- Venetia House
¿What is Beckham´s Law?
Under Spanish tax law, individuals who spend 183 days or more during a tax year in Spain are normally deemed tax resident. Temporary absences are ignored when determining residency unless a person can prove that he is habitually resident in another country. Thus, footballers coming to Spain would automatically become Spanish tax residents on the day count rule (over 183 days) and, as Spanish residents, would have been liable to Spanish tax on their worldwide income and assets.
However, the Royal Decree 687/2005 modifies this law with respect to wealthy foreign workers. To ease the tax burden and to attract the likes of Beckham and top executives, the government introduced amendments to the definition of tax residency.
The change of legislation allows an individual who has relocated from another country to Spain the choice of being taxed as a Spanish resident or as a non-Spanish resident. The choice applies in the year of arrival in Spain and continues for the following five years. By electing to be nonresident, an individual can limit their liabilities to Spanish taxation to apply to Spanish income and assets only and hence exclude their worldwide income and assets. Thus under the Spanish Non-Resident Income Tax rules, they may avoid tax on their worldwide income for a period of up to six tax years provided certain conditions are met.
A person cannot invoke the Beckham law if he resided in Spain in the previous 10 years prior to settling in Spain.
He must have relocated to Spain to take up employment under a contract.
Employment duties must be carried out in Spain, although working outside of Spain up to 15% of the time is permitted.
The employer must either be a Spanish company or Spanish entity or if not a Spanish resident then the employer must operate through a permanent establishment in Spain.
The income derived from employment is not deemed exempt under Spanish income tax law.
If the above applies to you, then Under the Beckham law, no matter if you spend over 183 days in the country (hence becoming a tax resident), you will pay taxes under taxation rules similar tho those who are non-residents
This basically means that you just pay Spanish income tax on the income you obtain in Spain.
Furthermore, instead of paying that tax at a progressive rate that grows at the same time your income increases, you just pay a flat rate of 24% up to the amount of €600,000. In the case that income exceeds the top amount, the worker will be charged a fixed type of 45%.
The Beckham Law implies, a great advantage for tax savings, as the flat tax rate of 24% is much lower than the rates that Spanish residents do face, which can rise up to 45%.
A reduction of 21%!