions or are looking for other solutions, visit our website or get in touch so that we can evaluate your personal situation and create a plan to minimize your taxes and maximize your wealth. Request your call HERE.
Frequently Asked Questions (FAQ)
- What is the Beckham Law, and who can benefit from it?
The Beckham Law is a special tax regime in Spain that benefits individuals who meet certain criteria, such as newcomers, expatriates with significant income, highly qualified professionals, and others. There are exclusions for self-employed workers, professional athletes, and company directors.
- What taxes are applied under the Beckham Law?
The Beckham Law establishes reduced tax rates for taxes such as Personal Income Tax (IRPF), Wealth Tax, Inheritance and Gift Tax, and capital gains.
- What happens with capital gains obtained outside of Spain?
Capital gains obtained abroad must be declared and taxed according to the tax regulations of the corresponding country. The Beckham Law is especially beneficial when combined with countries that offer tax advantages, such as Cyprus.
- Who cannot benefit from the Beckham Law?
Self-employed workers, professional athletes, and company directors cannot benefit from the Beckham Law.
- What are the advantages of the Beckham Law?
The advantages of the Beckham Law include reduced tax rates, the possibility of not paying taxes on income earned abroad, and the elimination of the 183-day tax residency requirement in Spain.
- Which double taxation agreements do not apply under the Beckham Law?
Under the Beckham Law, you cannot take advantage of double taxation agreements because you become a non-resident for tax purposes and do not obtain the tax residence certificate required for such agreements.
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