It is highly likely that you have heard of the footballer David Beckham and perhaps you’re wondering what is his connection to living in Spain. The answer is this: in 2005, Spain introduced a new tax law, which has become known as Beckham’s law, because the famous footballer was the first to use it when he moved to play at Real Madrid.
How does Beckham’s Law benefit overseas buyers?
Prior to the law’s introduction, a foreign worker who spent more than 183 days of the tax year in Spain was considered a tax resident by the Spanish authorities. This meant they faced having to pay tax in Spain on their income worldwide.
But, following the Spanish Non-resident Income Tax rules, an overseas worker can apply to be taxed as a non-Spanish resident and will only pay tax on earnings in Spain, if they have any.
If an overseas buyer claims this exemption, they pay a flat tax rate of 24%. When you compare this to the tax rates Spanish residents are charged, which are on a scale of 15% to 43%, depending on the amount of income, it is clear that Beckham’s law has some advantages, especially if you happen to have a high income, which he undoubtedly did at Madrid.
Does Beckham’s Law apply to you?
It is quite clear to everyone that this law was primarily aimed at wealthy international footballers who come to plat for Spanish teams and other high net worth individuals, but that doesn’t mean you have to be in either of these groups to use the law; any foreign worker can use it if they think they are likely to fall into the higher tax brackets.
There are certain conditions that an overseas worker must fulfil. These are:
- You must be a ‘first time’ resident in Spain, or not have resided in Spain for 10 years before the application.
- The overseas worker must be relocating to take up employment with a contract in Spain.
- The employer must be a Spanish corporation, or a foreign company with registered Spanish offices.
- The majority of their work must be carried out in Spain, and if they do work outside the country on behalf of their employer, the income earned from this work mustn’t exceed 15% of the total earnings.
- The overseas worker must apply for the tax exemption within six months of starting their employment in Spain.
If you are accepted on to the scheme, the exemption will last for six tax years.
If you are interested in taking advantage of Beckham’s law, it is advisable to talk with a tax expert about the pros and cons of applying for the exemption.