María Ángeles Márquez
Considering the last years´ level of internationalisation and to promote the arrival in Spain of qualified workers who generate added value to the Spanish economy and entities, the Spanish legislator introduced within the Spanish Personal Income Tax Law (hereinafter, PITL), the Spanish Special Expat Regime.
This Special Expat Regime (commonly known as the “Beckham Law”) has been in force since 2005 and has only been modified a couple of times. Therefore, we can consider that this Special Expat Regime is consolidated within Spanish Law and highly appreciated by the people who come to work in Spain.
Under this Special Expat Regime, and according to article 93 of the PITL, individuals that opt for this Special Expat Regime will acquire their tax residence in Spain but will be taxed under Spanish Non-Residents Income Tax rules, instead of under the Personal Income Tax rules for residents. One of its advantages is the application of a flat tax rate of 24% on employment income, along with the benefit of being taxed only on Spanish-sourced income.
Tax Implications
- Employment income is subject to a 24% flat tax rate for the first EUR 600,000 and 47% for the excess, instead of being taxed on the progressive tax scale for residents (ranging from 18.5% up to 54%, depending on the region of Spain where the taxpayer has his/her residence).
- As of the arrival date, worldwide employment income would be considered as Spanish sourced, thus subject to tax in Spain. In order to avoid double taxation for employment income derived from days of work abroad, a tax credit might be applied.
- Dividends, interests, and capital gains from Spanish sources are subject to taxation following a scale ranging from 19% to 26%. The income from investments located outside of Spain is not taxed through the Personal Income Tax in Spain.
- Individuals are subject to Wealth Tax only in relation to the assets they own that are located in Spain (while regular residents are liable for their worldwide assets). Assets located outside of Spain are not taxed.
- Taxpayers are not required to file Form 720on assets located outside the Spanish territory before the Spanish Tax Office (while regular tax residents are subject to this obligation).
The Special Expat Regime will be in force for six tax years (the first year in which the taxpayer becomes resident in Spain and the following five tax years).
Requirements of the Individuals Who Apply to this Special Regime
- They must not have been fiscal residents in Spain during the 10 tax years preceding their arrival in Spain.
- The assignment to Spain must be due to signing an employment contract with a company located in Spain or, in any case, to an assignment to Spain from a company located abroad.
- Company directors are eligible for the regime as long as they don´t hold 25%, or more, of the equity of the entity.
- They cannot obtain income through a Permanent Establishment located in the Spanish territory.
Procedure to Apply
The application of the regime must be requested through a special form (Form 149), which must be filed to the Spanish Tax Authorities, along with certain documents that support the accomplishment of the previous mentioned requirements. The application should be done within the first six months from the date in which the individual is registered as an employee within the Spanish Social Security Authorities (or from the starting date of the provision of services in Spain, in accordance with the certificate issued by the foreign Social Security Office, which establishes that the employee maintains the contributions in its foreign country).
Once the application is filed, the Spanish Tax Authorities should reply to the application within 10 days. If the requirements are accomplished, a certificate will be issued, granting the Special Expat Regime.
Individuals under the Special Expat Regime should file a Personal Income Tax Return on an annual basis, through Form 151, before 30 June of the next year considered.
XLNC MAGAZINE | No. 07 | Spring 2021