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The Beckham Law or Special Tax Regime, implies a tax treatment with advantages and disadvantages with respect to the general Spanish Personal Income Tax (“PIT”). In the next sections we will describe the advantages of the Beckham Law, as well as the disadvantages.
Advantages
Almost flat tax rate
One of the benefits of the Beckham Law, is that income in the general tax base (employment income, rents, etc.) is taxed at a fixed rate. That is, the first 600,000 euros of income are taxed at 24% and the excess over this amount at 47%. On the contrary, if general PIT regime applied, it would be taxed at a progressive tax rate that could reach up to almost 50%.
The fact is that the semi-fixed tax rate could be beneficial if the volume of income included in the general tax base is high, but not beneficial if it is low. The reason is that PIT tax rates can even be 0% for low-income taxpayers. As income grows, so do tax rates. Generally, the minimum of employment income from which the Special tax regime would be beneficial is 55.000€. However, it particular case should be analysed.
Worldwide employment income is taxed in Spain. Other income obtained abroad is not taxed in Spain
If you were applying general PIT, you would pay taxes in Spain for all your worldwide income. One of the advantages of the Beckham Law is that only local income is taxed, that is, income obtained in Spain. There is only one exception to this rule, employment income. With the Beckham Law, your worldwide employment income is taxed in Spain. This does not necessarily mean that you will pay income tax twice for the same income (in the country where you generated the income and in Spain). This is because there is a mechanism to avoid double taxation whereby the amount of taxes paid abroad can, in certain circumstances, be used as a tax credit in Spain.
Therefore, for the rest of income generated abroad you do not have to pay taxes in Spain, such as rental income, dividends, interest, capital gains, etc. You would only have to pay taxes on those types of income generated in Spain.
Wealth tax only for those assets located in Spain
Another advantage of the Beckham Law is that you would only have to pay wealth tax in Spain, if applicable, on assets located in Spain. If you were subject to general PIT, then you would have to pay, if applicable, Wealth Tax on all your assets, regardless of whether they are in Spain or not.
However, as of 2023 although the Special tax regime applies, if an individual held shares in
a non-resident entity which directly or indirectly more than 50% of the assets were real estate located in Spain, the value of such shares would be taxed under the Spanish
Wealth tax, regardless the proportion of value of the assets located in Spain.
No obligation to submit Form 720 on assets held abroad
It is only an informative form, but it is one of the advantages of the Beckham Law. It the Special Tax Regime is applied instead of the general PIT, there is no obligation to file the informative declaration of assets abroad (Form 720).
The form must be filed annually by all tax residents in Spain who have assets located abroad. Specifically for those whose assets are valued at more than 50,000 euros for each type of asset. In other words, more than €50,000 in real estate, more than €50,000 in shares, etc..
It is just an informative statement, which means no tax debt is paid. However, if the form is not filed, or is filed incorrectly, there could be penalties.
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Disadvantages
Limitation of PIT benefits
A disadvantage of being taxed as according to the Special tax regime it that the tax quote is calculated in accordance with the Non-Resident Income Tax Law instead of the standard PIT rules. As a consequence of the foregoing, not all the tax benefits provided for regular PIT are applicable. There are many tax benefits, depending on the circumstances of the taxpayer. Below is a list of some of the most common tax benefits:
- Exemption from the deemed income attributed to the habitual residence (if you are the owner);
- Tax benefits if you live with minor children and/or elder parents;
- Tax reliefs if you receive home rental income;
- Tax deductions in the case of physical or mental disability.
There are some Double Taxation Agreements (depending on the country) that are not compatible with the Beckham Law
A Double Taxation Agreement (“DTA”) is a treaty signed between two countries that establishes some rules to avoid or reduce double taxation (tax on the same income in both countries).
The Special Tax Regime allows you to apply for a Certificate of Tax Residence in Spain, which is the way to prove in other countries that you are a tax resident in Spain.
However, some DTA’s (such as the one between the United Kingdom and Spain) specifically exclude the possibility to request a Spanish tax resident certificate in accordance with the DTA. This could have significant consequences depending on your circumstances (what type of income you obtain and where you generate it), and in the worst case scenario may be taxed twice for the same income. This should therefore be analysed on a case-by-case basis to determine its concrete consequences.
All employment income is taxed in Spain, without the possibility of applying the exemption on work carried abroad “7p tax exemption»
One of the advantages of PIT is that, if a series of requirements are met, employment income obtained abroad (for example, because you are assigned a month to another country to work in benefit of a non-resident company) could be exempt of taxation in Spain. The requirements are quite strict. However, this possibility is not applicable if the Special tax regime is applied.