Want to move to Spain, but not thrilled about their heavy-handed taxes? With the so-called Beckham Law – named after football superstar David Beckham – there is a way to move to Spain for up to six years without your tax bill sky-rocketing. Let’s get into the details below…
Practically everyone loves Spain: Whether you’re into food, great weather, culture or the outdoors, living there is no hardship. However, when it comes to taxes, Spain is one of THE most trigger-happy countries in the world.
But don’t despair – below, we outline how foreigners moving there for work can legally delay falling into the country’s tax net for up to six years…
David Beckham is internationally famous for two things: his stellar career as a footballer, and his marriage to Victoria Beckham, aka Posh Spice from the Nineties band The Spice Girls.
In Spain, however, David Beckham’s name is also synonymous with something else: A tax law that incentivizes highly paid foreign workers to come to Spain and avoid regular Spanish income tax rates for up to six years.
In 2003, Beckham signed a 4-year, €37 million contract with football club Real Madrid. Needing to settle in Spain to train and play matches, Beckham would become a Spanish tax resident.
(Generally, after staying in Spain for more than 183 days during any given tax year, you’ll become a tax resident there.) But Spain has punishingly high tax rates, with its progressive personal income tax rate starting at 19% and climbing to 47%.
So right from the start, Spain would have taken about half of Beckham’s €37 million… just in income taxes.
But wait, there would have been more…
Spain practices worldwide taxation of its tax residents, so Beckham’s worldwide income from endorsements, royalties, capital gains and dividends would have been under Madrid’s thumb as well.
The only tax Beckham would have dodged is the infamous Spanish wealth tax. (Apart from Madrid, all of the other autonomous Spanish regions also levy a wealth tax on their tax residents’ worldwide assets, with rates up to 3.75%.)
Ouch.
Add up all those taxes and it’s a wonder that any foreign footballer – or any highly-paid executive, for that matter – would want to relocate to Spain.
Fortunately, the Spanish government realized the disincentive this situation created for wealthy foreigners seeking to settle in the country. So, in June 2005, they passed Royal Decree 687/2005, which amended the tax code.
Based on this amendment, qualifying foreigners would only pay a top flat tax rate of 24% on income up to €600,000 per year, instead of facing Spain’s top marginal tax rate of 47%. Earned income over €600,000 is taxed at flat 47%.
Plus, foreigners are spared from paying the wealth tax on their non-Spanish assets.
So while Spain’s Beckham Law is arguably not quite as attractive as Portugal’s Non-Habitual Residency Program, which shields foreign residents from a host of taxes for the first ten years, it nonetheless sweetens what would otherwise be quite a raw tax deal.
The benefits of Spain’s Beckham Law – in summary
There are three main benefits of the Beckham Law. For up to six years:
- You’ll owe no tax on your worldwide income.
- You’ll dodge Spain’s wealth tax.
- Your Spanish-based annual income of up to €600,000 is taxed at flat 24%. Your Spanish-sourced annual income over €600,000 is subject to a flat 47% tax rate.
How can you qualify for the Beckham Law in 2022?
Applicants must meet several conditions to qualify for the Beckham Law:
- You cannot benefit from the Beckham Law if you’ve resided in Spain in the previous 10 years;
- You must have relocated to Spain to take employment under a contract;
- Your employer must be a Spanish company;
- The majority of your work must be conducted within Spain. If your employment requires work to be performed outside of Spain, income from these activities cannot exceed 15% of your total income.
PLEASE NOTE: The above information is based on the opinions of certified tax professionals in Spain. We’re not tax advisors, and you should not consider our content as personal tax advice. We suggest that you consult a qualified tax professional who’s familiar with your particular situation before making any decisions.
The bottomline
David Beckham was the first notable person to obtain this special tax status in Spain. Hence it became known as the Beckham Law. But you don’t need to be a celebrity footballer to take advantage of it.
Sovereign Confidential members can access our in-depth case study on how a friend of ours made this law work for them. We also cover how you can settle in Spain and avoid becoming a tax resident there altogether for a period of up to six years.
To gain access to step-by-step information on how you can move to Spain in a tax-efficient manner, join SMC today.
