In Spain, when someone becomes a tax resident, their income is subject to Spanish Personal Income Tax or Impuesto sobre la Renta de las Personas Físicas («IRPF») in Spanish. In other words, they are taxed in the same way as any other resident in Spain.
The consequence is that the employee may be subjet to a progressive tax rates of up to 48%. The Beckham Law, or Special Expats’ Tax Regime from Regimen Especial para Trabajadores Desplazados law, focus on those who move to Spain to work and become tax residents in Spain. The special expats tax regime, gives the option of paying tax as non-residents.
The special expats tax regime
The special expats tax regime was introduced in 2003 as an incentive measure to attract highly qualified foreign workers to Spain. In exchange for coming to Spain, they were offered better tax conditions. These conditions consisted essentially in being taxed as a non-resident, that normally means a lower tax rates and being taxed only on income generated in Spanish territory
However, as you have probably noticed, the expression “Beckham Law” has its origin in David Beckham. He was a well-known English footballer who used to play for Real Madrid C. The point is that this regime is commonly known as the “Beckham Law” because it coincided in time with David Beckham’s arrival in Spain.
After that, in 2010, the tax benefit was limited, meaning that only taxpayers whose income did not exceed 600,000 euros could apply the special tax regime.
The last major change was in 2015, when professional athletes were expressly expelled from the regime. Notwithstanding the above, the limit of 600,000 euros was also eliminated. This way, those with incomes above that amount could also apply the regime, but with a tax rate of 45% for incomes above that amount.
Today it is still known as the Beckham Law regime, but it is clear that it is no longer aimed at sportsmen, but at skilled workers. The key is that it is intended that skilled workers currently residing abroad move to work in Spain. This is why the regime is quite strict in terms of working conditions.
Main aspect of the Beckham Law
The special expats tax regime is a special tax regime by which you could be taxed similarly to non-residents, which essentially means lower tax rates and being taxed only on income generated in Spain.
Flat tax rate
The main advantage of the special expat tax regime is that the general tax base (which includes employment income, rents, etc.) is taxed at an almost fixed rate. This almost fixed tax rate means that the first 600,000 euros of income is taxed at 24% and the excess is taxed at 45%. On the other hand, if the special expat tax regime were not applied, the same general tax base would be taxed at a progressive tax rate, a rate that can reach up to 48%.
Spanish income taxation
Another advantages of the special expats tax regime are that only income obtained in Spain is taxed. There is only one exception, employment income. With the regular personal income tax, all your worldwide income would be subject to taxation in Spain.
To apply for the special tax regime, you need to be considered a tax resident in Spain. If you are qualified a fixed rate of 24% up to 600,000 euros of income, and 45% thereafter.
The regulations of the Beckham Law or Special Expats’ Tax Regime from Spanish special regime for displaced workers, state that certain requirements have to be met in order to apply the special tax regime. The first and most important is the acquisition of the tax resident status in Spain. Once it is clear that you are or will be a tax resident in Spain, there are a few more requirements that must be met.
In addition to these requirements of the Beckham Law, in order to apply the special tax regime it is also necessary to make a formal application in which you must provide a series of documents.
The regulations are not always clear enough to know for sure whether the requirements are met, so an official body of the Spanish Tax Agency regularly publishes “binding consultations” that clarify how the regulations should be interpreted.