Proposed improvements to the Beckham Law in Spain

The current, optional Spanish expatriate tax regime (also known as the Beckham Law) offers non-residents who move to Spanish territory to take up employment favourable tax treatment. It allows such persons to continue to pay taxes as a non-resident in Spain in the year when they move to Spain and in the following five years, resulting in reduced tax rates on Spanish-source income.

In order to take advantage of the expatriate tax regime, a number of requirements must be met. These include not having been resident in Spain for a period of ten years prior to the tax year in which the expatriate moves to Spain. In addition, where a person qualifies for the regime as a result of becoming a director in a company, their shareholding in that company must be less than 25%.

The Spanish government has recently adopted a number of measures in order to attract talent and international capital for the development of Spanish start-up businesses. In this context, in December 2021 a draft Bill on the Promotion of the Ecosystem for Emerging Companies was published (also known as the Start-up Law), including amendments to the expatriate regime in order to facilitate its extension to other members of the household of the expatriate family and softening the requirements for its application.

The proposed modifications

The proposed modifications would reduce the required period of non-residence in Spanish territory prior to the tax year in which the move takes place, from ten to five tax years.

Furthermore, the draft provisions extend the scope of the regime to people who were not previously covered, such as remote workers who provide their services online and directors of start-up companies regardless of their stake in the share capital of the entity.

The draft Bill also provides that the spouse and any children under the age of 25 years old and disabled children of the qualifying expatriate would also be covered by the special tax regime if they move with the taxpayer during the first year of residence. In order to qualify for the regime, they must also meet the requirement of not obtaining income through a permanent establishment in Spain and the requirement of no previous residence in Spain. However, this extension will not apply when the sum of the savings income of the family is greater than the taxable base of the taxpayer who is entitled to the expatriate regime.

Comment

These proposed amendments to the Spanish expatriate tax regime highlight the focus of the Spanish government on attracting foreign talent to Spain, by providing a more flexible framework for a wider range of expats considering the move to Spain to qualify for the regime. However, there appears to be room for clarification of certain important aspects in the draft Bill before its approval, and it is likely to be subject to significant debate at the Spanish Congress, and even within the government itself, as it is unclear that it aligns with the position of some sections of the current coalition.

Expats that may benefit from these modifications should carefully monitor the progress of the Bill. It will be important to review the final wording of the Bill and any clarifications provided on the Start-up Law in order to determine the final scope of the application of this important special tax regime.