The so-called Beckham Law (Royal Decree 687/2005), which received its name after the signing of David Beckham by Real Madrid in 2003, has definitively left out professional sports players. The tax reform announced by the government excludes ‘the special employment relationship in the case of professional sports players’ from this regime favouring relocated workers.
The Beckham Law was introduced in 2005 with the objective of stimulating the Spanish economy, trying to attract talented executives and all kinds of highly qualified professionals to Spain. Before the law was introduced, anyone who spent 183 days or more in Spain in a single tax year became a Spanish taxpayer, which implied that they were subject to Spanish tax rules worldwide and not solely their Spanish income and assets. However, since this this law came into effect, a foreign national may choose to be subject to the law as resident or non-resident in Spain. If they choose to be treated as non-resident, they can be subject to it only for their Spanish income and assets. The exemption applies for the year in which they arrive and for the following five years, giving a total of six years.
In 2010, an amendment to the law was introduced under which new applicants could only take advantage of the exemption if they did not earn more than €600,000 a year. Until the 2010 reform, foreign football players were the main beneficiaries of this advantageous tax regime. Thanks to this regime, which gave Spanish clubs a huge advantage when it came to signings, sports superstars paid income tax on everything they earned in a year like those earning only a thousand euros a months: at the minimum rate of 24%.
However, with the tax reform, the government excludes foreign professional sports players from this tax regime, so, from now on, if they work in Spain (and are therefore resident here), they will pay tax like any other Spanish worker, at 45% (47% in 2015) on earned income over €60,000.
For all other relocated foreign workers, however, the requirements in place until now for taking advantage of this very beneficial tax regime remain the same. What changes is the tax structure, so that, from now on, there will be no upper limit (€600,000), but rather the first €600,000 will be taxed at 24% and the remainder at 45%.
But what requirements must foreign nationals, that is, foreigners who come to work for a company located in Spain, satisfy to take advantage of this tax regime?
- – They must not have been resident in Spain in the preceding ten years.
- – They must come to Spain with an employment contract and the employer must be a Spanish company or a non-resident company with a permanent establishment in Spain.
- – The work must have been done in Spain. If work is done outside Spain, the proportion of income obtained from that work must not exceed 15%.
- – The application must be made within six months of the start of the employment contract.
It should be taken into account that these changes have been introduced in the Personal Income Tax Reform Bill (Proyecto de Ley de Reforma Fiscal de IRPF) and, therefore, have yet to be passed definitively. If they are passed, they are expected to come into effect from 1 January 2015 and will not apply retrospectively. That means that those professional sports players who are thinking of relocating to our country for work and who have an annual income of less than €600,000 can still take advantage of these tax breaks, which will not be the case from January 2015. As regards other foreign nationals who are not professional sports players, they should be aware that, from 1 January 2005, the tax breaks offered by the Beckham Law (which, let us not forget, they must expressly apply for) will not be limited to €600,000, as is presently the case, but rather the first €600,000 will be taxed at 24% and the remainder at 45%.
Do not hesitate to contact this office if you have any questions or need any kind of clarification on this matter. We will be delighted to help you.