Improvements to the Beckham law in Spain

The expatriate tax regime (also known as the Beckham Law) offers favourable tax treatment to non-residents who move to Spanish territory to take up employment. 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.

The Spanish government has recently passed a Bill for the Promotion of the Environment for Emerging Companies (also known as the Start-up Law), that includes improvements to the expatriate tax regime to attract high-skilled workers into Spain.

Improvements to the expatriate tax regime

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

Furthermore, the new provisions extend the scope of the regime to people who were not previously covered, such as:

A. remote workers who provide their services online and do not have a Spanish employer or are assigned to a Spanish entity by their non-resident employer;

B. directors of companies regardless of their stake in the share capital of the entity as long as that entity does not qualify as a passive holding entity. In the case of a passive holding company the director must hold a stake in the share capital lower than 25% to be eligible to the expatriate tax regime;

C. professionals developing innovative start-up activities in Spain; and

D. high-skilled professionals developing a business activity (i) rendering services to start-up entities or (ii) R&D activities.

The improvements also provide the option to include the spouse and any children under the age of 25 years old and disabled children of the qualifying expatriate within the expatriate tax regime provided they move with the taxpayer during the first year of residence. However, this extension will not apply when the sum of the savings income (income and gains from financial investments) of the family is greater than the taxable base of the taxpayer who is entitled to the expatriate regime.

Finally, the expatriate tax regime now includes a specific provision to exempt from taxation employment income received as remuneration in kind, in line with the provisions included in the Personal Income Tax Law for Spanish tax residents individuals taxed under the general regime (this was already accepted by the Spanish Tax Authorities in tax rulings but now included in the law).

However, as outlined in our insights contribution relating to the new Solidarity Tax, individuals subject to the expatriate tax regime will be subject to Solidarity Tax where they hold assets or rights located/exercised in Spain with a net wealth value beyond EUR 3m.

Comment

The amendments introduced into the Spanish expatriate tax regime provide a more flexible framework for a wider range of persons considering a move to Spain to qualify for the regime. Of particular relevance are those creating a more flexible framework for remote workers (including digital nomads) and directors, as well as those provisions allowing the extension of the regime to other family members, circumstances which had prevented a number of relocations in the past. The reduction of the 10 years term to 5 years of previous non-Spanish tax residence is also welcome.

However, the uncertainty introduced by the new Solidarity tax may potentially be a significant disincentive in certain cases, and should be carefully considered by high net worth individuals when moving to Spain.