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What does this soccer player have to do with your taxes?

Image Source: devianart.com

The so called "Beckham Law" is a unique tax regime in Spain designed to attract foreign talent, particularly high-income earners, by offering significant tax benefits. Named after the footballer David Beckham, who was one of the first high-profile beneficiaries, this law is officially known as the Régimen fiscal aplicable a los trabajadores desplazados a territorio español. It allows eligible individuals to be taxed as non-residents, meaning they only pay taxes on income earned within Spain rather than their worldwide income.

The Beckham Law, established in mid-2000s and allows foreign workers in Spain to be taxed at a flat rate of 24% on Spanish-sourced income up to 600,000 €, with any income above this threshold taxed at 47%. Importantly, foreign income is exempt from Spanish taxation under this regime, and there is no requirement to file the Modelo 720, which is the declaration of foreign assets.

This tax regime was originally aimed at attracting top-tier athletes and executives to Spain, but over time, it has expanded to include a broader range of professionals, including digital nomads and company administrators.

Requirements to Qualify for the Beckham Law

To qualify for the Beckham Law, several specific criteria must be met. Unlike what might be implied by a basic job contract, the law targets specific profiles of high-skilled and high-earning individuals. Here’s a more detailed breakdown:

1. Non-Residency Requirement
   • You must not have been a tax resident in Spain for at least five years prior to your application. This period was previously ten years but has been reduced to make the regime more accessible.
2. Employment Requirements
   • Professional Contract: You must have a contract with a Spanish company. However, the type of employment is crucial. The law primarily targets high-level professionals, such as executives, managers, and specialists in fields like technology, finance, and R&D.
   • Administrative Roles: If you are coming to Spain to take up an administrative position in a company, you cannot own more than 24% of the company's shares if it is considered an asset-holding entity.
   • Exclusion for Certain Professions: Regular employment, such as working as a waiter, teacher, or other standard professions, does not qualify. The law is specifically designed to attract those with a significant impact on the economy, typically reflected in higher income levels.
   • Telecommuting and Digital Nomads: Recent changes have expanded the regime to include digital nomads, provided their work is for foreign employers and they meet specific income criteria.
3. Scope of Application
   • The Beckham Law is applicable for a maximum of six years. After this period, the individual will be subject to the regular Spanish tax regime.
4. Purpose of Relocation
   • The move to Spain must be driven by specific professional reasons. This could be a corporate transfer, the initiation of a highly specialized role, or activities categorized as entrepreneurship, particularly in innovative sectors.
5. Compliance and Documentation

• Applicants must obtain a Número de Identificación de Extranjero (NIE), and submit Modelo 149 within six months of registering with Social Security in Spain.
• Annually, those under the Beckham Law must declare their Spanish income using Modelo 151.

Additional information for UK and Russian people with a permit for Digital Nomad Visa

Only UK and Russian employees can come over as employees (due to the social security agreement), and this allows them to apply for the Beckham Law (not just having a Spanish contract, this was updated in 2023)

The rest of NON-EU citizen needs to be contractors/sole traders in the DNV and we are not eligible for the Beckham Law.

Muchísimas gracia Sandra from www.Australiatospain.com for this additional information!

Advantages of the Beckham Law

The Beckham Law offers several advantages that extend beyond the basic reduced tax liability:

1. Reduced Tax Liability: The flat tax rate of 24% on Spanish income is significantly lower than the progressive rates under the standard IRPF system, which can be as high as 47%.
2. Exemption from Global Income Taxation: Only income earned in Spain is taxed, which is particularly advantageous for those with substantial foreign earnings.
3. No Obligation to File Modelo 720: As non-residents, individuals under the Beckham Law are not required to declare their foreign assets, simplifying their tax obligations.
4. Exemption from Wealth Tax on Global Assets: Those under the Beckham Law only pay wealth tax on assets located within Spain, not on their global assets, which can result in significant savings for high-net-worth individuals.
5. Special Treatment for Capital Gains: Capital gains on the sale of assets located outside of Spain are not subject to Spanish taxes under the Beckham Law. This is particularly beneficial for those expecting significant capital gains during their time in Spain.
6. Simplified Tax Filing: The tax filing process under the Beckham Law is more straightforward as individuals are treated as non-residents, resulting in fewer forms and less documentation compared to the standard tax regime.
7. Retention of Social Security Benefits: While benefiting from the Beckham Law, individuals still contribute to and can benefit from Spanish social security, which provides advantages in healthcare and retirement benefits.
8. Attractiveness to Employers: The Beckham Law makes Spain a more attractive destination for multinational companies looking to transfer key employees, as the tax incentives can be used as part of a competitive compensation package.
9. Flexibility for Entrepreneurs and Freelancers: The law has been expanded to include digital nomads and entrepreneurs, making it more accessible to a broader range of professionals.
10. Support for High-Income Professionals: The flat tax rate is particularly beneficial for professionals in sectors like technology, finance, and management, where salaries can exceed the thresholds at which higher progressive tax rates would normally apply.

Disadvantages and Limitations

Despite its many benefits, the Beckham Law does have some disadvantages and limitations:

1. Limited Duration: The benefits of the Beckham Law apply for a maximum of six years. After this period, individuals become subject to the standard Spanish tax regime.
2. Double Taxation Treaties: The Beckham Law does not allow the application of most double taxation treaties, potentially leading to higher overall tax liabilities for income earned in other countries.
3. No Deductions: Individuals under this regime cannot benefit from the deductions available under the regular IRPF system, such as deductions for dependents or mortgage interest.
4. Exclusion of Certain Benefits: Unlike the standard tax regime, the Beckham Law does not allow for certain exemptions, such as those for severance payments.

Recent Changes and Updates

In 2023, significant changes were introduced under the Startups Law. These updates aimed to modernize the Beckham Law and make it more inclusive. Key changes include:

• Reduction of Non-Residency Requirement: The period required for non-residency was reduced from ten to five years, making it easier for more individuals to qualify.
• Expansion to New Categories: The law now includes digital nomads, entrepreneurs, and highly qualified professionals in fields like R&D and innovation.
• Increased Flexibility: The new regulations offer more flexibility in the type of employment and roles that qualify for the Beckham Law, broadening its appeal.

Application Process

Applying for the Beckham Law involves several steps:

1. Obtain a NIE: The applicant must first obtain a Número de Identificación de Extranjero (NIE), which is essential for all legal and fiscal matters in Spain.
2. Submit Modelo 149: This form must be submitted to apply for the special tax regime. The application must be made within six months of registering with Social Security.
   
   The Agencia Tributaria procedure to apply for the "Beckham Law" provides information about "Modelo 149" to apply for the "Beckham Law" and also "Model 151" for the yearly tax declaration.
3. Await Approval: If approved, the individual can then benefit from the Beckham Law for up to six years.
4. Annual Declaration: Each year, the individual must declare their Spanish income using Modelo 151.

Conclusion

The Beckham Law is an attractive option for high-income professionals looking to relocate to Spain, offering significant tax benefits over a six-year period. However, the specific requirements and limitations mean that it is not suitable for everyone. Potential applicants must carefully evaluate whether they meet the stringent criteria and whether the benefits outweigh the limitations. For those who qualify, the Beckham Law can offer a favorable tax environment that makes Spain an appealing destination for international talent.

What about your situation?

• You're employeed for a company in your home country as a remote worker?
• Your income is about > 50.000 Euro?
• You would love to stay with your company in your home country, but you also like to become a resident in Spain?

How to get a spanish contract with my foreign company?

1. Create a Spanish Employment Contract with the company you work for at home
   • The employer must establish a formal employment contract under Spanish law. This contract should clearly define the employee's role, responsibilities, and compensation, ensuring it qualifies under the Beckham Law (which is targeted at high-level professionals, not standard roles like service jobs).
2. You boss has to set up a Spanish entity or has to register as a branch
   • Subsidiary: If the company opts for a subsidiary, the process involves a few key steps:
     • Obtain a Tax Identification Number (NIF) for the Parent Company
       The parent company must secure a NIF from the Spanish tax authorities. This number is essential for all legal and fiscal operations in Spain.
     • Register the company name with the Central Commercial Registry, which can be done online.
     • Draft and notarize the company’s Articles of Association
     • Open a bank account to deposit the initial capital, if necessary.
     • Register with the Spanish Commercial Registry and submit all necessary documents.
   • Branch: Alternatively, a branch can be registered, which is a simpler process but does not establish a separate legal entity. This involves less paperwork and can be quicker but is generally less advantageous for long-term operations.
   • • Obtain a Tax Identification Number (NIF) for the Parent Company
       The parent company must secure a NIF from the Spanish tax authorities. This number is essential for all legal and fiscal operations in Spain.
     • Prepare and Legalize Necessary Documents
       Compile and legalize key documents, such as the parent company’s Articles of Association, a resolution to open the branch, and the appointment of a legal representative in Spain. These documents should be notarized, translated into Spanish, and possibly legalized with an Apostille.
     • Register the Branch with the Spanish Commercial Registry
       Submit the legalized documents to the Spanish Commercial Registry (Registro Mercantil) along with a public deed of incorporation. This step formalizes the branch’s legal existence in Spain.
     • Register with the Spanish Tax Authorities (Agencia Tributaria)
       Register the branch with the Agencia Tributaria to ensure compliance with Spanish tax obligations, including corporate income tax, VAT, and payroll taxes.
     • Register with Social Security
       If the branch employs staff in Spain, it must be registered with the Spanish Social Security system to manage employee contributions and comply with local employment laws.
     • Open a Bank Account
       Although not always mandatory before starting operations, it is advisable to open a Spanish bank account for managing financial operations, such as paying taxes and handling payroll.
   The entire process, particularly for a subsidiary, can often be completed within a few weeks, especially when using a Certificado Digital (digital certificate) to manage filings and communications with Spanish authorities online. This tool allows for the majority of administrative tasks to be handled remotely, reducing the need for physical presence in Spain.
3. Register the Employee with Spanish Social Security

• Once the legal entity is established, the employee must be registered with the Spanish Social Security system. This ensures compliance with the Beckham Law, which requires that social security contributions be paid in Spain. Like other processes, this registration can be managed online with the digital certificate.

Ensure Compliance with Spanish Regulations

• The company must adhere to Spanish labor laws, which include ensuring that the employment contract meets local standards. These regulations cover aspects such as working hours, salary, and employee rights, all of which must be in line with Spanish norms to qualify for the Beckham Law.

Local Representation

• The branch must appoint a legal representative in Spain who can handle employment matters and ensure compliance with local labor regulations - accountants, tax advisors or lawyers here on the island offer services to manage it.

What does this way cost?

Depends on how many steps the company does by itself. Round about 2500-5000 Euro for a full founding service as initial cost and 500-1000 yearly per employee for the payroll and accounting services.

Disclaimer

Keep in mind we are not tax advisers or lawyers! The process is not this easy as it looks like, it's only a summary to provide an overview. We higly recommend to get a tax advicer or agency support for this process.

Helpful sources

Related legal text:

• https://www.boe.es/buscar/doc.php?id=BOE-A-2008-5828
• https://www.boe.es/buscar/doc.php?id=BOE-A-2015-14021
• https://www.boe.es/buscar/doc.php?id=BOE-A-2023-25416

Pro Tipp: The Cámara (chamber of commerce) offers different services about the topic "Start a company" incl. subsidiary and branch and your first appointment is for free. Later there are fees and so on, but to get all the details we can't provide here. The Cámara  this is the cheapest entry point you can get ;)