The Beckham Law offers high-income foreign residents in Spain a flat tax rate of 24% on their Spanish income, providing significant tax savings compared to the regular tax regime.
The Beckham Law, officially known as the special expatriate tax regime, provides significant tax advantages to qualifying foreign workers in Spain. Here’s how it compares to the regular Spanish tax regime:
1. Tax Rate
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Beckham Law:
- Flat Tax Rate: Under the Beckham Law, qualifying individuals are taxed at a flat rate of 24% on their Spanish-sourced income up to €600,000 annually. This flat rate is significantly lower than the progressive tax rates that apply under the regular tax regime.
- Higher Income: For income above €600,000, the tax rate increases to 47%, which is still competitive compared to the regular regime but only applies to income exceeding this threshold.
-
Regular Tax Regime:
- Progressive Tax Rates: In the regular tax regime, residents are taxed based on progressive tax brackets, with rates ranging from 19% to 47%, depending on the level of income. This means that higher earners pay a higher percentage of their income in taxes compared to the flat rate under the Beckham Law.
2. Scope of Taxation
- Beckham Law:
- Spanish-Sourced Income Only: Individuals under the Beckham Law are only taxed on their Spanish-sourced income. This means that income earned outside of Spain, such as from foreign investments or businesses, is not subject to Spanish taxation during the six-year period of the Beckham Law.
- Regular Tax Regime:
- Worldwide Income: Residents under the regular tax regime are taxed on their worldwide income. This includes not only income earned in Spain but also any income from foreign sources, such as salaries, investments, and pensions.
3. Duration of Benefits
- Beckham Law:
- Six-Year Limit: The tax benefits under the Beckham Law are limited to a maximum of six years. After this period, individuals revert to the regular Spanish tax regime, where they are taxed on their worldwide income at progressive rates.
- Regular Tax Regime:
- Ongoing: The regular tax regime does not have a time limit. As long as an individual remains a tax resident in Spain, they will continue to be taxed under this regime, with no special time-bound benefits.
4. Eligibility Criteria
- Beckham Law:
- Specific Eligibility: The Beckham Law is available to foreign nationals who move to Spain for work and meet specific conditions, such as not having been a tax resident in Spain for the previous 10 years. It is typically aimed at highly skilled professionals and executives who are employed by Spanish companies.
- Regular Tax Regime:
- General Applicability: The regular tax regime applies to all residents of Spain, including both Spanish nationals and foreign residents, regardless of their employment status or history of tax residency.
5. Deductions and Exemptions
- Beckham Law:
- Limited Deductions: Individuals under the Beckham Law are not allowed to claim many of the deductions and exemptions available under the regular tax regime, such as deductions for mortgage interest, charitable donations, or family circumstances.
- Regular Tax Regime:
- Wide Range of Deductions: The regular tax regime allows residents to claim various deductions and exemptions, which can reduce their taxable income and overall tax liability. These may include deductions for dependents, housing costs, pension contributions, and more.
Summary
The Beckham Law offers a flat 24% tax rate on Spanish income for up to six years, with taxation limited to Spanish-sourced income only, and is available to qualifying foreign workers. In contrast, the regular tax regime taxes residents based on their worldwide income with progressive rates and allows for a broader range of deductions and exemptions. The Beckham Law provides a significant tax advantage for high-earning expatriates, while the regular regime applies to all residents without the same preferential treatment.