LEY BECKHAM, SAVING MONEY AS A FOREIGNER

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Do you dislike the progressive tax rates we have in Spain? If the answer is yes, the Beckham Law is for you.

How can you benefit from the Beckham law?

The so-called Beckham Law establishes that individuals who acquire their tax residence in Spain as a result of their move to Spanish territory may opt to pay non-resident income tax (IRNR) at a tax rate of 24% for the first 600,000 euros and 47% on the excess, maintaining their status as personal income taxpayers with tax residence in Spain. If you are an expatriate starting to live in Spain, you can save money with the Beckham Law, as its application will allow you to pay only a flat rate on your income, never more than that. This means that you will be considered a non-resident for tax purposes.

What are the conditions to be fulfilled in order to apply for the application of this law?

The most important thing is that you must not have resided in Spain during the 5 years prior to the application process for this tax exemption. In addition, you must have an employment contract, and the work must be carried out in Spanish territory (although there are certain flexibilities in this regard).

Requirements for applying the Beckham Law

It is important to note that, while the taxpayer can decide whether or not he wants to rely on the Beckham Actif you wish to do so must meet certain requirementsas summarised below:

1. Residence: the person wishing to apply for the scheme must not have been resident for tax purposes in Spain for the last 10 years.
2. WorkIt is essential that there is a new job justifying the person's move to Spain. There are different alternatives to fulfil this requirement, but it is absolutely necessary that there is a job in Spain.
3. Rents: the person applying 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 may not be self-employed (as a freelancer, for example).
4. Timesis absolutely key meet a series of deadlinesThe best thing to do is to plan everything well in advance.

Beckham law changes after approval startup law (+)

The past 3 November 2022 the Congress of Deputies approved the Law for the Promotion of the Start-up Ecosystem, commonly referred to as start-up law. Among other relevant tax measures incorporated within the framework of this law is a modification of the tax regime for workers posted to Spanish territory, the Beckham Law, which, although it has been positively received by economic operators, nevertheless has several clear-cut aspects that should be highlighted.

This regulation incorporates new cases that allow access to this beneficial tax regime, such as the performance of an "entrepreneurial activity" or the provision of services by highly qualified professionals for emerging companies, allows access to the administrators of companies that are not considered to be "asset-holding companies" regardless of the percentage of ownership they hold in them, and also facilitates access for the so-called "digital nomads".

The main particularities that make the Beckham Law a truly attractive tax measure for attracting "foreign talent" are, in addition to the low taxation of earned income, the taxation by real obligation in Wealth Tax and the non-taxation of income from non-Spanish sources, with the exception of earned income (which is subject to taxation in Spain regardless of where it is obtained).

BIG FORTUNES AND THE BECKHAM LAW

In this context, it should be recalled that on 10 November 2022 the text of the new Solidarity Tax on Major Fortunes (ISGF) was made public, which is expected to be applied from 2022 onwards. The regulatory text of the new tax provides that all taxpayers with tax residence in Spain, including taxpayers covered by the Beckham law, whose net wealth exceeds three million euros, will be subject to the tax. Here we find the first "trap" of the new Beckham law. On the one hand, taxpayers covered by the law are only liable to Wealth Tax on their assets and rights located in Spanish territory, but are subject to the wealth tax on their entire worldwide wealth.

If there is a way to "scare off" foreign talent, this one certainly seems to be quite suitable for that purpose. In this respect, it is worth noting that, while a net worth of three million euros may be considered relevant in a purely domestic Spanish context, such an amount in neighbouring countries such as France, the United Kingdom, Switzerland, Germany, the United States or Canada, among many others, is far from being a "great fortune". Moreover, it is plausible to assume that the taxpayers targeted by the new Beckham law, whose salaries are objectively very high by Spanish standards, have accumulated a certain level of wealth in their respective countries of origin. On the other hand, let us remember that, in the OECD, Spain is the only country in which there is a Wealth Tax (in fact, two with the new tax on large fortunes), so that the cultural-tax shock of those talented taxpayers that the Spanish tax system is intended to attract is guaranteed.

A new amendment to Article 93 of the Personal Income Tax Law is therefore urgently needed in order to harmonise the taxation of assets of taxpayers covered by the Beckham Law. Otherwise, a substantial part of the "foreign talent" that is to be attracted will choose other jurisdictions in our environment where the tax regulations, in addition to being more beneficial than those in Spain, are simpler to understand and interpret.

PERMANENT ESTABLISHMENT:

The second "trap" of the new Beckham law is, if possible, much more technical and complex, and lies in the fulfilment of the requirement of not obtaining income that would qualify as obtained through a permanent establishment located in Spanish territory. This point could affect some "digital nomads" and professionals whose activity does not fall within the scope of "entrepreneurial activity" or services performed by a highly qualified professional for start-up companies, but who seek to benefit from the new Beckham law as a result of acquiring the status of director of a company or through the start of an employment relationship.

Can "digital nomads" become a permanent establishment in Spanish territory of their employers if the latter do not have a physical presence in Spain, and if so, can they affect their own eligibility for the application of the new Beckham law? The question, far from being clear, generates a certain degree of uncertainty that does little to help the implementation of this measure along the lines intended by the legislator. On the other hand, those liberal professionals who avail themselves of the new Beckham Law as a result of their appointment as directors of a Spanish company and effectively exercise their profession without prejudice to the functions of a director could be involved in obtaining income through a permanent establishment in Spanish territory.

This problem could also arise in the case of posted workers who have to register with the Social Security as self-employed workers because they hold a substantial shareholding in the company for which they work, without prejudice to a review in any case of the relationship of dependence and dependence of the employment relationship. It will be necessary to exercise caution before deciding to move to Spain in connection with the new Beckham law, which, although it has some lights, unfortunately also has shadows. As always, we recommend that you consult with the experts at the acceleration programme (+).