Explainer: the ‘Beckham Law’ and the Spanish Golden Visa

The ‘Beckham Law’

Spain’s ‘special expatriate tax regime’ was introduced in 2005 by Royal Decree 687/2005 to offer favourable tax treatment to non-residents who move to Spanish territory to take up employment. It is also known as the ‘Beckham Law’, after footballer David Beckham became one of the first foreigners to benefit under the regime following his 2003 transfer to Real Madrid.

The regime offers substantial tax benefits to expatriates and high-earning professionals. Previously, any foreign workers remaining in Spain for more than 182 days in a tax year would be deemed to have become tax resident in Spain and therefore liable to:

• Income and capital gains tax on their worldwide income and capital gains.
• Wealth tax on their worldwide net wealth.
• Inheritance and gift tax on the receipt of assets by way of gift or inheritance.

Under the Beckham Law qualifying individuals who had not been resident in Spain for the previous ten years were permitted to elect (within six months of commencement of activity in Spain) to continue to pay taxes as a non-resident in Spain in the year in which they moved to Spain and for the following five years.

As a result, foreign income and gains were not subject to tax in Spain, while employment income was taxed at a flat rate of 24% up to €600,000 and 45% on the excess. In 2015, professional sportspeople were specifically excluded from applying and the scope was changed such that all ‘employment’ income, whether foreign or Spanish, was taxed as Spanish source income, but other non-Spanish source income continues to fall outside the scope of Spanish taxation.

On 1 January 2023, the special expatriate tax regime was updated by the so-called ‘Start-up Law’ to make it more attractive for inward investment, new technology and to bring talent to Spain. The required period of Spanish non-residence prior to the tax year in which the individual moved to Spain was reduced from ten to five tax years, and the scope of the regime was extended to individuals who were not previously covered, including:

• Remote workers providing services online who do not have a Spanish employer and are not assigned to a Spanish entity by their non-resident employer.
• Directors of companies, regardless of the percentage of ownership they hold in the company’s share capital (excepting passive holding companies, where the director must hold less than 25% of the share capital to qualify).
• Entrepreneurs developing innovative start-up activities in Spain.
• Highly skilled professionals engaged in specific training and research, development and innovation (R&D&I) activities.

In respect of the innovative start-up route, ‘Entrepreneurial activity’ refers to an innovative activity or economically significant activity in Spain, with approval from the National Innovation Company (ENISA) and authorisation for business residence before relocation.

Since there must be a ‘cause-effect’ relationship between a taxpayer’s relocation to Spain and the initiation of an investment activity in Spain, it is advisable to review and carefully plan the investment strategy to ensure sufficient investments in Spain.

Only income from professional activities is eligible for deductions or payments on account of economic activities. It is mandatory to maintain records of income, expenses and invoices.

The revised expatriate tax regime further includes a specific provision to exempt from taxation employment income received as remuneration in kind, in line with the provisions of the Personal Income Tax Law for Spanish tax residents.

The revision also provides the option to include the spouse and any children of the qualifying expatriate under the age of 25, provided they move with the taxpayer during the first year of residence. This extension does not apply if the sum of the income and gains from financial investments of the family is greater than the taxable base of the qualifying expatriate.

A person will be considered tax resident in Spain if either:

• They spend at least 183 days in Spain in a tax year.
• Their centre of economic interest is in Spain.
• They have real estate available for use in Spain and make regular visits to Spain.

This applies unless the individual is tax resident in another jurisdiction that is not on Spain’s blacklist. There is also a presumption of Spanish tax residence when the taxpayer’s spouse and minor dependent children are tax resident in Spain.

Spain does not allow for split-year treatment and the tax year coincides with the calendar year. A person will therefore be deemed either tax resident or non-tax resident for the whole year – 1 January to 31 December.

There is no special treatment under inheritance and gift tax, but Spain’s autonomous regions can set their own rates and reliefs. Some regions, including Madrid, Andalusia, Valencia and the Balearic Islands, have introduced 99% or 100% reliefs on next-of-kin transfers.

The Spanish tax administration takes the position that taxpayers opting for the Beckham Law are only resident for domestic tax purposes and not for treaty purposes. It should be noted that the special expatriate tax regime (Beckham Law) is not an immigration status. It is a tax status that can be applied for after the applicant has obtained the right to come to Spain.

The Spanish Golden Visa

Nationals of the European Union member states, as well as of the European Economic Area countries (Iceland, Norway and Lichtenstein) and Switzerland, do not require a visa to live and work in Spain. Everybody else does.

Qualifying investments

The simplest route for non-EU/EEA nationals to obtain the right to live and work in Spain is via the residence-by-investment programme known as the Golden Visa. This is available to those who deposit €1 million in a Spanish bank account or who invest:

• A minimum of €500,000 (mortgage free) in Spanish real estate.
• €1 million in Spanish companies (shares).
• €1 million in Spanish investment funds.
• €2 million in Spanish public debt.
• Start a business project in Spain that creates employment, contributes to technological and/or scientific innovation, or has a socio-economic impact on the local area.

In addition to this investment, applicants must also match one of the following profiles:

• Investor.
• Entrepreneur.
• Highly qualified professional.
• Researcher.
• Employee transferring within the same company or group of companies.

Other requirements include health insurance in Spain, evidence of sufficient financial means to sustain the applicant and any family members who are to be included, and a certificate of no criminal conviction granted in the current place of residence.

Duration

The Golden Visa residence permit will be issued for one year if it is requested from abroad and for two years if it is requested in Spain. Once that period has expired, holders can apply for renewal of the residence permit for successive five-year periods if the investment is still valid and they have been physically present in Spain at least once during that year.

Residence and travel rights

Golden Visa holders have the rights to live in Spain and work in Spain as an entrepreneur or employee. After five years it is possible to gain permanent residency in Spain and after ten years it is possible to apply for citizenship.

Holders also have the right to enjoy visa-free travel within the EU’s Schengen area of countries. Under the terms of Schengen, non-EEA nationals cannot spend more than a total of 90 days within a total period of 180 days without a visa. Once the 90-day quota has been used, they cannot return to Schengen until 90 more days have passed.

Family members

The Golden Visa can include a spouse/partner, any unmarried children under 18 and any dependent older children or dependent elderly parents. Family members will receive a residence permit and enjoy the same benefits as the applicant.

Physical presence

Golden Visa holders are not required to have a physical presence in Spain to maintain their residence status. They are only required to travel to Spain to renew their residence permit. Notably, family members can reside in Spain without the need for the primary investor’s physical presence.

There are, however, different requirements for unrestricted permanent residence and citizenship.

Taxation

The Golden Visa does not oblige the holder to pay tax in Spain (other than in respect of their investment in Spain) unless they choose to spend more than 183 days a year in Spain, in which case they will be deemed to be tax resident in Spain and obliged to declare their worldwide income.

If a Golden Visa holder decides to become tax resident in Spain, then they can apply for the special expatriate tax regime (Beckham Law) such that their employment income will be taxed at a flat rate of 24% up to €600,000 while other non-Spanish source income will fall outside the scope of Spanish taxation for a period of up to six years.

Note, it is perfectly possible to be tax resident, and therefore subject to tax, in more than one place at the same time. If there is a tax treaty between your different places of residency, the terms of the treaty will establish the taxing rights of the partner countries. Care needs to be taken to ensure you are not double taxed. Generally, you will pay the highest rate of tax applicable in the relevant jurisdictions.

Application timescale

Spain promises a swift response to Golden Visa applications. The quoted time between finalisation of the application and a decision is 20 days. This contrasts with, for example, Portugal where applicants are rarely given a decision within 12 months, and many have waited over three years.

The Beckham Law gives certainty on tax matters and does not rely on any particular form of planning. All foreign income and capital gains (with the exemption of employment income) will not be subject to Spanish tax.

Please contact Sovereign’s Portugal office for further information or assistance: [email protected] .