The Beckham Law is the Special Taxation Regime. Developed in Law 35/2006. It applies to taxpayers who have been granted the Special Tax Regime for workers posted to Spanish territory. Like all special regimes, it has advantages, but it also implies certain obligations.
The special tax regime for expatriates was introduced in 2003 as an incentive to attract highly qualified foreign workers to Spain. In exchange for coming to Spain, they were offered better tax conditions. These conditions consisted mainly of being taxed as a non-resident, which normally means a lower tax rate, and taxed only on income generated in Spanish territory.
Subsequently, in 2010, the tax benefit was limited, so that only taxpayers whose income did not exceed €600,000 could apply the special tax regime. The last major change was in 2015, when professional sportsmen were expressly expelled from the regime. Notwithstanding the above, the €600,000 limit was also eliminated. Thus, those with income above that amount could also apply the regime, but with a tax rate of 47% for income above that amount.
Today it is still known as the Beckham Law regime (after the footballer David Beckham), but it is clearly no longer aimed at sportsmen, but at skilled workers.
The Beckham Law or Special Taxation Regime
As we have said before, this Special Taxation Regime has certain advantages, but also obligations.
Advantages of this regime
The main advantage of the special tax regime for expatriates is that the general taxable income (which includes employment income, rents, etc.) is taxed at a quasi-fixed rate. This quasi-fixed tax rate means that the first €600,000 of income is taxed at 24% and the excess at 47%. On the other hand, if the special tax regime for expatriates were not applied, the same general taxable income would be taxed at a progressive tax rate, a rate that can reach up to 47%.
Another advantage of the special tax regime for expatriates is that only income obtained in Spain is taxed. With the only exception of employment income.
With the regular personal income tax, all your worldwide income would be taxed in Spain.
In addition, only assets located in Spain are subject to Wealth Tax.
Finally, since the Beckham Law is a regime whereby the taxpayer is treated as if he/she were a non-tax resident, one of the consequences is that he/she will not have to file the Model 720 Foreign Assets Declaration.
Disadvantages
Taxpayers under this regime will not be able to apply most of the double taxation treaties.
Another of the most important disadvantages is that the person will not be entitled to apply the tax benefits provided for the rest of the taxpayers in the normal regime, such as the deduction of social security expenses.
Finally, the person who avails himself of this regime will also not be entitled to the exemption of severance pay. Nor will he/she be entitled to the deduction for the minimum deduction for descendants or family members.
Obligations
On the side of the obligations, we find a series of communications. Some of them are of obligatory character and in addition, with determined terms. Not doing them or doing them improperly, or out of time, can have a significant negative impact on taxation in Spain.
In this case we refer to the completion of Form 149.
Requirements of the Beckham Law or Special Taxation Regime
First of all, the taxpayer can decide whether or not to apply for the Beckham Law, in case he/she wishes to do so, he/she must comply with certain requirements.
Basically, in order to apply for the special tax regime it is necessary to be considered a tax resident in Spain.
Additionally there is a deadline to exercise the option. In case it is approved, the regime will be applicable during the following 5 fiscal years, although it can also be waived prior to its termination.
There is a residency requirement. The person who wants to apply for the regime cannot have been a tax resident in Spain during the last 10 years.
Next, Work. That is to say, it is fundamental that there is a new job that justifies the transfer of the person to Spain.
Without forgetting the Income. The person who applies for the regime cannot obtain income through a permanent establishment located in Spanish territory. The limits of the concept of permanent establishment are not at all clear, but basically it means that the applicant cannot have a self-employed activity.
Finally, the Time concept. It is absolutely key to comply with a series of deadlines. Time to move to Spain, to start work, to apply for the regime.
These requirements are fulfilled through the Form 149. In case the requirements are fulfilled and the conclusion has been reached that it can be beneficial, the next step would be to prepare the application. This application requires the presentation of a whole series of documents, and these must be presented correctly in order for the Tax Agency to accept the application since, in the event of rejection, it will not be possible to reapply.
Non-compliances and consequences
The non-compliance with the requirements that gave rise to the application and approval of the special regime implies that, if such requirements are breached, it is necessary to make a communication during the month following the month in which the non-compliance occurs. Taking into account that the exclusion is retroactive. It does not matter at what time of the year it occurs. It will take effect as of January 1 of the year in which it was communicated.
If the case arises that the taxation of the regime is no longer beneficial, an express waiver can be made. However, it must be made in advance during the months of November and December, prior to the corresponding tax year.
If this communication is not presented on time, it is not possible to change the status regardless of whether this entails a tax difference against the taxpayer. Only if there were circumstances of exclusion, change of tax residence or departure from the country, there would be other alternatives.
In the event that it is known that a transfer out of Spain will take place, we have two different scenarios:
- If the departure takes place before July and, therefore, the taxpayer is going to have the consideration of Non-Resident for tax purposes. There is no obligation to present any communication of the end of the special regime. The taxpayer will be subject to the Non-Resident Income Tax Law (IRNR). And, if applicable with the country to which it has been transferred, what is stipulated in the agreements to avoid double taxation.
- If the departure takes place after July 1, it is necessary to review whether the status of resident for tax purposes in Spain will be maintained. And, if this is the case, it will be necessary to present the corresponding communication of form 149 in the month following the departure from Spain.
Important notice
The consequence of not filing it is that you will be taxed on all the earned income obtained from January 1 to December 31. That is to say, even if after the departure income was received for work done outside Spain. Even a 100% foreign employer, the same would be subject to tax in Spain.
