Here we explain the advantages and disadvantages of paying tax under this special tax regime
The special tax regime for workers posted to Spain – popularly known as the Beckham Law or 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 have to pay Income Tax in Spain. For those who request it, this special tax regime allows paying taxes in a manner very similar to that of non-residents, even if they are Spanish residents, which in most cases implies lower taxation.
Requirements to opt into the special tax regime
1st. Not have been a tax resident in Spain in the last 10 years.
2nd. Become a Spanish tax resident. Very basically, people are considered tax residents in the special tax regime when, once the posting has occurred, the time spent in Spain exceeds 183 days.
3rd. Transfer to Spain for work. It is crucial to prove this circumstance, i.e., that you are coming to reside in Spain for work reasons. For example, if a taxpayer accepts a job offer to work in Spain, it must be proved that this offer was received prior to coming to Spain.
4th. The income must 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 the Personal Income Tax is a fixed rate of 24% on income up to 600,000 euros, and 45% on income above that amount. This fixed rate in the special tax regime is particularly favourable for high-income taxpayers.
Personal income tax is progressive, ranging from 0% to 48%. This regime will be more beneficial for taxpayers with low incomes, who could pay tax rates below 24%.
Capital income (interest, dividends, etc.) are taxed at the same progressive tax rates from 19% to 23% in both the special regime and for personal income tax.
Taxable income
In the special tax regime, only income obtained in Spain is taxed, except for income from work, which is taxed even if obtained in other countries. In this case, there is a mechanism to avoid double taxation and to not be taxed twice on the same income from work. We must also know that income derived from an activity carried out prior to the posting to Spain will be understood as not having been obtained during the application of the special regime.
In the general Personal Income Tax regime, tax is paid on the taxpayer’s entire worldwide income – not just income obtained in Spain, but also income obtained abroad.
Wealth Tax
Taxpayers opting for the special tax regime only report assets located in Spain in their Wealth Tax. On the other hand, those paying personal income tax must report all their assets, whether they are located in Spain or abroad.
Form 720
In the special tax regime, there is no obligation to file form 720 for assets located abroad.
Disadvantages of the special tax regime
Those who choose to pay taxes under the special tax regime for expatriates will not be able to apply Personal Income Tax deductions, and neither will they be considered non-resident when applying the double taxation agreements.
Application process
Before submitting the application, taxpayers have to register in the Tax Agency’s Spanish Taxpayers’ Registry by filing form 030 in person or online.
Then, within six months of starting the activity registered with the Spanish Social Security, taxpayers have to electronically submit the application for registration in the special tax regime using form 149 and provide the complementary documentation that differs depending on the case.
Finally, within 10 days, the Tax Administration will decide whether to accept or deny the application.
If the Tax Agency accepts the application, taxpayers may apply the special tax regime during the tax period in which they acquired Spanish tax residence, and the subsequent five tax periods (for a total of six tax periods), notwithstanding any surrender or exclusion. If you are still a tax resident in Spain after those six years, you will become subject to Personal Income Tax.
If the Tax Agency denies the request, taxpayers will then pay Personal Income Tax.
Surrender and exclusion
Taxpayers who have opted to pay taxes under the special tax regime can surrender it in the November and December prior to the year in which it will take effect. Once they have filed the surrender using form 149, they will no longer be able to opt for inclusion in the special tax regime.
Exclusion from the regime occurs when taxpayers do not meet the requirements for inclusion in the special tax regime. The exclusion will take effect from the year in which these requirements are no longer met, and must be reported to the Treasury using form 149 within one month of the date when the exclusion was determined. Once taxpayers have been excluded from the special tax regime, they will no longer be able to request inclusion again.
Tax return of the special regime
Taxpayers applying the special tax regime will be obliged to electronically file their tax return for Personal Income Tax using the special form approved for these purposes – currently form 151 – in the same period as for Personal Income Tax.
Conclusions
We recommend checking you meet all the requirements to apply for the regime before opting for it, and assess whether the special regime is really worth it for tax purposes.
If you need more information or have any doubts on this, please contact us via email at ambit@ambitassessor.com call in at one of our offices.
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Licenciada en Administración y Dirección de Empresas por la Universidad de Barcelona, continuó su formación con el Postgrado de Dirección Contable y Control de Gestión de la Universidad Pompeu Fabra, y añadió diversos cursos de materia fiscal y tributaria impartidos por la Cámara de Comercio de Terrassa, el Colegio de Abogados de Barcelona y el Centro de Estudios Financieros. Antes de incorporarse a Àmbit Assessor en 2001, como consultora fiscal-contable, trabajó como auxiliar administrativa en Caixa Manresa y Banc Sabadell y como teleoperadora de información tributaria en la Agencia Tributaria. Durante tres años fue tesorera de la Sociedad Recreativa y Cultural L'Alzinar, cargo que compaginó con su trabajo en Àmbit Assessor.
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