General considerations before you qualify.
An individual is considered tax resident in Spain when either the person remains in the Spanish territory for more than 183 days during a natural year; or has in Spain, either directly or indirectly, the main centre or the base of his activities or economic interest.
The Spanish tax year runs form January 1st to December 31st. Therefore, the 183 days are computed during the natural year. Accordingly, the status of resident or not resident will be held during all the natural year.
Tax residents in Spain are taxed according to the personal income tax rules under the principle of world-wide taxation regardless of where the income has been generated.
What is the Beckham Law?
However, there is a special tax regimen for inpatriates, known as “Beckham Law”, since the famous football player was one of the first to benefit from this regimen; that allows inpatriates to opt, as an exception to the regular system, to be taxed in Spain as a non-resident taxpayer following the rules laid down in the Spanish Act on Non-Resident Income Tax.
Requirements of the Beckham Law
In order to benefit from such tax regime, the following requirements must be fulfilled:
- Not been resident in Spain during the 10 years preceding the movement to Spain.
- The movement to the Spanish territory is made because of any of the following:
- An employment contract (excluding professional sportspersons).
- The acquisition of a board of directors’ position of a company with no participation in its share capital or in a percentage which does not imply being a related party.
- The taxpayer does not obtained income that would qualify as being obtained through a permanent establishment in Spain.
How it will be taxed?
Under this special regimen employment income will be taxed at a flat rate of 24%. This includes all employment income obtained by the taxpayer during the application of the tax regimen. The 24% tax rate applies to employment income up to €600,000 the excess will be taxed at the 45% tax rate.
Spanish source capital income and capital gains will be taxed at flat tax rates, the first €6,000 € at a 19%, from €6,000 to €50,000 at a 21% and from €50,000 € at a 23% tax rate.
The 24% tax rate will be withheld monthly by the Company from your gross salary. Additionally, there is an obligation to file an annual tax return between April and June of the following year.
How long can you be under the Beckham Law regime?
The tax regime would be applicable during the tax period of change of residence and the five following tax periods.
The special tax regimen must be applied during the six months following the starting date of employment shown in the registration of the employee with the Spanish Social Security, or in the documentation that makes possible to maintain the social security of origin.
Additionally, those individuals applying the special tax regimen are not obliged to file the informative tax return on assets abroad, Modelo 720.
If you get the special regime known as the “Beckham Law regime”, so you fulfilled all the requirements you will be taxed at a 24% flat tax rate for employment income during the following 5 years. Been fiscal resident of Spain you will be treated as a nonfiscal resident.
Keep in mind that if an individual is tax resident in Spain it will be taxed over his/her worldwide income, at a tax rate that can go up to 45% approximate.