Beckham's stint in the Spanish Premier League is remembered for what he did on the pitch just as much as for what he did off it. With regard to the latter, his coming to Spain coincided with the approval of a special tax regime for impatriates, which became popularly known as the “Beckham Law”. Although we may not know what he made of such an association, it proved to be a real game changer for Spain: now expats could look forward not just to the usual lifestyle perks (sea, sunshine, food, heritage...) but also make huge tax savings during their stay.
Let us walk you through this regime in four questions:
1.- Is there a special tax regime for expats in Spain?
Yes, expats may benefit from a special flat rate of 24% on their labour income pursuant to the “Impuesto sobre los Rendimientos de No Residentes” - IRNR, Income Tax on Non-Residents.
2.- So would I be a tax resident in Spain or a non tax resident?
While the name may create some confusion, in order to benefit from IRNR you must become a tax resident in Spain.
3.- How do I become a tax resident in Spain?
According to Spanish Law, individuals become tax residents in Spain in any of the following circumstances:
a) The individual stays in Spanish territory for more than 183 days in any calendar year;
b) The individual's main economic interest or activity lies in Spain, whether directly or indirectly;
c) The individual's spouse and under-age children live in Spain.
4.- How do I benefit from the special regime?
Individuals may qualify for the special regime if the following conditions are met:
a) The individual has been non-resident in Spain for the past 10 years before taking up tax residency (residency is acquired during the first calendar year when the resident is physically present in Spain for over 183 days);
b) Residency occurs following a labour agreement whenever:
- A new labour relationship is initiated with an employer in Spain;
- When the posting is ordered by the employer, a letter with the posting is in place and the taxpayer does not derive income through a permanent establishment in Spain.
c) The work is effectively executed in Spain. Part of the job can be executed outside Spain as long as the employee's salary for such part does not exceed 15% of the total salary in any calendar year;
d) The work is performed for a Spanish company or resident in Spain or for a permanent establishment of a non-resident entity;
e) Income is not exempt from IRNR;
f) Income in any tax year does not surpass € 600,000. (Income in excess will be levied according to standard rates).
Qualifying individuals will have their income levied at a flat rate of 24% during the first tax period when residency is acquired and the next 5 tax periods.
So that's the special Spanish tax regime for expats in a nutshell. Oh, and by the way, the regime is no longer applicable to sports players who are now taxed on their income at the standard rates.