The special ‘inbound expat’ tax scheme allows workers who become residents in Spain due to an employment contract or occupying a director position in a company to be taxed as non-residents -with the obvious tax benefits- during the year the individual becomes a Spanish tax resident and the five consecutive years thereafter.
There are three requirements to be eligible for these benefits:
- The individual must not have been a Spanish tax resident at any time during the preceding 10 tax years.
- The ten-year period will commence from the last tax period that the individual was a Spanish resident until the first calendar year in which they live in Spain for more than 183 days.
- The assignment to Spain must be due to an employment contract or because the individual has been appointed as the director of a company (excluding professional sports persons).
Initially the law did not recognise this exception, which is why the special tax scheme was known as the ‘Beckham Law’, due to the fact that the football player was one of the first to benefit from it, as well as other professional sports persons who moved to Spain before2010.
The employment contract does not need to be with an employer who is a Spanish resident.
The non-Spanish resident taxpayer will become a Spanish resident based on the employment contract or appointment as Director.
- The employment contract requirement is understood to be met when the individual’s relocation to Spain has been instructed by the employer and they have issued an “Assignment Letter”.
- If the individual has become the director of a company, the following requirements must be met:
- the individual does not hold an interest in the company or
- otherwise, where the interest does not give rise to related entity status (25% or more of capital of the entity).
- The individual cannot earn income qualifying as received from a permanent establishment located in Spain.
Applying at the Spanish Tax Office (Agencia Tributaria):
The individual must apply for the inbound expat tax scheme within six months after starting their activity in Spain (by submitting proof of enrollment in the Social Security system).
The individual is also responsible for informing the Tax Office if they have been excluded for any reason, one month in advance. They can also cancel their status by notifying the Tax Office in November and December before the start of the calendar year in which this cancellation will take place. They may not file the application form again, even if they are still within the period of five tax years since they became a Spanish resident.
Please note the following:
- The individual can only opt for the scheme alone, excluding their family unit.
- Inbound expatriates are Spanish tax residents.
- As Spanish residents, they must pay income tax (IRPF) in Spain, for which they must file a self-assessment tax return.
- They will only be taxed on their income earned in Spain (being subject to non-resident tax rules for the most part), except for income earned for work anywhere in the world, on which they will pay taxes to the Spanish Tax Office, whether it was earned in Spain or in another country.
- Negative income cannot be offset with positive income.
- Income from work performed before the individual moved to Spain will not be considered as earned during the application of the special tax scheme.
- Earned income and the general part of the tax base will be taxed as follows:
Up to €600,000, taxed at 24%.
€600,000.01 and above, taxed at 45%.
- Income from savings, such as dividends, interest and capital gains from transfers of assets, will be taxed as follows:
Up to €6,000: 19%
€6,000 to €50,000: 21%
€50,000 to €200,000: 23%
- The deadline for filing the special income tax return for inbound expatriates will be the same as the normal tax return (April, May and June of the year following the tax year being filed)