How expats can pay less tax in Spain with the Beckham Law

Filing a tax return in Spain doesn’t need to be complicated. But when you’re used to doing things differently in your country of origin, submitting your tax declaration – or, as it’s called in Spain, the ‘Declaración de la Renta’ – can sometimes seem overwhelming.

In this article, you’ll learn all you need to know about filing your tax return in Spain.

But first, what exactly is the Beckham Law?

The Special Expats’ Tax Regime (SETR), otherwise known as the ‘Beckham Law’, was introduced in 2003 to enable expats in Spain to pay a flat income tax rate of 24%.

Before the law was passed, foreigners living in Spain for more than 183 days would be classed as residents for tax purposes, meaning they would need to pay a progressive tax rate on their income.

Based on current tax rates, this means expats who are not utilizing the law are required to pay a progressive tax rate on worldwide income that ranges from 19% up to 45% (for earnings above €60,000).

But under the Beckham Law, successful applicants are classed as non-residents for tax purposes, which keeps their income tax rate fixed at 24%, and is only on income sourced in Spain, or as part of your Spanish employment. Annual earnings above the threshold of €600,000 will be taxed at a higher rate of 45%.

The law was utilized by the famous English footballer, David Beckham, while he was living in the country playing for Real Madrid C.F. He was one of the first foreign celebrities to take advantage of the law and, as such, it was nicknamed after him.

The law was introduced to attract highly skilled foreign talent in general and applies to all foreign workers. Yet, despite its name’s origins, an amendment was made to the law in 2015 which meant that professional sportspeople and athletes would no longer be eligible to apply for the special tax regime.

Which forms of taxation are affected?

Taking advantage of the Beckham Law would also mean you’re exempt from paying tax in Spain on the following income types that are sourced abroad:

• Capital gains
• Dividends
• Rental income

However, you would need to pay taxes on these types of income that are sourced in Spain. For that income, the tax rate is 19%. Equally, you would need to pay local taxes in the corresponding countries where you have earned those types of income abroad.

Wealth tax presents another opportunity for expats looking to reduce tax. Wealth Tax is paid on the net value of your assets, which includes things like:

• Property
• Stocks and shares
• Interest on savings

This is a progressive tax, which means the rate increases as your wealth grows and can reach up to 3.75%.

Spanish residents, and expats who are not utilizing the Beckham Law, would need to pay a wealth tax on all assets, regardless of where those assets were located.

However, for those utilizing the law, this tax would only be payable on assets that are located in Spain.

Lastly, double taxation agreements will not be possible when you are utilizing the Beckham Law. To be eligible for this, you would need to provide a certificate of tax residence, which you wouldn’t be able to do as you would effectively be a non-resident of Spain for tax purposes under the Beckham Law.

Who is eligible for the Beckham Law and how can you apply?

Anyone who has moved to Spain to take up a new position within a company, including management and director positions, can apply.

You aren’t eligible, however, if you’re self-employed, a professional sportsperson or athlete, or an entity director.

Here’s a checklist of 5 important requirements you need to know before applying:

1. You must be a first-time resident in Spain, or must not have been a resident in Spain during the previous 10 years
2. You must have a signed work contract with either a Spanish company or a permanent Spanish office of a foreign company
3. You must own equity of no more than 25% of a company if you are in the position of, or are to become, a company director based in Spain
4. You must not earn more than 15% of your total income outside of Spain
5. You must conduct the majority of your professional duties and activities within Spain

Additionally, the application must be made within 6 months of your job contract beginning. If accepted, you will be eligible for the special tax rates under the Beckham Law for that first year, as well as the subsequent 5 tax years, amounting to 6 years in total.

If you submit your application after that 6-month window, your application will be denied.

• To begin the process, you need to submit Form 030 to the Spanish Tax Agency, to request your registration in the Spanish Census of Liable Taxpayers. This is a prerequisite to submitting a Special Expats’ Tax Regime application.
• Once you have been added to the census, you will then need to submit your application for the Beckham Law (SETR) using Form 149, and with supporting documentation.
• The exact documentation that will be requested from you as part of your application will depend on your specific circumstances, but typically includes copies of your passport, your NIE number, your social security number, and your signed work contract, among others.

Find out more

There are many nuances to this special tax regime, and knowing exactly how you would benefit from it will come down to your unique situation.

At ETL ILIA, our team of tax accountants and lawyers possess an in-depth knowledge of Spain’s intricate tax laws and is the reason why our clients know their tax affairs and complex applications, such as for the Beckham Law, are in safe hands with us.