The Beckham Law and its changes after the new Startups Law (12.21.2022)

The so-called Beckham Law (technically called the Special Regime for workers posted to Spanish territory in the Personal Income Tax Law), is a special tax regime that offers better taxation for those who move their residence to Spain because of a job, who obtain a tax benefit. They can be taxed in a similar way to non-residents, which essentially means lower tax rates and taxation only on income generated in Spain. With the new Startups law of the 21th of December, this regime has suffered some changes.

This regime is optional, but several requirements must be met in order to apply for it. Anyone wishing to opt for the special regime will have to apply to the Tax Agency using form 149, in which they must demonstrate that they meet the requirements. Once the documentation has been reviewed, the Tax Agency will decide whether to approve the application.

If approved, the regime will apply during the tax period in which the change of residence takes place and for the following five tax periods, although the taxpayer may leave the regime earlier if he/she wishes to do so. Income must be declared using form 151.

One of the innovations introduced by the Startup Law in this regime is the possibility that it can be extended to the spouse of the displaced person, their children under 25 or of any age in the event of disability.

New Requirements for applying the Beckham Law

• Residence: The person wishing to apply for the regime must not have been a tax resident in Spain for the last 5 years. Before the Startup law was approved, it used to be 10 years,
• Work:
  1. It can be an employment contract that justifies the person’s move to Spain. This employment contract must be signed with a Spanish company.
  2. It can be that the person becomes an administration of a company
  3. It can be to carry out in Spain an economic activity classified as an entrepreneurial activity. In accordance with the article 70 of the Startups Law.
  4. Or it can be the performance in Spain of an economic activity by a highly qualified professional who provides services to emerging companies or who carries out training, research, development and innovation activities, receiving a remuneration that together represents more than 40% of the totality of business, professional and personal work income.
• Income: The person applying for the regime cannot obtain income through a permanent establishment located in Spanish territory. The limits of the concept of permanent establishment are not at all clear, but basically it means that the applicant cannot have a self-employed activity (as a freelancer or freelance, for example).Except in the 3 and 4 work requirements.
• Timing: Application for this regime must be made no later than 6 months after the start of the employment relationship in Spain.

However, there are some exceptions to the application of this special regime in the case of:

• Self-employed or self-employed professionals.
• Company directors.
• Professional sports athletes.

Main advantages of the Beckham Law

• Flat rate of 24%.

The main advantage of the Beckham Law is that the general taxable base (which includes earned income, rents, etc.) is taxed at an almost flat rate of 24%, up to a maximum of 600,000 euros.

600,000. What exceeds this amount is taxed at 47%. Thanks to this regime, a flat rate is paid instead of a progressive regime as in the case of personal income tax (IRPF).

• Only income obtained in Spain is taxed.

One of the main advantages of the Beckham Law is that only income obtained in Spain is taxed. For example, if income were obtained from renting a property located outside Spanish territory, such income would not be taxed in Spain for persons covered by the special regime for posted workers. There is only one exception, namely earned income. Under the normal regime, all worldwide income would be taxable in Spain.

• Wealth tax is only levied on assets located in Spain.

Wealth Tax is a tax levied on the net value of the taxpayer’s wealth on a global basis. The advantage of the Beckham Law is that only the net value of assets located in Spain would be taxed.

• No obligation to file Form 720

Since the Beckham Law is a regime whereby the taxpayer is treated as a non-resident for tax purposes, one of the consequences is that the taxpayer will not be required to file the Form 720 Foreign Assets Declaration.

Main disadvantages of the Beckham Law

• Double taxation

Taxpayers using this regime will not be able to apply most double taxation treaties.

• Deductibility of expenses

Another major disadvantage is that the individual will not be entitled to apply the tax benefits available to other taxpayers under the normal regime, such as the deduction of social security expenses.

• Exemption for compensation

The person who takes advantage of this regime will also not be entitled to exemption from severance pay. Similarly, they will not be entitled to the deduction for the minimum deduction for descendants or family members.