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With income tax rates reaching up to 47%, Spain definitely doesn’t qualify as a tax haven. In fact, the high tax rates that are levied on personal income are reason enough for employees to reconsider their plans to move to Spain for work purposes.
In order to attract foreign talent, the Spanish government has introduced a special tax regime for expats returning to Spain and posted workers moving to Spain for work. This special tax regime which is commonly known as Beckham Law, allows qualifying workers to benefit from substantial tax savings.
In this blog post, we’ll explain what the Beckham law is, what the requirements to apply for it are, and what the law means for foreign employees coming to Spain under an Employer of Record arrangement.
The Beckham Law in Spain is a special tax regime that allows individuals to pay less tax when moving to Spain. The provisions of the law are outlined in article 93 of Spain’s Personal Income Tax Law and entered into force in 2005. In December 2022, the rules were amended through Law 28/2022 to allow even more individuals to benefit from the advantageous taxation rules it provides for.
In Spanish, the law is called Régimen Especial para Trabajadores Desplazados, which translates into “Special Regime for Displaced Workers”. The term “displaced workers” already indicates who the provisions of the law apply to, namely two groups of individuals:
Spanish nationals returning to Spain
Foreign nationals coming to Spain for work purposes
Since the law provides for extensive economic benefits, it is an increasingly valuable incentive for foreign skilled workers to come and work in Spain as well as for expatriates to return to their home country.
The Beckham Law rules that eligible individuals are entitled to a reduced tax rate on their personal income for the first six years in Spain, counting from the year in which they enter Spanish territory.
The main provisions of the law are:
Foreigners coming to and expats returning to Spain are allowed to keep the status of a “non-resident” for tax purposes.
Income tax for non-residents is levied at a 24% flat rate (on income of up to EUR 600,000 per year; thereafter, the rate goes up to 47%).
Income tax is only levied on income earned in Spain, and not on the individual’s worldwide income.
Wealth tax is only levied on properties and assets held in Spain.
So, let’s compare this with the situation of an individual moving to Spain under the “normal” taxation and residency rules. The general rule is that an individual who spends more than 183 days per year in Spain automatically becomes a tax resident. This means that he or she is liable for paying income tax in Spain—and that on his or her worldwide income. With personal income tax rates in Spain reaching up to 47%, applying for the Beckham Law regime promises significant tax and economic advantages.
Since the tax regime as outlined under the Beckham Law is optional, individuals have to apply for it to leverage the tax benefits it offers. But how does one apply for the Beckham Law tax regime?
In order to benefit from the taxation rules of the Beckham Law, individuals must fulfill certain requirements. These requirements include:
The individual must not have lived in Spain for the past 5 years (number of years reduced from 10 to 5 through the amendment of December 2022).
Not more than 15% of total income earned abroad.
Furthermore, the individual must move to Spain for one of the following reasons:
Accepting an employment contract with a Spanish employer
Taking over the role of a company administrator in Spain (shares must be not exceed 25%)
Carrying out an entrepreneurial activity in Spain
Offering professional services or carrying out activities related to research, development and innovation (applies to highly skilled individuals only)
Work that is rendered to a foreign employer in a completely remote manner while being on Spanish territory—international teleworking visa required
If certain requirements are met, the tax regime can be extended to the taxpayer’s spouse as well as to their children (up until the age of 25).
Individuals who fulfill all the requirements as outlined above must notify the Spanish tax authority if they wish to benefit from the provisions of the Beckham Law. This is done by submitting form 149 to the authority no later than 6 months after the start of the professional activity in Spain.
In addition to form 149, it is necessary to provide the following documents:
NIE number (in order to receive a NIE, individuals must submit form 30 to register with the Spanish tax authority)
Social security number
The start date is the date recorded when registering for social security purposes. Following the submission of the form, the competent authority should issue a notification confirming the switch to the special tax regime.
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So, now that we know the ins and outs of the Beckham Law in Spain, it’s time to see how the law is relevant for employees moving to Spain under an EOR contract. An Employer of Record (EOR) is a service provider that enables employment across borders, with employee and employer being based in two different countries. The main advantage of using an EOR is that the employer doesn’t need to establish a legal entity in the employee’s country of residence.
While EOR is mainly understood as a way to hire employees abroad without opening an entity, it can also be used to enable employee relocation or send workers on an extended assignment in another country. Employee relocation and international assignments are two examples where the provisions of the Beckham Law become relevant for EOR hires.
Let’s consider the following example. A Spanish national has been living and working in Germany for 8 years. Upon his request to move back to his home country, his German employer offers him an EOR arrangement so that he can keep working for the company despite moving back to Spain.
Since the employee has not held the status of a resident in Spain for over 5 years, he or she will be eligible for the special tax regime known as Beckham Law under the EOR arrangement.
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