If you are thinking about moving to Spain, you might want to learn about the famous Beckham Law. Beckham law is actually a special tax regime offering significant tax cuts on your Spanish-sourced income when it excludes most worldwide income from your Spanish taxation.
But who exactly qualifies for Beckham Law, what does it involve, and how can you claim it? We鈥檒l go over all of these questions and more in our guide below.
What is Beckham Law in Spain?
Beckham Law offers a special reduced tax regime that benefits foreigners working in Spain. With this law, the non-residents with an IRPF (Impuesto de Renta Sobre las Personas F铆sicas) can reach benefits in their personal income tax, which is a 24% tax rate special for them, a lower percentage compared to the progressive tax rate that is applied to the residents of Spain.
Moreover, the posted employees can be taxed at a 24% flat tax rate for 6 years instead of progressive personal income tax (IRPF), which ranges from 19% to 47%.
So what this means is that the Beckham law allows those who benefit from the tax rate of 24% on all their income up to 600,000 euros, which is set as the limit. If you exceed this limit, you get the 47% tax rate like any other taxpayer and can not benefit from the Beckham law anymore.
When it comes to the application process of the Beckham law, remember that it is an optional tax regime that, if you want to benefit from it, you first need to know that it will be useful for you to apply. So, you need to first meet several requirements and then submit an application to the Tax Agency. Ultimately, you may get your approval from the Tax Agency upon the review of your documentation.
What is the Purpose of the Beckham Law?
As a foreigner, you can pay your taxes on Spanish-sourced income at a flat rate of 24%. There is a major difference in your tax bill compared to the typical progressive tax rates of up to 47%. What鈥檚 more impressive about this tax law is that most of your worldwide income is excluded from Spanish taxation as well.
What are the Outcomes of the Tax Law?
No matter where you have resided, if you have not been a tax resident in Spain during the 5 fiscal years before the year you moved to the Spanish territory; you can be eligible to apply for this special tax regime. It was 10 years period before 2023. Now, the period is way shorter.
Historical Context of the Beckham Law
Let’s see how this law regime started and what developed since its launch.
Origins: How it Started?
As you can imagine from its name, the Beckham Law was named after the iconic British football player David Beckham. In 2005, he took advantage of Spain鈥檚 unique tax regime while he was playing for Real Madrid. That year, the law was first introduced for the high-profile foreign professionals who work in Spain as athletes or footballers.
What are the Key Changes over the Years?
The fundamental change brought about by the Beckham Law is that expatriates who spend more than 183 days in Spain and are considered Spanish tax residents are taxed under a different set of criteria. They are only liable to pay Spanish income tax on income received in Spain.
What鈥檚 the Impact on the Foreign Talent and Investment in Spain?
This law is known as establishing a tax benefit for foreigners that allows them to pay lower amounts of taxes. It also keeps them exempt from reporting their foreign income from other countries. This law, in principle, proposes two major key aspects: encouraging foreign investment and attracting specialized talent to Spain.
Here are the main aspects of the Beckham law:聽
- Incomes up to 600,000 euros are taxed at a fixed rate of 24%, with a rate of 47% for sums above this threshold.
- Gains earned overseas, such as stocks, financial assets, properties, and bank accounts, are not taxed in Spain.
- Individuals subject to this regulation must pay taxes on their wealth and significant fortunes based only on assets situated in Spain, regardless of holdings owned elsewhere.
- The legislation applies to any foreigner who moves to Spain and stays for more than 183 days, providing they have not been a tax resident in Spanish territory for the previous five years. Furthermore, the primary motivation for the move must be the signing of an employment contract with a company in the country.
What are the Key Features of the Beckham Law?
Before diving into the topic any further, let us explain the key features of this law regime.
Tax Benefits for Qualifying Individuals in Spain
Spain鈥檚 beneficial tax law, The Beckham Law, is officially known as Ley 35/2006. It is a special tax regime for expats in Spain who relocate to the country. The eligible ones can opt for a flat income tax rate of 24% for the first six years of residency.
Eligibility Criteria for Applicants of the Beckham Law Tax Regime
If you plan to apply for this tax regime, remember that you need to meet the eligibility criteria. The first one is that you must not have been a Spanish tax resident in the five years preceding your tax residency in Spain. This criterion aims to ensure that the law targets individuals who are newly beginning their tax residency in Spain.
1. Being a New Tax Residency in Spain
As an applicant, you are expected to become a tax resident in Spain because of your work or professional activities. It includes employment, professional engagements, and other qualifying factors that can help you establish a tax residence in Spain.
2. Qualifying for Professions
It is a common association to link the Beckham Law with professionals in sports and entertainment when considering the inspiration of this law. However, as an executive and skilled professional in various sectors, you can also apply for this tax regime.
4. Having an Employment Contract or Professional Engagement
You need to have an employment contract or engage in professional activities in Spain. This way, the authorities can be sure that you have a legitimate basis for having a tax resident in Spain by actively contributing to the Spanish economy.
5. Completing the Application within the First Six Months
You need to apply for Beckham law within six months of starting your work or professional activities in Spain. It is important to keep in mind the timeframe as it is critical not to miss the deadline and not to result in the loss of your potential tax advantages.
6. Not Having Any Beckham Election in Previous 5 Years
In the first 5 years preceding your current Beckham law application, you should not have opted for the law. These requirements target preventing you from repeatedly benefiting from the Beckham law within a short timeframe.
7. Proving an Agreement with Employer or Client:
You need to prove you have a formal agreement with your employer or your client regarding your application of the Beckham Law. This is an agreement outlining the understanding between the parties and ensuring compliance with this tax law.
8. Providing an Informed Consent
Individuals must provide informed consent for the application of the Beckham Law. This includes a clear understanding of the implications, benefits, and responsibilities associated with choosing this tax regime.
You will be able to unlock the benefits of the Beckham Law in Spain when you understand and fulfill these eligibility requirements.
What is the Duration and Limitations of the Tax Regime?
This tax regime continues for up to six years. There are specific types of income that do not qualify for the 24% flat tax. These include Spanish-sourced gifts/inheritance, taxed at 7.65% to 34%, depending on the value, and Spanish-sourced capital gains, which are taxed at 19% to 26%, depending on the value.
Discovering the Implications for Foreign Workers and Investors
This law indeed created a beneficial atmosphere for foreigners, offering lower taxes. The tax regime encourages foreign investment while attracting specialized talent to Spain.
You can also include your spouse and children under the age of 25 years old and disabled children within your Spain Beckham law regime if your dependents move to Spain with you, as the taxpayer, during the first year of residence. However, this inclusion does not apply if the sum of your family鈥檚 savings income, which is your income and gains from financial investments, exceeds your taxable base, which is entitled to the expatriate regime.
What are the Advantages for Expatriates and International Professionals?
The substantial fiscal advantages can ease your tax life as an expatriate in Spain and help increase your capacity to make significant investments by benefiting from the Beckham law.
Let鈥檚 take a look at some of the key benefits of the Beckham law;
- Reduced tax rate: Reduced tax rate of聽 24% on your income earned in Spain, applying to the first 600,000 euros of your annual income, lower compared to other rates that can be up to 45% for regular residents of Spain.
- Exclusion from global taxation: While benefiting from the Beckham Law, you are only responsible for paying taxes on the income you generate in Spain, unlike the regular fiscal residents who need to pay taxes in Spain on their global income as well.
- Wide duration of the benefits: You can keep benefiting from this law regime during the first six years of your residence in Spain, a substantial period in which you can organize your fiscal and financial affairs more favorably, letting you plan long-term with some fiscal stability.
- Simplicity in tax management: You can also benefit from simpler tax management when you opt for this special tax regime. You will not have the complexity of declaring and paying taxes on your international income, so you will end up having simplified financial planning regarding your taxation.
- Incentive for the international mobility of talents: This tax regime also diversifies Spain鈥檚 business and professional fabric and encourages innovation in the country.
Increased purchasing power: By supporting tax savings through the Beckm law, investment into lifestyle and properties is encouraged. As a result, it has an impact on various industries, like Spain’s real estate environment.
The Wrap-Up
The Beckham Law allows foreigners working in Spain to benefit from a significant tax advantage in the country. As an individual or someone who resides in Spain with your family, you can benefit from a flat tax rate of 24% on your Spanish-sourced income for the first six years.
This law is also beneficial for the country as it promotes international talent and foreign investment in Spain.
Frequently Asked Questions
What is the Beckham rule in Spain?
It is a special tax regime with a flat tax rate of 24% on Spanish-sourced income for foreign tax residents in Spain for the previous five years.
Who can apply for Beckham Law in Spain?
If you are a foreign individual and meet the eligibility criteria while not having been a Spanish tax resident in the past five years and holding a valid employment contract or professional engagement in Spain, you are eligible to apply for the Beckham Law.
What is the Beckham Law for digital nomads in Spain?
Digital nomads, when they meet the eligibility criteria, can benefit from the Beckham law.
Who cannot apply for Beckham’s law?
If you have been a tax resident in Spain in the past five years, or if you do not meet the other eligibility criteria, it means that you cannot apply for the Beckham Law.
Why is it called Beckham Law?
The name comes from David Beckham, who first benefited from this law when he moved to Spain to play for the Real Madrid football team.
How can I get residency in Spain?
You can apply for the Spain Golden Visa to get residency in the country. Or, you can apply for the , depending on your investment plans and expectations of the country. Remember that you need to meet the eligibility criteria of Beckham law no matter how you become a resident of Spain.
