Tax Implications of the Special Regime for Expatriates (Beckham Law)

The Special Regime for Expatriates, commonly known as the Beckham Law, offers significant tax benefits for individuals moving to Spain for work. Named after footballer David Beckham, who benefited from this regime when he joined Real Madrid, this law can provide substantial tax savings for eligible expatriates.

Key Features of the Beckham Law

1. Flat Tax Rate:

   • Rate: Eligible expatriates are taxed at a flat rate of 24% on their Spanish-source income up to €600,000.

   • Excess Income: Income exceeding €600,000 is taxed at a rate of 47%.

2. Non-Spanish Source Income:

   • Exemption: Income earned outside of Spain is not subject to Spanish taxation under this regime, which can result in significant tax savings for expatriates with substantial non-Spanish income.

3. Duration:

   • Period: The regime applies for six years, including the year of arrival and the following five years.

Eligibility Criteria

1. Employment:

   • The individual must move to Spain due to an employment contract with a Spanish company or a Spanish branch of a foreign company.

   • Having a Digital Nomad Visa. 

   • Self-employed individuals do not qualify for this regime.

2. Previous Non-Residency:

   • The individual must not have been a tax resident in Spain for the ten years prior to the move.

3. Start Date:

   • The regime must be applied for within six months of the start of the employment in Spain.

Application Process

1. Formal Application:

   • Submit Form 149 to the Spanish Tax Agency (Agencia Tributaria) to opt for the Beckham Law regime.

   • This must be done within six months of the start of employment in Spain.

2. Annual Tax Return:

   • File an annual tax return using Form 151 under the Beckham Law regime.

Obligations and Considerations

1. Social Security Contributions:

   • Expatriates under the Beckham Law are still required to make social security contributions. These contributions are based on the total income, not just the Spanish-source income.

2. Loss of Other Deductions:

   • While benefiting from the flat tax rate, expatriates cannot claim typical deductions available to Spanish residents, such as for mortgage interest or family allowances.

3. Capital Gains:

   • Capital gains on the sale of non-Spanish assets are not subject to Spanish tax. However, gains from Spanish assets are taxed under the general rules.

4. Double Taxation Agreements:

   • Spain has numerous treaties to avoid double taxation. Expatriates should ensure compliance with both Spanish tax laws and the tax laws of their home country.

5. Exit Strategy:

   • Plan for the end of the Beckham Law period to avoid potential tax issues once the regime expires.

Conclusion

The Beckham Law provides an attractive tax regime for expatriates moving to Spain for work, offering a flat tax rate on Spanish-source income and exemptions on non-Spanish income. Understanding the eligibility criteria, application process, and associated obligations is crucial for making the most of this regime. Consulting with a tax advisor familiar with the Beckham Law is highly recommended to ensure compliance and optimize tax benefits.