We sum up the pros and cons of the so-called Beckham Law to help you decide if this tax regime in Spain is for you or not.

Of course, we’ve all heard of David Beckham, one of the greatest footballers ever and now a shining star in the influencer sphere. But did you know that there’s a whole tax regime in Spain named after him?

The so-called Beckham Law offers generous tax breaks for residents in Spain and exemptions from other fiscal burdens such as income and wealth tax on assets outside the country. But as with all tax rules, all that glitters is not gold and the Beckham Law also has its drawbacks.

In this article, we look at the advantages and disadvantages of this regime, known officially as the Régimen especial para trabajadores desplazados, so that you can make a considered decision on whether to apply for this regime.

The Beckham Law explained

But first, the ins and outs of the tax regime, designed for Beckham when he arrived to play for Real Madrid and more specifically, to attract talented wealthy expats to Spain.

The must-fulfil conditions

As you’d expect, to apply this regime to your taxes as a resident in Spain, you must fulfil a number of conditions:

• You must be a first-time resident in Spain, i.e., have never been resident in the country beforehand.
• You must be moving to take up employment in Spain, not necessarily as a premier league footballer, but you must have a contract for a job in Spain.
• Your employer must be a Spanish business entity or the permanent establishment in Spain of a foreign company.
• The vast majority of work relating to your position must be carried out in Spain – there’s provision for performing duties outside the country, but the earnings from these are limited.

The practicalities

Applying the Beckham Law to your tax status in Spain also involves certain timelines:

• You must apply for the regime within six months of starting your contract.
• You are eligible for the regime during the year of your arrival and the following five tax years, up to a maximum of six. For example, if you arrive in November 2022, the regime applies for the 2022 tax year and the following five up until 2027.

The pros and cons of the Beckham Law

This special regime comes with several benefits, as listed below.  But note, however, that they all come with caveats.

Lower income tax rate

Obviously, the primary and most attractive advantage, this one allows you to pay a flat income tax rate of 24% on the first €600,000 of your annual earnings. Once you earn more, the rate rises to 47%.

“However, this almost flat rate of tax is only advantageous if your taxable income is above a certain level, cautions Julio Prieto at Del Canto Chambers. He points out that it’s worth taking professional advice to work out your threshold and whether the Beckham Law will benefit your wallet.

No tax on income generated abroad

If you receive income from assets abroad, such as rental income or dividends from stocks, you won’t be liable for income tax on them in Spain.

However, this exception does not apply to employment income earned outside Spain, which attracts tax at the Beckham Law rates. Note also that you may still be liable for tax in the country where you generate income from assets.

No wealth tax on assets outside Spain

Regular Spanish residents are liable for wealth tax on their assets in Spain and abroad. Residents who are part of the Beckham Law are only liable for this tax on assets they own in Spain, for example, property and stocks.

However, there are generous exemptions on wealth tax in Spain and two regions, Andalucia and Madrid, have abolished it completely.

As we’ve seen, the above advantages all come with a ‘but’ and need careful consideration. The Beckham Law also has some disadvantages, including one that could singlehandedly outweigh the benefits.

No regular tax deductions and allowances

Spanish residents who apply the regular income tax rates to their income benefit from deductions and allowances, which vary according to their circumstances. The majority of these are not available to a resident under the Beckham Law regime.

Incompatible double-taxation treaties

Spain has double-taxation treaties with over 50 countries and they’re in place to avoid or reduce paying tax twice on the same income. However, not all countries accept the Beckham Law as eligible for double-taxation treaty – the UK is one example. As a result, you could end up paying income tax in Spain and in the UK with an expensive bill at the end.

Final thoughts

Although the Beckham Law offers myriad benefits to the high earner moving to Spain, it does come with several drawbacks. At Del Canto Chambers, we’d advise you take professional advice before signing up to this tax regime.

We have fiscal experts who can offer this advice at our offices in London as well as several towns and cities across Spain.