There can be few people in the world who don’t know who David Beckham is, but did you know that there is a Spanish tax law form 2005, which has become known as Beckham’s Law? Why is it called that, because the famous ex-footballer was the first person to use it, dating from his time with Real Madrid.
How does Beckham’s Law benefit overseas buyers?
Prior to the introduction to the law, a foreign worker who spent more than 183 days of the tax year in Spain was considered a tax resident by the Spanish authorities. This meant they were liable to pay tax in Spain on their income worldwide. Beckham’s Law changed this.
Now, an expat can apply to be taxed as a non-Spanish resident and will only have to pay tax on their earnings in Spain. This comes under the Spanish Non-Resident Income Tax Rules. Using this exemption, a foreign resident can expect to pay a flat taxation rate of 24%. Compared with the rates for Spanish residents, which range from 15% to 43% depending on their income, this is a hugely beneficial law.
Does Beckham’s Law apply to you?
It is no secret that this law is aimed primarily at wealthy international footballers in Spain and high net worth individuals, but in reality it can be applied to all foreign workers. There are, as you might expect, certain conditions that an expat worker must fulfil. These are:
- You must be a ‘first time’ resident in Spain, or not have resided in Spain for 10 years before the application.
- The expat must be relocating to take up employment with a contract in Spain.
- The employer must be a Spanish corporation, or a foreign company with registered Spanish offices.
- The majority of their work must be carried out in Spain, and if they do work outside the country on behalf of their employer, the income earned from this work mustn’t exceed 15% of the total earnings.
- You must apply for the tax exemption within six months of starting your employment in Spain.
If you are accepted on to the scheme, the exemption will last for six tax years. There is a cap of €600,000 on the amount you can earn and still claim it.
Some things to consider
There are a couple of drawbacks to using Beckham’s Law that you might ant to consider: it means you can’t take advantage of any of the personal allowances and reductions available if you opt to be taxed as a Spanish resident. Also, any income earned outside Spain is liable for tax somewhere. But, Spain has the lowest rate for interest and capital gains among the major European countries, so it may be more advantageous to have it taxed in Spain as a resident.
As with everything tax related, it is advisable to discuss this with an expert tax advisor. However, it is worth considering Beckham’s Law if you are moving to Spain and are working for a Spanish company.
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