Beckham Tax Law approved in Spain

On 6 December 2023, the Spanish government passed Royal Decree 1008/2023 which includes the necessary regulations to give effect to the improved expatriate tax regime. This will be particularly welcomed by those who have recently relocated to Spain and whose tax position was left uncertain by the delay in enacting the expected changes to the regime. However, significant questions remain over the scope and application of the regime.

Background

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 and non-taxation of non-Spanish income (other than employment income).

In December 2022, a Bill was passed which included provisions to improve and extend the scope of the regime, including extending it to digital nomads, and a number of other directors and professionals not previously covered by the regime (see our Insights article Improvements to the Beckham Law). However, the regulations to bring the regime into operation were not passed, which made impossible to apply for the expatriate tax regime in the new extended scenarios. This gave  rise to significant uncertainty for those individuals that moved to Spain during 2022 and 2023 in circumstances covered by the  extended regime.

Royal Decree

The Royal Decree now resolves this uncertainty, confirming that any individual who became Spanish tax resident in the fiscal year 2023 as a consequence of a move to Spain in 2022 or 2023 will be able to access to the regime. Individuals need to make an application for the benefit of the new scenarios provided for by the regime within the six months following the approval of the updated application form for the expatriate tax regime. This deadline started on 16 December 2023.     

Comment

The regulations implementing the changes to the expatriate tax regime are extremely welcome, especially to those whose tax status was left in limbo by the delay. This delay in the approval of the regulations deterred many individuals from relocate to Spain and these may now move forward with their relocation.

Now with all the regulations in place it is time to focus on the tax technical issues that may arise from the different new scenarios. Depending on each specific case, some of these may require a detailed and careful analysis.

For example, a traditional area to consider is the risk to the non-resident employer of those employees moving to Spain (working as digital nomads) giving rise to a permanent establishment (PE), particularly when they are senior employees within the organisation. Also, the extension of the regime to directors of controlled non-passive holding entities creates new opportunities for self-employed professionals, as the regime is still closed to the self-employed (except for the very particular exceptions included in the improved regime[1]). However, this requires detailed planning and analysis of the different Personal Income Tax rules which may have an impact.

On the administrative paperwork side, many of the new scenarios require the engagement of different public agents, such as the Dirección General de Industria or the Empresa Nacional de Innovación, to confirm the innovative nature of an activity or its importance to the Spanish economy. At this point it is unclear how quickly and diligently these entities will be when issuing the relevant certifications. In addition, the law refers to digital nomads as those obtaining the international remote work residence visa, regulated by Law 14/2013 (with the corresponding burdensome process). However, there are many other individuals that may qualify as digital nomads that do not require a residence visa (such as Spanish nationals who return to the country as digital nomads). In those cases, it is unclear whether the mere certification by the non-resident employer confirming the employment relationship and that it can be performed remotely will be enough for the regime to apply.

[1] These are (i) professionals developing an innovative start-up activity or activities of interest for the Spanish economy, and (ii) high-skilled professionals developing R&D activities or training activities related to R&D or providing services to a Spanish start-up company.