When looking to expand to Spain or hire global talent for an existing subsidiary in Spain, you may be aware of the Special Expat Tax Regime (SETR) for foreign workers. It’s colloquially known as the “Beckham Law”, after the footballer David Beckham. He famously took advantage of the tax exception while living in the country. As of 2023, there are some changes to the requirements of the law that you may need to consider. These include a reduction in the residency years requirement before an expat can apply.
In this article, we update you on every aspect of the changes to the Beckham Law in 2023. We also answer any questions you might have about this special tax regime, such as who can apply, exceptions, and any potential issues.
What is the Beckham Law and What are its Advantages?
The Beckham Law, or Spain’s special expat tax regime, was first established in June 2005. Under normal circumstances, any foreigner who has resided in Spain for more than 6 months automatically becomes a tax resident and pays tax on income in Spain. Spanish residents would then have to pay income tax at a progressive level from 19-45% depending on their income. They would also be taxed on their worldwide income in addition.
However, with the SETR in place, expats do not have to pay individual income tax on income made outside of Spain. This includes income from sources such as real estate, capital gains, interest, etc. The only exception to this rule is employment income, which will be taxed in Spain with standard deductions regardless of the country of origin.
Another benefit is that expats under the tax regime only have to pay a 24% income tax rate for earnings up to 600,000 euros. The excess above that amount is taxed at 47%.
In general, as of 2023, a total of $120,000 in foreign earned income may be automatically exempted. Income over $120,000 may be subject to further tax credits in some circumstances but this must be applied for under this law.
In all, an expat worker can take advantage of this tax regime for a maximum of six years.
Who Qualifies for the Beckham Law?
Previously, those who could apply for the special regime were those expats who…
- had not lived in Spain in the ten years before their application
- relocated to Spain for work purposes
- had a permanent residence or digital nomad permit
- were classified as highly qualified workers
The following three categories were not eligible for the tax exception:
- self-employed freelancers
- professional athletes
- directors who own more than 24% of a company in Spain
The Key Changes to Spain’s Expat Laws in 2023
As part of Spain’s Startup Act, which aims to attract more foreign talent to the country, the Beckham Law was targeted in particular thanks to its effect on international high-level business people.
The startup act includes a new digital nomad visa that will allow non-EEA remote workers and freelancers to live and work in Spanish territory for up to five years. This is valid as long as they meet salary requirements. Currently, the minimum monthly wage for the digital nomad visa is around 1260 euros, with an additional 75% for those who want to bring in family members on the visa.
As for the Beckham Law, these are the areas that have been altered:
- The non-residence period before applying has been reduced from 10 years to 5.
- Freelancers, remote workers, and entrepreneurs are now eligible to apply.
- Spouses and children under the age of 25 accompanying the worker are now also allowed to be part of the tax regime.
- Company administrators of local companies can now apply regardless of the percentage of share capital they hold.
How to Apply for Spain’s SETR
In order to apply for the special expat tax regime, you need to file the required paperwork within six months of signing the employment contract. Delays in an application will likely result in rejection.
The certificate necessary to apply is Form 149. The following information is required:
1. Identification of the company hiring the employee
2. Employee’s personal details such as name, address, social security, bank account, etc.
3. The start date of the employment contract
4. A copy of the employment contract
After applying, the Spanish Tax Agency may request further documentation. It is vital that you respond to this request within ten days or your application will be denied.
The Potential Disadvantages of Operating Under the Beckham Law
Although expats who are part of the SETR enjoy many tax benefits, there are still some drawbacks to claiming this filing status. Being aware of these disadvantages will help you to make an informed decision about whether to apply.
You May Be Unable to Benefit from PIT Benefits
Because an expat under the Beckham Law has their tax payment calculated as if they are a non-resident, they are not eligible for tax benefits that apply to regular residents. This includes reductions for living with minors, caring for elderly parents, or having a disability.
There May Be Double Taxation Complications
Not all double taxation treaties with other countries are compatible with the SETR. For example, the double taxation treaty between Spain and the United Kingdom specifically does not count for those under the SETR. This may result in the expat worker still having to pay taxes twice if their situation is not properly managed.
Whether or not the Beckham Law benefits you and your employees will depend on a variety of factors. It’s important to get expert counsel so that you can make the smartest decision for your company.
Additional Changes to Spain’s Tax Laws in 2023 – The Solidarity Tax
While the Beckham Law may be a way for expats to reduce their estimated tax burden, other changes are on the horizon that may affect those in high level positions.
Known as the Solidarity Tax, it is being discussed as a possible addition to Spain’s current Wealth Tax. Current wealth tax laws affect the income and property value of residents above €700,000, with a progressive tax rate of up to 2.5% on top of standard taxes.
The Solidarity Tax has been called a temporary addition to this for the years of 2023 and 2024.
The Solidarity Tax would increase the rate for those in the highest bracket to 4.50%. This could mean a significant increase in the amount of taxes owed for those earning or having significant property value. It is unclear at this time if the Solidarity Tax will be implemented long-term. However, this could be a significant burden for some of Spain’s wealthiest residents and expats.
The potential for further changes such as this are why it is necessary for employers to be certain about how to file tax returns for employees based in Spain or other countries. Accurate and compliant tax procedures requires constant monitoring, and small mistakes can cost greatly.
Hire and Expand Internationally with INS Global
Understanding local tax regimes and expat tax laws can be a complicated and lengthy process. Any errors or miscalculations made will result in expensive fees and fines. There’s also the possibility of delaying your expansion process.
With INS Global, you don’t have to worry about compliance errors or legal obstacles. We have a team of experienced and dedicated professionals who can help you expand quickly and smoothly.
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