- Introduction
NAX Law secured and important tax ruling from the Spanish General Directorate of Taxation (“GDT”), regarding the interaction between the Spanish tax on large fortunes (“TLF”) and the impatriates regime, also known as Beckham Law.
In this article we uncover the details.
- The impatriates regime
Spain introduced the impatriates regime in 2003, at the same time when the renowned football player David Beckham joined the club Real Madrid – hence this tax regime is popularly known as “the Beckham Law”.
The impatriates regime is a special tax regime which offers unique tax benefits to those taxpayers who relocate their tax residence to Spain and meet certain requirements.
Qualifying impatriates are treated as tax resident in Spain for domestic tax purposes, however they benefit from the following consequences:
- Unlike ordinary tax residents which are subject to personal income tax on a worldwide basis, impatriates are subject to personal income tax only in respect of income arising from a Spanish source – with the exception of employment income and income derived from entrepreneurial economic activities;
- The personal income tax rate applicable to impatriates’ general income is only 24% for the first EUR 600,000 of taxable income, and 47% for any taxable income exceeding EUR 600,000. This is in contrast with the tax rates applicable to ordinary tax residents, which range from 0% up to 54% depending on the region of residence, but where the higher brackets start applying at a much lower income threshold (depending on the region, an ordinary tax resident with EUR 100,000 annual salary may already be subject to a 47% income tax rate); and
- Unlike ordinary tax residents which are subject to wealth tax on a worldwide basis, impatriates are subject to wealth tax only in respect of assets and rights that are located, can be exercised or must be fulfilled in Spain.
- The TLF
Spain introduced the TLF on 27 December 2022. Although initially it was announced as a temporary tax that would only apply two years – in 2022 and 2023 -, on 27 December 2023 it was extended sine die.
TLF applies, on an annual basis, to natural persons who own net assets worth more than EUR 3 million. There is a minimum exempt of EUR 700,000.
Taxpayers who are tax resident in Spain are subject to TLF on a worldwide basis, whereas taxpayers who are non-resident in Spain are subject to TLF only in respect of assets or rights which are located, can be exercised or must be fulfilled in Spain.
In addition to the TLF, in Spain there is also the wealth tax. The Spanish Constitutional Court, in its judgment number 149/2023 dated 7 November 2023, declared that both taxes are compatible because the wealth tax paid is deductible from the TLF due.
The TLF mirrors the existing wealth tax in almost all aspects, including in terms of determining its territorial scope, the exemptions, the taxpayers, the taxable base, the chargeable date and the tax rates. The main difference is that TLF applies to natural persons with net wealth exceeding EUR 3 million, whereas wealth tax applies from the first Euro of net wealth – subject to the minimum exempt, which varies from region to region.
- The GDT and NAX Law’s tax ruling
After the introduction of the TLF, there was uncertainty on whether impatriates whose net wealth exceeds EUR 3 million should be subject to TLF on a worldwide basis or only in respect of their assets and rights that are located, can be exercised or must be fulfilled in Spain.
In our view, since the TLF largely follows the structure of wealth tax, and since impatriates are subject to wealth tax on a territorial basis, impatriates should be subject to TLF on a territorial basis too.
At NAX Law, we drafted and submitted a request for a tax ruling before the GDT. The GDT, in its binding ruling number V0420-23, confirmed our interpretation: impatriates are subject to TLF on a territorial basis only. In other words, they are subject to TLF only in respect of assets and rights which are located, can be exercised or should be enforced in Spain.
- Conclusion
The GDT’s tax ruling V0420-23 obtained by NAX Law is the first tax ruling on the matter and clarifies a critical tax aspect for impatriates.
Contrary to public belief, currently Spain is, with the impatriates regime and the right tax planning, a highly attractive destination globally from a tax perspective.
- How we can help
Our private client practice regularly helps individuals analysing their personal and wealth tax situation and relocating their tax residence.
If you have ever considered relocating to Spain and enjoy not only its remarkable climate, history, gastronomy, people and culture, but also benefit from a highly attractive tax regime, do not hesitate to contact us.