We explain the advantages and disadvantages of paying taxes under this special tax regime
The special tax regime for workers transferred to Spanish territory, popularly known as the Beckham Law or the special tax regime for expatriates, is an optional special tax regime for those who come to Spain to work and become Spanish tax residents.
Normally, when a person becomes a Spanish tax resident, they must pay income tax in Spain. This special tax regime allows those who apply to be taxed in a way very similar to non-residents, even though they are Spanish residents, resulting in lower taxation in most cases.
Requirements to qualify for the special tax regime
1. Not having been a tax resident in Spain during the last 10 years.
2. Becoming a Spanish tax resident. Very basically, one is considered a tax resident under the special tax regime when, after moving, the stay in Spanish territory exceeds 183 days.
3. Relocation to Spain for work. It is very important to prove this circumstance, that is, that you are coming to reside in Spain for work-related reasons. For example, if the taxpayer accepts a job offer to work in Spain, they must prove that this offer was received before coming to Spain.
4. That the income does not come from a permanent establishment located in Spain.
Advantages of the special regime
Tax rate
The main advantage of the special tax regime compared to Personal Income Tax is the fixed tax rates of 24% for income up to €600,000, and 45% for income exceeding this amount. This fixed tax rate under the special tax regime is very favorable for high-income earners.
Personal income tax is progressive, ranging from 0% to 48%. This system will be more beneficial for taxpayers with low incomes, who could be taxed at rates below 24%.
Capital gains (interest, dividends, etc.) are taxed at the same progressive tax rates of 19% to 23% under both the special regime and the personal income tax (IRPF).
Taxable income
Under the special tax regime, only income earned in Spain is taxed, except for employment income, which is taxed even if earned in other countries. In this case, there is a mechanism to avoid double taxation, ensuring that the same employment income is not taxed twice. Furthermore, it's important to know that income derived from activities carried out before the date of relocation to Spain will not be considered as earned during the application of the special regime.
Under the general personal income tax regime, taxes are levied on the taxpayer's entire worldwide income, including not only income earned in Spain, but also income earned abroad.
Wealth Tax
Taxpayers who have opted for the special tax regime will only report assets located in Spain on their Wealth Tax return. On the other hand, those who pay income tax under the general Personal Income Tax regime must report all their assets, whether located in Spain or abroad.
Model 720
Under the special tax regime, there is no obligation to submit form 720 for assets located abroad.
Disadvantages of the special tax regime
Those who choose to be taxed under the special tax regime for expatriates will not be able to apply the tax deductions of Personal Income Tax, and will also not be considered as non-residents when applying double taxation agreements.
Application process
Before submitting the application, the taxpayer must register in the Spanish Taxpayer Registry of the Tax Agency, by submitting form 030 in person or online.
Then, within 6 months from the date of commencement of the activity registered with the Spanish Social Security, the taxpayer will have to submit electronically the application for registration to the special tax regime using form 149 and provide the supplementary documentation which will be different depending on the case.
Finally, within 10 days, the Tax Administration will have to decide whether to accept or reject the request.
If the Spanish Tax Agency accepts the application, the taxpayer may apply the special tax regime during the tax year in which they acquire Spanish tax residency, and for the following five tax years (i.e., six tax years in total), without prejudice to cases of waiver or exclusion. After those six years, if they are still a tax resident in Spain, they will become subject to Personal Income Tax.
If the Tax Agency denies the request, then the taxpayer will be taxed under Personal Income Tax.
Resignation and exclusion
Taxpayers who have opted to be taxed under the special tax regime can opt out of it during the months of November and December prior to the year in which the opt-out will take effect. Once they have submitted the opt-out using form 149, they will no longer be able to opt for inclusion in the special tax regime.
Exclusion from the special tax regime occurs when a taxpayer no longer meets the eligibility requirements. Exclusion takes effect from the year in which these requirements are no longer met and must be reported to the Tax Agency using form 149 within one month of the date the exclusion was determined. Once a taxpayer has been excluded from the special tax regime, they may no longer reapply.
Tax return for the special regime
Taxpayers subject to the special tax regime will be required to submit their Personal Income Tax return electronically, using the special form approved for this purpose, currently form 151, in the same period as the Personal Income Tax.
Conclusions
We recommend that before opting for the special tax regime, you check that you meet all the requirements to apply for the regime, and assess whether the special regime is really worthwhile for you from a tax perspective.
If you require further information or have any questions, please contact us via email at ambit@ambitassessor.com or at our offices.
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A graduate in Business Administration from the University of Barcelona, she continued her education with a Postgraduate Diploma in Accounting and Management Control from Pompeu Fabra University, and completed various courses in tax and fiscal matters offered by the Terrassa Chamber of Commerce, the Barcelona Bar Association, and the Center for Financial Studies. Before joining Àmbit Assessor in 2001 as a tax and accounting consultant, she worked as an administrative assistant at Caixa Manresa and Banc Sabadell and as a tax information call center operator at the Spanish Tax Agency. For three years, she served as treasurer of the L'Alzinar Recreational and Cultural Society, a position she held concurrently with her work at Àmbit Assessor.
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