The special regime for displaced workers (Regimen Especial de Trabajadores Desplazados), commonly referred to as the Beckham Law, was approved in 2004 in Spain with the aim of boosting the national economy by attracting managers and qualified personnel from abroad to come too Spain to work. This incentive seeks to offer displaced workers who changed their tax residence to Spain and complete with certain requirements would be able to benefit from a significate tax rate reduction have a tax reduction in the Spanish Personal Income Tax (IRPF). Specifically, it allowed them to be taxed as non-residents at the general rate of 24% instead of general scale of 19%-45%.
What began as an idea to attract brains from around the world became a perfect formula for Spanish football clubs to sign the best players on the planet because, with this law, their taxes would be much lower than in other countries with soccer tradition. It was popularly called Beckham Law because one of the first that took advantage was said English player, thus the government changed the law (ironically) so it would be no longer applicable to soccer players.
- What is the special tax regime applicable to workers sent to Spanish territory?
Individuals who become Spanish tax resident in Spain as consequences of a work assignment to Spain can choose to pay apply the lower tax rate of 24% vs 19-45% rate for Spanish personal income tax (IRPF), for the year of arrival and the following five years.
- When should the fiscal regime be chosen?
The communication of the option will be submitted within a maximum period of six months from the date of commencement of the activity recorded in the registration in the Social Security in Spain or in the documentation that allows, where appropriate, the maintenance of the legislation of Social Security of origin. It is not an automatic regime, and the individual will have to make an application to be benefit from this regime.
- What requirements must be met?
The following conditions must be met:
- a) That they have not resided in Spain during the ten tax periods prior to that in which they move to Spanish territory.
- b) That the displacement to Spanish territory occurs as a result of any of the following circumstances:
- As a result of an employment contract. That is, when it is a labor relationship, ordinary or special, different from the one indicated above, or legal with an employer in Spain, or when the displacement is ordered by the employer and there is a displacement letter from it.
- As a result of the acquisition of the status of administrator of an entity in whose capital it does not participate or, in the contrary case, when the participation in it does not determine the consideration of a related entity in the terms provided in article 18 of the Spanish Corporation Tax.
- c) They do not obtain income that would be qualified as obtained through a permanent establishment located in Spanish territory.
- What is the rate applicable to the tax base corresponding to workers sent to Spanish territory?
The special tax regime may be applied to the first 600.000 euros of income per annum at the flat rate of 24% the income exceeding 600,000 euros per annum will be taxed at the marginal rate of 45%.
Even if part of the work is performed abroad, all labor income obtained under the employment contract by the taxpayer will be considered as income from a Spanish source and will be subject to taxes in Spain, irrespective of where is earned. However, other non Spanish source income will be continue to fall outside the scope of Spanish taxation.
- Exclusions, to whom this regime does not apply?
- Professional sportspersons are excluded from this special tax regime.
- Self employed individuals.
- Directors of the entities in which they are owners or is considered related party to that entity according to the transfer pricing rules.
- Where work should be done?
The work does not need to be physically carried out in Spain, and does not need to be carried out for a Spanish entity.
Anyhow, under this regulation, where you are resident in Spain during the tax year of arrival, overseas employment income derived in the same tax year, but earned in the months before becoming physically present in Spain, will not be subject to the Spanish taxes.
- ¿What is the procedure to choose this tax regime?
To make the election the individual must apply trough model 149 which must be filed together with other documents, such as the employment contract or assignment letter, declaration from the employer confirming that the taxpayer is an employee, NIE, passport, social security number etc. with the Spanish authorities, within six months of the date shown the lived form.
The tax payer who has registered for the special tax regime can deregister in November or December of any tax year by means of a communication to his/her employers and to the Spanish Tax Authorities using the same model 149.
- ¿Double Taxation agreements apply in this regime?
The workers in this regime will have limited their ability to eliminate double taxation as established in the Spanish internal regulations, because they cannot obtain certificates of tax residence for the purposes of the Agreement to avoid double taxation signed by Spain, according to the Directorate General of Taxes.
- ¿How this taxation regimen is applicable?
In this regime, the separate form for each one of the total or partial accrual of the rent will be taxed once the tax is not possible. The taxable base, which will coincide with the taxable base, does not apply in a reduction, will be calculated in accordance with the provisions of article 24 of the Consolidated Text of the Spanish Non-Resident Income Tax IRNR Law, which, in general, will be constituted by the full amount of the income. They are Spanish Income Tax IRPF taxpayers with the particularity that they pay according to the norms established in the Spanish Non-Resident Income IRNR norms for the income without permanent establishment mediation. They are obliged to present the model declaration 150 of the Spanish Income Tax IRPF.
When we are in the scope of the Spanish Income IRPF there will be, in line with this tax, an autonomous total fee for the purposes of the financing system of the Autonomous Communities of the common system and Cities with the Statute of Autonomy.
In the determination of the tax rate, your personal or family situation will not be taken into account, the individual chooses and not the family unit, which may give rise to the circumstance that the tax is paid by the IRNR and the rest of the family unit according to the provisions of the IRPF. Taxation is always individual, even if the two spouses are in the special regime.