The Beckham Law: who can apply for it?

The name of this law may cause some confusion, as many people unconsciously associate it with the famous British ex-footballer. This connection is not entirely incorrect since he was the first to benefit from it. The Beckham Law is designed for foreigners who wish to move to Spain for work-related reasons and provides certain advantages for those who meet specific requirements.

In today’s article, we will break down these requirements and explore how this law impacts income tax declarations. Additionally, we will analyze some potential disadvantages that may arise from opting for it.

Historical Context:

Before delving into the details of the Beckham Law, it is essential to understand its historical context. Until around 2005, any foreigner who moved to Spain and stayed for more than six months was considered a tax resident, regardless of their actual situation. This led to controversial tax obligations, such as:

• The obligation to pay personal income tax (IRPF) not only on income earned in Spain but also on income generated in other countries, which was particularly controversial.

• The application of a progressive IRPF system, increasing based on income. For example, for individuals earning over 300,000 euros, the tax rate could range from 19% to 47%.

These conditions caused dissatisfaction among many foreigners who did not understand the high tax burden. This discontent created the perfect environment for the introduction of the well-known “Beckham Law” or the special regime for workers relocated to Spain, popularly associated with the ex-footballer David Beckham, who was one of its first beneficiaries.

Regulated under section 93 of Spain’s Income Tax Law, this law was introduced in 2004 to provide a special IRPF regime for individuals moving to Spain for work. Under this regime, beneficiaries can be taxed as non-residents, even though they are legally considered tax residents (as they stay in Spain for more than 183 days).

Thus, they continue to be considered IRPF taxpayers for the tax year in which they change their residence and the following five years. This applies to any foreigner who relocates their tax residence to Spain if they meet certain conditions:

• Recent relocation to Spain.
• High-income expatriates holding executive or managerial positions.
• Entrepreneurial activity with a favorable report from ENISA.
• Remote work from Spain for foreign companies (digital nomads).
• Highly qualified professionals in startups or R&D activities, with at least 40% of their income derived from their billing and holding a university degree or at least three years of work experience.
• Company administrators with less than 25% ownership in a corporate entity.
• Inclusion of family members of remote workers, such as partners and children.

What is the Beckham Law?

The Beckham Law (formally, the special regime for workers relocated to Spain) is a tax regime introduced in 2004-2005 to facilitate the arrival of foreign professionals in Spain.

The purpose of this law is to attract talent and foreign investment by offering a more favorable tax treatment than the general IRPF regime.

Under the Beckham Law, new residents can opt to be taxed as non-residents for a fixed period, despite living in Spain. In practice, this means two major benefits: first, they are only taxed on income earned in Spain (not on worldwide income), and second, they benefit from a reduced fixed IRPF rate of 24% up to a certain income level, instead of the standard progressive tax scale.

Requirements to Apply for the Beckham Law

The individual can choose whether to apply for this law, as its application is not mandatory. If they decide to opt-in, they must meet a series of requirements, in addition to job-related conditions, to be eligible:

• Residency: The worker must not have been a tax resident in Spain in the last five years.
• Employment: There must be a new job justifying the relocation, supported by a contract with a Spanish company. The primary work activity must take place in Spain, although foreign income is allowed as long as it does not exceed 15% of the total.
• Income: The worker cannot generate income through a permanent establishment in Spain, meaning they cannot operate as self-employed freelancers.
• Timing: It is crucial to meet deadlines for relocation to Spain, job commencement, and application submission. Planning in advance and reviewing all conditions is recommended to avoid issues.

Who Can Benefit from the Beckham Law?

This special regime does not apply automatically: strict requirements must be met and an application must be submitted. The main requirements to qualify are:

• Not having been a tax resident in Spain for the last 5 years before relocation (before 2023, the required period was 10 years, now reduced to 5).
• Relocating to Spain for work-related reasons with an employment contract. There must be a contract with an employer in Spain (or an assignment letter for intra-company transfers) justifying the relocation.
• Holding a managerial or administrative position in a company in Spain, as long as the individual does not hold a majority shareholding.
• Not earning income through a permanent establishment in Spain other than employment income.
• Primarily carrying out professional activity in Spain.
• New groups as of 2023: The reform has extended the regime to entrepreneurs, investors, and certain highly qualified self-employed professionals.

Family members of the expatriate: Another new feature is that close family members can benefit as long as they meet the established requirements.

How to Apply?

Once eligibility to work in Spain is confirmed, the application process can begin. This is done using Form 149, which must be submitted within 6 months from the registration as an employee of a Spanish company (the deadline starts from the Social Security registration). Any delay may result in the denial of the application and its benefits.

To apply for this regime, Form 030 must be completed for tax registration as a foreigner, after obtaining a NIE, and the applicant must be included in the Taxpayer Census (Form 036).

The Spanish Tax Agency must be notified through Form 149, which should include the following information:

• Passport and NIE.
• Social Security Number.
• Employment contract with the Spanish company.

From the moment the form is submitted and the Tax Agency is notified, the employee can benefit from the Beckham Law for 6 years, during which they must file their non-resident tax return annually using Form 151.

How Does the Beckham Law Work?

Upon acceptance into the Beckham Law regime, the taxpayer is subject to the Non-Resident Income Tax (IRNR) rules, even though they remain an IRPF taxpayer due to their resident status.

Formal obligations: The taxpayer must file their annual tax return using the special Form 151 (instead of the standard Form D-100) within the same deadlines as the regular tax season (April-June of the following year). Additionally, their employer in Spain will withhold 24% tax on salary (and 47% on amounts exceeding €600,000) instead of the usual progressive withholdings.

What Does the Beckham Law Imply?

In practice, this means:

• Taxation only on Spanish-source income, not worldwide income.
• Reduced fixed tax rate: Employment income in Spain is taxed at a flat 24% rate on earnings up to €600,000 per year. Any salary exceeding €600,000 is taxed at 47% (rate effective since 2021). This flat tax contrasts with the standard progressive tax rates, where the marginal rate increases as income rises (19%, 24%, 30%, 37%, 45%, and up to 47% in higher brackets – see IRPF brackets section). The tax savings are substantial in terms of the amount payable.
• Taxation of other income: Under this regime, non-employment income sourced from Spain (such as interest, dividends, or capital gains earned in Spain) is also taxed according to non-resident tax regulations.
• No personal deductions or allowances: No reductions, exemptions, or deductions from the general tax regime apply. Joint taxation with a spouse is also not possible.
• Treatment of severance payments and other tax-exempt income: Certain income that would be tax-exempt or receive favorable treatment for a regular resident will not be under the Beckham Law.
• Wealth Tax and foreign assets: Expatriates are subject to Wealth Tax only on assets located in Spain, not on their global assets.

Advantages and Disadvantages

The Beckham Law allows foreign workers who change their tax residence to Spain to be taxed similarly to non-residents, resulting in lower tax rates and the obligation to pay taxes only on income generated in Spain. Before this law was enacted, these conditions were a common complaint among foreign workers.

Advantages of the Special Regime:

1. Flat 24% Tax Rate: This is the main attraction of the Beckham Law. The general taxable base, which includes employment and rental income, is taxed at a fixed 24% rate up to a maximum of €600,000; any amount exceeding this is taxed at 47%. Without this law, the same taxable base would be subject to a progressive rate that could reach nearly 50%.
2. Taxation Only on Income in Spain: Foreign workers are no longer required to pay taxes on both their Spanish income and income earned abroad. Now, they are only taxed on income generated within Spain.
3. Wealth Tax: This tax applies only to assets located in Spain, unlike the general regime, which considers global assets.
4. Exemption from Form 720: Since the taxpayer is considered a non-resident for tax purposes, they are not required to file Form 720 to declare foreign assets.

Disadvantages of the Special Regime:

• Double Taxation: Foreign workers who opt for this regime cannot benefit from most double taxation agreements.
• Expense Deductions: They cannot apply tax deductions available to other taxpayers under the standard regime, such as Social Security contributions, maternity/paternity benefits, or deductible expenses related to rental income.
• Exemption for Severance Pay: The right to exemption from severance pay is lost, as well as the deduction for a minimum number of dependents or family members.

Although the advantages of the Beckham Law are significant, there are also drawbacks that should be considered. The choice between benefits and disadvantages will depend on each worker’s individual circumstances. To make the best decision, it is advisable to seek the professional services of a tax consultancy that can evaluate the specific case and offer the most suitable option.

The Beckham Law and Tax Returns

What happens to foreigners who change their tax residence to Spain and need to file a tax return? This law does not exempt them from submitting and signing the IRPF tax return using Form 151 (electronically), in general, within the approved deadline for IRPF declaration.

Therefore, those covered by this law must file Form 151 instead of the standard tax return.

We understand that making these decisions can be complex, as they significantly affect personal finances and each individual’s life. At Blegal, we recognize this situation and are here to help answer any questions.

If you are looking for a team of experts in legal matters that impact your personal life or business, or if you need a partner to support you at all times, we are at your service. Do not hesitate to get in contact with us (without obligation) if you have any questions. We are committed to working with you to resolve your concerns.

 

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