«The Beckham Law» or how to save taxes in Spain if you are a foreigner

Thanks to the so-called ‘Beckham Law’ or ‘Impatriate Law’, foreigners who come to work in Spain pay less tax and do not have to declare their earnings in other countries. And so much for the summary in a single sentence. If you want to know more, we recommend you read on 😉.  

What happened before the «Beckham Law»?

Until 2005, foreigners who came to Spain and spent more than 6 months (i.e. more than 183 days per year) were considered tax residents.

In this context, there were different tax obligations for these persons. In particular, there were two somewhat controversial ones:

1. The obligation to pay IRPF based on their income obtained both in Spain…. as in any other country!
2. The progressive nature of the IRPF itself. As you know, it increases depending on the amount of income you have: from 19% to 47% when you earn more than 300,000 euros.

The fact is that many foreigners complained about the tax burden in Spain and for this reason appeared ….. the famous Beckham Law!

But what is the Beckham Law?

Also known as the 'impatriates law', it is regulated in section 93 of the Spanish Income Tax Law and was published in 2004. (This information probably won't give you much, but it never hurts to know a bit of legislation).

As we have already mentioned, this law is a special IRPF regime designed for people who travel to Spain for work purposes. That is, for those who move their tax residence to Spain.

This group of people have the possibility of opting to be taxed under a tax regime very similar to that of Non-Residents, despite the fact that they are actually tax residents because they stay more than 183 days in Spanish territory.

As a consequence, they continue to be considered as IRPF taxpayers during the tax period in which the change of residence takes place and the following five (as indicated in article 93 of the LIRPF).

Tax benefits

This regulation entails attractive tax benefits for both employees and employers, of which we highlight the following:

Under the Beckham Law, it does not matter if you spend more than 183 days in the country, as you will pay less tax. That is, it allows you to pay only on income earned in Spain, not worldwide. And regarding the percentage, you pay a fixed rate of 24% up to 600,000 euros and if you exceed that amount, you will be charged one of 45%.

Therefore, in principle, the objective was to provide facilities for entrepreneurship and encourage the movement of skilled and talented workers to Spain, such as elite athletes. This was the reason why it is known as the Beckham Law , since the famous footballer David Beckham was the first to benefit from it (besides earning a lot of money, he paid less taxes... there are lucky ones).

But, after numerous modifications during the last years, the elite or professional sportsmen can no longer benefit from this fiscal regime since they have their own regulation in the Royal Decree 1006/1985.

Requirements

• The expatriate cannot have been resident in Spain for the last 5 years.
• Must have an employment contract. With the exception of professional sportsmen and women who are governed by their own regulations.
• This employment contract must be signed with a Spanish company.
• Regarding the administrators of an entity: they cannot own more than 24% of the company for the law to be applicable and thus be able to benefit from the tax saving.
• It does not apply to income obtained through a permanent establishment located in Spain.
• The core of the employees' professional activity must be in Spain. However, it is possible to obtain work and income from abroad, as long as it does not represent more than 15% of the total income.

Who can apply for the application of this law?

Basically any foreigner who moves to Spain and who is under the following situations:

• Foreign workers who have just moved to Spain.
• Expatriates with high incomes who occupy executive or management positions.
• Administrators who come to work in a company.

In contrast, the following individuals are excluded:

• Self-employed workers.
• Professional sports athletes.
• Directors of business entities.

Did you know that thanks to the Beckham Law, foreign soccer players not only learned to say "goal" in Spanish, but also "less taxes, please!"

How to apply for the Beckham Law

Once it has been verified that the established requirements have been met, the application must be submitted through form 149 within the first 6 months of registration as an employee of a Spanish company.That is to say, from the date of registration with the Social Security. Otherwise, if there is a delay, the application and its privileges may be denied.

In addition, the Tax Agency must be informed by means of the form 149 filling in the following data:

• Passport and NIE
• Social security number
• Employment contract with the Spanish company

From that moment on, the taxpayer will enjoy the benefits of this law for a period of 6 years during which he/she will have to formalize his/her non-resident tax returns annually by means of form 151.

Beckham Law and the income tax return

Taxpayers who apply to this special regime are obliged to file and sign the Personal Income Tax return on Form 151 electronically, in general and within the period approved each year for filing the Personal Income Tax return.

Previously, they must be included in the Census of Taxpayers, and if not, they must previously apply for registration in the Census by filing the corresponding census return(Form 036).

If the Beckham Law applies to me, do I have to file this return? No, if you have been granted this special regime, you have to file Form 151 and not the normal income tax return that we all know.

At Taxdown we carry out all the necessary procedures in relation to the Beckham Law and we help all our users to save as much money and time as possible, that is our motto and main objective! We are waiting for you at support@taxdown.es.