The special tax regime known as Beckham Law stipulates that individuals who establish their tax residence in Spain have the opportunity to opt for taxation under the regulations for non-tax residents during their initial 6 years of tax residence in Spain (even if they are considered residents).
This implies that only income acquired within Spanish territory is subject to taxation, with the unique feature that all work income earned by the taxpayer from the date of their arrival in Spain until the notification of their departure is subject to taxation. The applicable tax rate is 24% on the first 600,000 euros and 45% on income exceeding that threshold.
In this article, we will comprehensively examine every aspect of Beckham Law, providing you with the knowledge and insights you need to navigate this specialized tax regime. At MySpanishResidency.com, we’re here to offer expert guidance on your tax matters, ensuring that your financial interests are safeguarded.
Beckham Law Spain 2023
Royal Decree 687/2005 is called the Beckham Law. This decree is a modification of the rewritten text of the Income Tax Law, in force between 2005 and 2007 and integrated in the decree 439/2007 still in force. It allows foreigners who move to Spain to work tax as non-residents. This means paying taxes at the fixed general rate of 19.5% after decree 9/2015.45 Bearing in mind that the maximum rate in Spain is 45% (article 101), this law primarily benefits very high incomes. Footballer David Beckham was one of the first to take advantage of the measure, which led to the law being popularly renamed the “Beckham Law”.
who can take advantage of the beckham law
You can only benefit from the Beckham Law if you have not been a tax resident in Spain during the 10 years prior to your migration to Spain and provided that your migration is the result of an employment contract with an employer in Spain, or in the event that your employer sends you to Spain.
Beckham Law will also apply if you become a director in a Spanish company, as long as you do not have a stake in the company, or your stake is less than 25%.
Taxation in Spain will be exclusively for income obtained in Spanish territory, including in any case work income obtained in any territory. By way of example, if the amount of earned income obtained in the financial year is equal to €250,000, taxation in Spain according to the autonomous community will be between 45% and 48%, however, with the special regime, taxation will be reduced to 24%.
It is therefore obvious that the application of the previous regime may be of great relevance.
Taxes in Spain Before and After the Beckham Law
To get a better idea of how much this tax law will help you, let’s look at the situation of foreign nationals before it went into effect.
Before the Beckham Law
Prior to 2005, all foreigners who moved to Spain and stayed for more than 6 months (183 days) per year were considered tax residents.
When you become a citizen the following happens:
- You begin paying income tax on your worldwide earned income when you turn 18. This includes money earned in Spain as well as money earned in every other region.
- The exact percentage you pay is incremental, meaning it rises in step with your salary. It starts at 19 percent on the first level of income and rises to 45 percent once you earn over 60,000 euros.
Things changed dramatically after the Beckham legislation was implemented. Expats will now pay significantly less during their first six years in the country. They will also save money on taxes if they apply for this program, because:
- If you spend more than 183 days in the country (and therefore become a tax resident), you will be subject to the same taxation rules as non-residents under the Beckham statute.This essentially means you only pay income tax on income earned in Spain.
- Furthermore, rather than paying a progressive rate that rises as your income rises, you pay a flat rate of 24 percent up to a limit of 600,000 euros. If your income reaches the cap, you will be paid a flat rate of 45 percent.
As a result, the Beckham Law is unquestionably a significant tax benefit in terms of tax savings. This constant average of 24 percent is significantly lower than the Spanish rates, which can reach 45 percent for residents.
At MSR we are expert advisors on taxes in Spain. Contact us if you need advice!