1. Introduction
The Spanish impatriate special tax regime, also known as the Beckham Law, is Spain’s best tax incentive for expats. It has played a pivotal role in attracting thousands of dynamic people into the country since its introduction in 2004, which in turn has helped to improve and internationalise its economy.
A natural person is eligible to the tax benefits under the Beckham Law only if he or she meets all the requirements set out in the law.
In this article we will discuss only one of the several requirements, which is often overlooked by taxpayers and tax advisors alike: the person must not generate income from an economic activity through a permanent establishment in Spain.
Knowing the rules in detail is key, since mistakes made in relation to the applicability of the Beckham Law can be extremely costly. If a natural person does not meet all the requirements before coming to Spain or ceases to meet them once inside, then (i) he or she is no longer taxed on a territorial basis for personal income tax and wealth tax purposes, and instead is taxed on a worldwide basis; and (ii) the applicable tax rates under the Personal Income Tax Law (“PIT Law”) are higher.
2. The Law
A persons is entitled to benefit from the tax incentives under the Beckham Law if he or she meets all the following requirements:
- The person relocates his or her tax residence to Spain.
- The person has not been tax resident in Spain in the previous 5 years.
- The reason of the relocation to Spain is any of the following:
- An employment contract, except for professional sportsmen.
- Being appointed a director in an entity. If the entity does not carry out an economic activity in the sense of the Spanish tax legislation, the person cannot be a related party vis-à-vis such entity.
- Being a self-employed person who carries out an entrepreneurial economic activity, as defined in the law. This requires obtaining a favourable decision from ENISA, Spain’s national innovation corporation. A typical example would be a person who sets up a qualifying technology startup.
- Being a self-employed person who is highly qualified and provides services to certified emerging companies, as defined in the law. More than 40% of the person’s income must derive from qualifying activities. An example would be a freelancer delivering technology consulting services to a qualifying technology startup.
- Being a self-employed person who is highly qualified and carries out training, research, investigation, development and innovation activities. More than 40% of the person’s income must derive from qualifying activities.
- the person must not obtain income that would be classified as obtained through a permanent establishment located in Spain.
In this article we focus on the last requirement: the person must not obtain income that would be classified as obtained through a permanent establishment located in Spain.
Although the wording of the PIT Law could be improved, it is generally interpreted that the requirement refers to obtaining income “in a self-employed capacity” through a permanent establishment in Spain.
The PIT Regulations confirm the above interpretation, and provide that “during the tax periods of application of this special regime, the only economic activities that taxpayers may carry out under this regime are entrepreneurial economic activities; the provision of services to emerging companies; or training, research, development and innovation activities.”
Therefore, it follows that self-employed persons (e.g. freelancers, consultants, doctors, lawyers, etc.) who work in an independent capacity are generally not eligible for the Beckham Law, unless they fall into any of the three narrow exceptions mentioned above.
For clarity purposes, if any of these persons worked on a dependent capacity (e.g. a lawyer working as an employee in a law firm, a consultant in a consulting firm, etc.), they could be eligible for the Beckham Law, provided they met the remaining requirements.
Note that there is no minimum revenue threshold for the exclusion clause to apply. In theory, the first Euro earned from non-qualifying economic activities could lead to being excluded from the special tax regime. A question remains on what happens if the person does not earn any revenue, because the PIT Law strictly speaking mentions “deriving revenue.” Obvious disclaimer: for those bright readers keen on thinking of ‘alternative arrangements’ where a person surprisingly does not generate any revenue from his hard work, please note that in Spain there is a general anti-avoidance rule and also transfer pricing rules.
The exclusion applies from the year when all the requirements fail to be satisfied onwards. It does not apply retroactively.
3. The Tax Authorities’ interpretation
The Spanish General Tax Directorate or “GTD” – which is a Government body separate to the Spanish tax authorities – have issued several tax rulings regarding the interpretation of the impatriate regime under the PIT Law.
We reviewed and highlight the following:
- V1902-17 – a person who owns real estate in his own name and all the shares in a holding company in Spain. The holding company owns all the shares in a subsidiary also in Spain. The subsidiary leases out the real estate on behalf of the person, with no employees. The real estate is leased as is, without supplementary or hotel-type services. The GTD considers that the person does not carry out an economic activity through a permanent establishment, and is therefore eligible.
- V2817-23 – a person who leases real estate in Spain through a permanent establishment. The GTD concludes that the person is not eligible.
- V0619-24 – a person who is appointed director in a Spanish company. The person intends to purchase all the shares in such company. The GTD states that the person would be eligible in respect of the director’s fees earned from the company. However, if the person also provides services to the company which are different to the director’s services (e.g. consulting services, professional services, etc.), then the person would be ineligible.
- V2248-24 – a person who relocates to Spain as an employee and is therefore eligible. One year after, he starts working as a self-employed person because he provides general services to customers, and he changes his immigration status from employee to self-employed. The GTD concludes that the person becomes ineligible from the year where he makes such change.
In addition, it is interesting to note the Audiencia Nacional’s (Higher Court) judgment dated 19/09/2012. In this case, the person had registered as a self-employed non-resident person in the years prior to the relocation due to other activities. However, in the year of the relocation and afterwards, he registered and worked as an employee. The Higher Court concluded that what matters is the status in the year of the relocation and afterwards, therefore the person was considered as eligible.
4. Common pitfalls and mistakes to avoid
The most common mistake that natural persons wishing to relocate to Spain make is not gaining the right knowledge.
In our daily practice, we come across several clients who are unaware of the regime’s requirements, even if they already relocated and are unduly benefitting from it.
Whilst in practice the tax authorities do not investigate all taxpayers, they do review impatriates’ files from time to time.
Also, unfortunately not all tax advisors inform properly their clients, or analyse in detail the person’s context and activities.
Below are some examples of situations that would make a person ineligible for the tax regime (unless the situation falls under any of the three allowed exceptions explained above):
- Persons who have additional occupations/activities on top of their main employment/director relationship which was the reason of the relocation. This could be the case of persons working as freelancers, coaches, consultants, instructors, etc. in the afternoons/evenings.
- Digital nomads who are self-employed.
- Entrepreneurs and business owners, if they provide services to the entity they own. Note that under the transfer pricing rules, these services may be deemed as remunerated for tax purposes even if the entity does not actually pay money to the owner.
- Owners of tax transparent entities located in Spain or abroad – such as LLCs in the USA, LLPs in the UK, partnerships, etc. -, because their income is attributed for tax purposes to the owner, therefore the owner is regarded as deriving income from an economic activity.
5. Tax policy considerations
The current state of affairs is that self-employed persons are not eligible for the tax incentives afforded by the Beckham Law, unless they qualify for any of the three exceptions mentioned above.
One may wonder whether this difference in tax treatment – employees, directors and certain qualifying self-employed persons are eligible, whereas self-employed persons selling general goods or services are not – is sound from a tax policy perspective.
In our daily practice, the average person who contacts us exploring whether they could become an impatriate is a highly active person, skilled, with a good track record, who has founded one or more startups, who has two or more occupations, sells coaching or consulting services from time to time, may have created one or more courses, participates in events and conferences, etc. In short, they are the ideal dynamic, active person which most countries in the world, if not all, would like to welcome and see prosper and root within their soil.
In fact, our findings are not novel. Back in 2014, the Spanish Government commissioned an expert’s report on how to improve the Spanish tax regime. The report, commonly known as “Informe Lagares”, recommended expanding the scope of the Beckham Law to self-employed persons.
The lawmaker did not follow the recommendation on this specific point until 2023, when it amended the PIT Law, but only to allow the three narrow exceptions mentioned above and subject to requirements.
In our view, Spain would greatly benefit by expanding slightly the regime and including more types of self-employed persons.
Granting impatriate status to any self-employed person who comes to Spain would seem excessive and may be abused by some.
Instead, a more balanced approached could be to ease the requirements under the three existing exceptions and make them easier to meet. For instance, the lawmaker could add a fourth exception, under which an economic activity qualifies if the person, throughout the duration of the regime, hires in Spain – directly or through a company in which he or she owns the majority of the shares – certain number of full-time employees.
Also, it would help several would-be entrepreneurs who are unsure about relocating if the PIT Law was amended to clarify that directors who own any percentage of shares in a company may provide any type of services to such company – in addition to the director’s services.
The above are some examples of potential measures that could be taken to improve the existing regime.
Last, some closing remarks on equality and fairness. The Beckham Regime creates a discrimination between ordinary tax residents, who are subject to higher taxes; and impatriates, who are temporarily subject to a lighter taxation for 6 years. Certain sectors criticise these disparities. The EU Tax Observatory’s 2024 Tax Report on Tax Evasion (link) states the following in respect of these special tax regimes: “they create horizontal inequities within countries: individuals with the same income end up paying different amount of taxes. Most importantly, because the special regimes are primarily targeted to wealthy individuals, they reduce the progressivity of tax systems, fueling inequality.”
The reality is that all countries compete in attracting skilled and mobile people, and low or no taxation is one of the many tools available to lure them in. Even within Europe – which has the highest tax codes in the world -, several countries include special tax regimes offering tax breaks. Specifically in the case of Spain, according to the ranking created by the EU Tax Observatory mentioned above, the Beckham Law regime ranks in the middle in the list of harmful tax regimes per country – not the worst, not the best.
In our view, oftentimes the debate is too focused on comparing the taxation of an ordinary tax resident versus the taxation of a special regime beneficiary. These debates sometimes become intense and heated. Whilst supporters of more tax fairness have valid points, in our view the approach should be to compare the benefits for a country when an impatriate relocates, as opposed to the no-benefits if such person does not relocate. People, and especially skilled and wealthy people, are highly mobile in our days. And they review their taxation carefully. If a country does not have a reasonable tax system, such mobile people are unlikely to relocate. As much as a worldwide levelled playing field regarding the taxation of individuals may be desired by some, the reality is that such task is a utopia which would be extremely difficult to implement – the most comparable task is the implementation of a global minimum 15% tax under Pillar II, which is taking several years and with an uncertain result globally. Citizenship-based taxation – the likes of the US and Eritrea -, has been discussed by some, but again it would be highly difficult to implement – and if it is implemented, it may potentially lead to renunciations of nationality, which is easier to achieve for people of means.
Perhaps the question that countries which implement special tax regimes should ask themselves is why they need to create exceptions for their standard tax codes. Would it not be better to have a more reasonable tax code for everyone in the country, so that more people would relocate without need for exceptions and tax breaks?
6. How we can help
Our tax team has extensive experience in personal taxation matters, global mobility and the Beckham Law. We help clients relocate countries, advise and identify investments, analyse and compare tax incentives, and hold the client’s hands in every step, so that they have peace of mind and relocate smoothly.