The "Beckham Law" - a special income tax scheme for expats in Spain


Date: 24.11.2019

 

Since I mainly work for foreign individuals, I´m often asked about the "Beckham Law". Therefore, today I would like to give an overview about it: What is the Beckham law? Who can apply for it? For whom is it beneficial? What effects does its application have?

1. What is the Beckham Law?

The "Beckham-Law" is actually called "Régimen especial para trabajadores desplazados" and is a special regulation within the Spanish income tax.

This scheme is intended for people who move to Spain as highly qualified foreign workers with high earnings. In order not to deter them with an income tax of up to 47% on incomes of around EUR 50,000, a scheme has been created whereby people who move to Spain are taxed at a fixed rate of 24% on their income from work (up to EUR 600,000, beyond: 45%).

So the person who moved to Spain, and in fact is tax resident of Spain, is treated as if he were a non-resident.

2. Who can use the Beckham Law?

Anyone who moves to Spain can in principle apply for the Beckham Law.

a) Conditions:

In order to benefit from this income tax regime, the following conditions must be met:

  • the person must not have resided in Spain during the last 10 years before moving to Spain.
  • the move to Spain must be the consequence of accepting a contract of employment in Spain (for professional athletes this regulation does not apply anymore). This employment contract may have been concluded with a Spanish employer, or it may be a posting from the country of origin to Spain, with a posting contract.
  • another possibility is that the relocation to Spain is due to accepting the condition of an "administrador" in a Spanish company. The "administrador" is the companys' registered director. But it is not possible to set-up your own company, take on the role of its administrator and profit from the Beckham Law, because there must be no affiliation between the company and the administrator. So if you want to be shareholder of the company where you take on the role of an administrator, your own participation must be below 25% (including family members).
  • the person may not receive any income from a permanent establishment located in Spain.
  • the registration for Beckham law must be made within 6 months of the date of registration with the Spanish Social Security. Afterwards, the registration is no longer possible (and the person is subject to the "normal" Spanish income tax).

b) Duration:

This special income tax scheme will first apply in the calendar year the person spends more than 183 days in Spain. It is applicable in that year and the following 5 years, so in total it can be used during 6 years

3. What implications does using the Beckham law have?

In short, users pay a fixed income tax rate of 24% on income from work from all over the world (up to EUR 600,000, in case of higher income, this will be taxed at 45%). Other income is only taxed if it derives from a Spanish source, like interests from Spanish bank accounts, dividends from Spanish companies, etc. Anything else from outside Spain is irrelevant and does not have to be included in the income tax declaration.

a) Income tax: fixed 24%, but personal situation is not taken into account

The users of the Beckham Law are in principle treated as non-residents, so in principle, only income from Spain will be taxed.

Only in the case of income from work is there an exception: the income from work from all over the world is treated as if it was earned in Spain. So if the worker is in fact traveling abroad a lot and also gets paid from outside of Spain, these payments will be included and taxed in Spain (but the tax paid abroad can be taken into account).

 

It is important to notice that under the application of the Beckham Law the personal situation is not taken into account, it does not matter if one has children, whether one lives for rent, whether one pays for a private pension fund etc.

 

There are no allowances and there are tax deductions only for donations to charitable organizations.

There are also no tax benefits, e.g. for cases where you sell your apartment and reinvest the sale price in a new apartment. In such cases, the entire sale price would be considered as taxable income.

 

What I want to say is that the application is not always beneficial. 24% flatrate sounds great, but you should always check the numbers for your personal situation.

 

The Beckham Law can simplify the tax duties of people who have assets in several countries and receive income from them.

As an example: Someone who is administrator in a Spanish company (and therefore uses the Beckham law), and at the same time owns a property in France that is rented out and has shares of a German company that pay dividends. In this case this person only has to declare and tax its income from the role as administrator in Spain. The other income from abroad (as it is not from work) is irrelevant. So for this person the tax declaration will be easier that for someone under the "normal" Spanish income tax law, who has to include all income from all over the world in his tax return.

Especially if someone will be living in Spain only during a few years, this makes life much easier, as it is not necessary to clarify what happens with income from abroad under the application of different double taxation agreements.

b) No Modelo 720 has to be submitted (declaration of assets abroad):

Who is under the application of the Beckham Law, does NOT have to submit the "Modelo 720", which is an informative declaration about assets abroad. This tax return (Form 720) has only to be filed by tax residents in Spain. As the users of the Beckham Law are treated as non-residents, they don´t have to file it.

This is also a real relief for most users of the Beckham Law, because the people who move to Spain for a highly paid job tend to own assets abroad as well. 

c) Property tax only on Spanish assets:

Please note that also a user of the Beckham Law can be subject to the Spanish property tax, in case he has assets in Spain (like real estate, stocks, ...). Everything the person own abroad is irrelevant.

4. Typical questions about the Beckham Law:

a) From what income is the Beckham Law application worth it?

Focusing only on the income tax rate, and not on the other benefits that the Beckham Law brings with it (especially simplification the situation in case of assets and income from abroad), it is worth applying for people who earn at least a gross annual salary of EUR 60,000.

 

With lower earnings, the tax exemption for employees, the deductibility of social security contributions and the progressive income tax rate mean that the "normal" income tax of residents will be more favorable.

 

Sample calculations (income tax rules of 2018):

1. Single worker without children, 35 years old, lives in Madrid, earns 60,000 euros a year, pays 2,000 euros social security a year. No further income.

a) Tax burden under Beckham Law: 24% of EUR 60,000 = EUR 14,400.

b) Tax burden under ordinary income tax law: EUR 15,124.30.

 

2. Single worker without children, 35 years old, lives in Madrid, earns 30,000 euros a year, pays 2,000 euros social security a year. No further income.

a) Tax burden under Beckham Law: 24% of EUR 30.000 = EUR 7,200.

b) Tax burden under ordinary income tax law: EUR 4,768.25.

b) Can I also sign up later for the Beckham Law?

No, the application for using the Beckham Law must be made within 6 months from registrating with the Spanish Social Security. After that it is no longer possible.

So you cannot say "This year I will earn "only" 50,000 EUR, but next year I will earn 60,000 EUR, so I sign up next year." This does not work. One should therefore also keep an eye on the development of earnings over the years. Maybe the Beckham Law is not beneficial in the first year, but from the second or third one.

c) Exclusion from the Beckham Law:

There are situations in which one is excluded from the application of the Beckham Law in hindsight.

This is the case if one no longer meets the conditions for its application, e.g. if you are no longer the manager of the company or no longer employee. However, one may, for example, change the employer, but the period between the loss of the job for which the Beckham Law was applied and the start of a new employment relationship should not be too long. What "too long" is, is determined by the tax office, there is no clear rule, but each case is considered individually.

But if you are considering becoming self-employed, in principle, you could no longer use the Beckham Law. This depends on whether the income earned from the activity is considered income from a permanent establishment located in Spain or not. Since this is always a tricky question, I strongly recommend that you ask a tax consultant before taking on any "secondary employment".

Once excluded from the Beckham Law, you cannot use it in the future anymore, even if there is a moment within the 6 years of possible application, where you meet the conditions again.

d) Deregistration from the Beckham Law - Can I ask to be taxed as a normal resident?

Yes, you can unsubscribe voluntarily from the application of the Beckham Law. For example, if you realize that the earnings have not developed as you thought or your personal situation has changed (children, no assets abroad, ...) and you pay more taxes than under the normal income tax.

The deregistration must always take place in the months of November and December for the coming year. For example if I notice in 2019 that I would have done better with the normal income tax, then I can unsubscribe in November/December of 2019 and pay the normal income tax as any Spaniard from 2020 on.

e) Can I apply again for the Beckham Law after being excluded or having deregistered from it?

No, once excluded or deregistered from its application, you cannot sign up for the Beckham Law again. So always think well in advance what you want and what is more beneficial.

f) My registration with the Spanish Social Security was on the 1st of August of 2019, so the first year of application of the Beckham Law is 2020. How will my income of 2019 be taxed?

If you moved to Spain on the 1st of August of 2019, for the calendar year 2019 you are considered a non-resident

Therefore, on the income of the months of August until December 2019 the "income tax for non-residents" (=IRNR) applies. In case of income from work, this is normally 24%. Exception: Residents of other EU countries only pay 19% and can also deduct the social security payments.

 

Normally in those cases, the employer directly withholds 19% or 24%, depending on where the employee comes from (e.g. 19% if he comes from Germany, 24% if he comes from Switzerland).

In case the employer deducted 24% from your salary, but should have deducted 19% you can submit the income tax return for non-residents (Modelo 210) and ask for the refund of the 5% you paid in excess.


Conclusion:

The Beckham Law is a special treatment in the Spanish income tax („Régimen especial para trabajadores desplazados“), thought for people who move to Spain to take on a job.

Under its application, income from work is taxed at a fixed rate of 24% (up to EUR 600,000), not considering any personal circumstances. It is beneficial from a gross annual salary of at least EUR 60,000. 

 

Only income from Spanish sources will be taxed in Spain (except in case of income from work), the applicants do not have to submit the Modelo 720, and the users are subject to Spanish property tax only regarding assets in Spain.

 

Important: the application must be made within 6 months from the registration with the Spanish Social Security. 

 

The Beckham Law can be used during a maximum of 6 years. Afterwards, the normal Spanish income tax automatically applies. If you don´t want to use the Beckham Law anymore before the conclusion of the 6 years, you can deregister from its application voluntarily, but then it is not possible to subscribe to it again later on.

 

You still have questions about the topic?

You want to apply for the Beckham Law?

Then please contact me!

 

I will have a look at your situation and check whether it is possible and beneficial for you to use the Beckham Law.

I am happy to prepare and submit the application for you, and do your yearly income tax returns (Modelo 151)

It is that easy.