Tax Breaks are Still Available for New Residents of Spain
Introduction
Tax for expats in Spain can be more complex than in some other European countries. Spain is a wonderful place to visit. It has many benefits and attractions, but it’s not known as being a tax friendly country. There are some loopholes that expats can benefit from. If your affairs are carefully structured before you arrive in Spain you can legally pay very little tax for the first 6 years. Even the wealth tax can be avoided by new residents with some prior planning.
Territorial Tax for Expats in Spain for First 6 Years
The so-called Beckham Law was introduced in 2004. English footballer David Beckham was one of the first to use it when he played for Real Madrid. The law was introduced to make Spain more attractive for foreign employees moving there. The Beckham law caps tax at 24% on incomes from Spanish companies of up to €600,000 per year. More importantly, it means that only Spanish income is taxed in Spain. Income from other jurisdictions remains tax free in Spain.
The exemption lasts for 6 years, after which normal Spanish tax rates apply.
You must apply to the Spanish tax authorities for this exemption. To be accepted you can’t have been a tax resident of Spain for the last 10 years. You must be taking up employment with a Spanish company. You can’t own more than 25% of that company. That means that anyone who wants to set up a Spanish company to take advantage of this special tax for expats in Spain will have to get creative with regards to the ownership of the Spanish company. It may be possible to use a trust to own the Spanish entity.
Spanish Wealth Tax for 2023 and 2024
The Spanish government announced at the end of last year that they were introducing a wealth tax. This is known as a solidarity tax in Spain and it will supposedly be temporary and apply only for 2023 and 2024. It applies to anyone with assets of more than €3m. Those with assets of between €3m and €5m will pay 1.7% of the value of their assets. Those with assets valued at between €5 and €10m will pay 2.1%. Those with assets of more than €10m will pay 3.5%.
It’s not yet clear how this will affect expats. It would be prudent not to own expensive real estate in Spain while this wealth tax is in place. Arranging your assets with trusts and overseas companies before moving to Spain would make sense to keep under the wealth tax threshold.
Spain’s Tax Authorities Aggressively Prosecute
Spanish tax authorities have a history of prosecuting high profile taxpayers. They recently charged Colombian singer Shakira with evading €14.5m in Spanish taxes. Cristiano Ronaldo was prosecuted in Spain for tax evasion too. He was accused of using offshore companies to make profits from his image rights while he was a tax resident in Spain. He accepted a fine of €18.8m and a suspended prison sentence of 23 months to settle the case. Lionel Messi faced a similar case in 2017 and received a 21 month suspended prison sentence and a fine.
Conclusion
It’s possible to lower your tax in Spain by taking advantage of territorial tax for the first 6 years with the Beckham law. Spain can be a wonderful place to live and spend time. The regular prosecutions by the Spanish tax authorities and the recent introduction of a wealth tax are concerning. For those who have substantial assets and income there are more tax friendly places to become a resident.
