Spain’s Beckham Law: In 2004, Spain implemented the Special Regime for Displaced Workers, or Beckham Law, as it has come to be called, in an effort to draw skilled and competent workers from outside.
Ironically, the law that brought David Beckham to Real Madrid has been removed for professional sports.
But thousands of foreigners are now able to live, work, and pay low taxes in Spain lawfully thanks to it. It can also assist high net worth individuals in realising the optimal combination of asset protection, dual citizenship, and tax planning tactics when used as part of a well-thought-out strategy.
What Is The Spain’s Beckham Law?
All foreigners who relocate to Spain for work and wish to take advantage of a tax deduction are subject to a specific tax regime. It is valid for five years in addition to the year you apply to live in Spain.
Understanding the general tax system for immigrants is essential to understanding its benefits. You become a tax resident immediately after relocating to Spain and obtaining residency.
Depending on your income category, you may have to pay income tax both in Spain and abroad. As a tax resident, you pay taxes on all income, regardless of where it comes from.
Even though the Spanish government could charge you a big tax penalty, the Bechkam law protects you.
Tax rates are lowered for six years for those who relocate to Spain and establish residency.
There are three primary tax benefits to this:
Income Tax: If you are a non-resident taxpayer, you will pay a flat rate of 24% on earnings up to €600,000 as opposed to a progressive rate.
The income you make outside of Spain is not subject to regional or state taxes, thus you would not be required to pay taxes on it.
Capital Gains: Only assets based in Spain are subject to capital gains tax. If you sell any assets or get dividends from overseas assets, you won’t be required to pay taxes. Income from investments made within Spain is subject to 19% CGT.
Wealth Tax: You’ll have higher benefits and just have to pay taxes on Spanish real estate. The appropriate tax rate ranges from 2.5% to 0.2%, contingent on the assessed value of the property. Foreignly held property is not covered by it.
Who Is Covered by the Spain’s Beckham Law?
The first prerequisite is that you cannot have become a resident or lived in Spain within the ten years prior to your application.
The second prerequisite is your motivation for relocating to Spain. It has to be labour in this instance. It is likely that you are visiting Sain in search of employment after receiving a job offer.
Thirdly, the employing organisation needs to be Spanish; you can only get paid by a Spanish-based business.
The final prerequisite relates to your application; it must be submitted no later than six months after you start working for the organisation.
Alternatively, distant workers can apply for the digital nomad visa, which allows them to exploit the Beckham Law and get a three-year residence permit in Spain. Those who wish to work remotely from Spain might greatly profit from this.
If you relocate to Spain to work with start-ups or early-stage enterprises, offering services or training in research and development, you may be eligible for the Beckham Law.
Applications Procedure
The fact that it may be completed fully online is one of its key benefits. Form 030 must first be downloaded, completed, and submitted. Following your initial permission from the tax office, you need to download Form 149 and fill it out completely.
In addition, your passport, employment contract, Foreigner Identity Number, and the reason you are in Spain must be included. Lastly, your Social Security Number must be included.
After receiving a favourable resolution, which typically takes one to two months to process, you have to deliver it to your employer so they may begin implementing it into your pay and tax basis. Last but not least, filing a Form 151 annual tax return between April and June is the only obligation by law.
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Spain’s Beckham Law Eligibility Criteria
The Beckham Law does not apply to three categories of foreign workers:
- Independent contractors and freelancers (excluding remote and digital nomad workers).
- Athletes who compete professionally.
- Directors of passive holding firms that own above 25% of the firm’s assets.
Ever since the Beckham Law was passed in 2004, there have been a few little changes. 2015 saw the implementation of possibly the most significant. The initial law, which applied to all qualifying foreign workers, gave the lowest tax rate of 24%. This attracted affluent foreign football players and other individuals who were not the intended beneficiaries of the policy.
The left-wing government of Spain implemented several measures in 2010, including a €600,000 income cap for those wishing to be eligible for a reduced tax rate. This did not affect discouraging those who were already paying foreign workers, such as football players, 24% of their wage.
In response to left-wing pressure, the conservative and Christian-democratic Popular Party completely removed professional athletes from the programme in 2014 and increased their tax rate to 47% on income over €60,000, just like all other Spanish taxpayers.
The Beckham Law’s 2023 updates
Previously, the following types of expats were eligible to apply for this special tax regime:
- Had not spent the ten years before their application living in Spain.
- Moved to Spain to pursue employment.
- Possessed a permit to live abroad or work remotely.
- Were categorized as highly skilled labourers.
A new digital visa programme that permits non-EEA freelancers and remote workers to live and work in Spain for five years is one of the changes to Spain’s expat laws that will take effect in 2023. To be eligible, there are salary requirements that must be fulfilled. A minimum monthly wage of €1260 is required for the digital nomad visa, with an additional 75% for those who include family members.
Regarding the Beckham Law, we are aware of the following recent modifications:
- The 10-year window of non-residence prior to application is shortened to five.
- Freelancers, entrepreneurs, and remote workers may now submit applications.
- Spouses and kids under 25 who travel with the worker are eligible to enrol in the tax system.
- Local firm share ownership regulations have been loosened, and certain officials of the company are qualified regardless of the proportion of shares they possess.
Conclusion
You have to reside in Spain and get paid for your work there to comply with the Beckham Law. Up to €600,000 in yearly earned income, you will be subject to 24% taxation. Even if this tax rate is beneficial, taxes will still be due there.
Although 85% of the work must be completed in Spain, foreign income, including dividends and capital gains, is not taxed.
Contrary to Portugal’s Golden Visa program, which offers tax-free dividends but not capital gains, Spain offers tax-free capital gains.
You can earn a lot of money under Beckham Law, in addition to dividends and capital gains. As opposed to non-dom programs in the UK and Ireland, where taxes are based on remittances and import duties apply, Spain does not.
The Beckham Law, in principle, might be a way to diversify your wealth, transfer corporate assets into your name, spend six years in a wonderful nation, and amass personal riches.
In this case, high-earning employees can become Spanish tax residents, pay a much lower income tax on their wages, and avoid paying taxes on their foreign investments.
Spain might be a good choice for people with foreign capital gains, foreign dividends, or foreign companies.
