Tax regime for non- residents in Spain

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6 of October 2023

In 2022, the Government of Portugal limited the requirements to get the Golden Visa for real estate investors.

Recently, the Prime Minister, António Costa, has announced the end of tax benefits for temporary residents in the Country which is in force since 2009.

This decision can be a good opportunity for countries such Spain or Greece make them attractive for investors and talented individuals.

Ex-pats who move to Spain for work and become residents can benefit from Beckham Law, which provides the option of paying a fixed reduced tax rate of 24% for income up to €600,000 (USD 644,000) for six years.

The Startup Ecosystem Encouragement Act of Spain (“Startup Law”) which came into force in 1st of January 2023, regulates some changes in special Tax Regime for Inpatriates (“Beckham Law”) as well as new types of visa and residence permit for entrepreneurs, investors, highly qualified professionals and digital nomads moving to Spain to carry out the procedures necessary to undertake an innovative, entrepreneurial activity of particular economic interest for Spain.

We are going to explain those changes in Tax in detail.

TAX REGIME

1.- Beckham Law.

The change made by The StartUp Law consists of who is eligible now. There are really no changes to how much tax is paid under the Beckham Law.

Before the StartUp Law, any individual who acquired their tax residence in Spain as a result of traveling for work purposes (known as “inpatriates”) could benefit from the Beckham Law as long as they hadn’t resided in Spain during the previous 10 years.

This was a special tax regime aimed primarily at employees who had not resided in Spain in recent years. However, it was clearly limited, as it left out freelancers, entrepreneurs, and investors.

Since the StartUp Law, not only employees can benefit from the Beckham Law, but also freelancers, entrepreneurs, and investors living in Spain under the following requirements:

  • The period that’s required of not having lived in Spain is reduced from 10 years to 5. This also applies to Spaniards, in a clear attempt to repatriate national talent.
  • Company administrators will be able to benefit from this regime regardless of the percentage of the company they own. Until now, it was limited to 25%.
  • It introduces special visas for non-EU citizens (among them, the visa for international teleworking that eliminates the need for local subsidiaries or intermediaries of foreign companies to have an employment relationship with Spain residents).
  • Under certain circumstances, the spouse and children under 25 years of age (that haven’t been emancipated) may benefit from the regime.

2.- Tax advantages of this regime.

As long as the individual accredits their tax residence in Spain, the taxpayer will be taxed in Spain, exclusively for the income obtained in Spanish territory and not for their worldwide income.

Therefore, income obtained abroad (basically, income obtained in a country other than Spain) will not be taxed in Spanish territory, except for employment and professional income, which must always be taxed in Spanish territory, regardless of the country in which it’s generated.

For example, a person who obtained:

  1. Income from work in Spain for €50,000.
  2. Income from work abroad for €10,000.
  3. Income from real estate capital abroad for €15,000.
  4. Foreign capital gains of €5,000.

Normally, they would be taxed on a taxable base of €80,000, whereas under the Beckham Law, they would only pay taxes on a €60,000 base (of income from work performed both in Spain and outside Spain).

3.- Reduced Income Tax.

In addition, the tax rates levied on the income of inpatriates under the Startup Law are lower than the maximum marginal personal income tax rates.

Income from employment is taxed at a fixed rate of 24% on the first €600,000 and at 47% after that. This is different from the normal personal income tax rates in Spain which have a scale of six brackets in which the last established bracket taxes at the rate of 47% of those incomes that are higher than €300,000.

This means that an employed professional with an annual income of €600,000 per year would pay:

  • €144,000 (average rate of 24%) under Beckham Law
  • €277,000 (average rate of 45%) in the general regime*

* The Personal Income Tax (IRPF) rate depends on many factors such as the Autonomous Community, education, family situation, etc.

4.- Capital gains and income from movable capital.

Capital gains (dividends, share sales, interests, etc.) obtained abroad will not be taxed in Spain.

However, those obtained in Spanish territory by a person under the special regime must be taxed in Spain. And they will be taxed on a progressive scale different, under rates from 21% to 28%, depending on the amount of income obtained.

5.- Assets.

Under this regime, Wealth Tax is payable, although only assets and rights located in Spain are counted. However, the taxpayer’s assets in Spain must be roughly more than €1,000,000 (subtracting exemptions), so most entrepreneurs and digital nomads who move to Spain aren’t obliged to pay it.

6.- Inheritance and donations.

Inpatriates will have the status of residents for Inheritance and Gift Tax purposes. This means that, in case of inheritance or donation, they’ll have to pay this Tax, for all the assets they receive, regardless of where they are located, whether inside or outside Spain.

7.- Solidarity Tax on Large Fortunes. Law 38/2022 of 27 December 2022.

This is a tax imposed on the wealthiest residents to help the government deal with the cost of living crisis which affects Beckham Law beneficiaries.

The new tax is supposed to be a temporary measure implemented for the first two tax years after its accrual (December 31) since the Law came into force in 29 of December of 2022.

This tax provides that all taxpayers with tax residence in Spain, therefore including digital nomads whose net worth exceeds €3,000,000, are subject to the tax.

So taxpayers under the Startup Law only pay Wealth Tax with respect to their assets and rights located in Spanish territory. However, they will have to pay the Wealth Tax on their entire worldwide wealth. The amount an individual pays in Wealth Tax may be deducted from Solidarity Tax.

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