As a consequence of the Covid-19 health crisis global immigration has fallen, and the property market is suffering with a substantial reduction in prices worldwide. Once lockdown has been lifted, we can expect countries – especially EU member states – to begin competing with one another in an attempt to attract foreign investment. However, the tax burden can be significant barrier for these investments.
Being a resident in Spain under the country’s standard tax rules is far from attractive to many foreign individuals, since their worldwide income and assets would be subjected to tax by the Spanish Income Tax and Wealth Tax.
In 2005, the Government approved the Royal Decree 687/2005, known as the Beckham Rule, to incentivise high net worth individuals to invest in Spain. This rule is an optional tax regimen for foreigners that could substantially reduce their Income Tax. This regime basically provides the opportunity for any employee to move to Spain and become a Spanish Tax Resident under the rules of the Spanish Income Tax (IRPF), whilst having the Non Resident Tax Rules (IRNR) applicable to them.
Under the general Spanish Income Tax regime, a person’s income and capital gains are taxed on a worldwide basis, with the highest tax rate at 45%. Spanish residents will also be liable to pay Wealth Tax on all their worldwide assets. However, this tax burden can be reduced by applying for the optional tax regime for foreign employees. This beneficial regime could be applicable in the year they moved to Spain and the subsequent five years if the following requirements are met:
- The individual has not been a resident in Spain for 10 years prior to the move.
- The individual moves to Spain as a consequence of an employment contract, or by anyone appointed as a Director of a Spanish company where the person who moves to Spain owns less than 25% of the share capital.
- The duties of the employment are performed in Spain.
Provided these provisions are met, the taxpayer can apply Non-Resident Tax rates. The first €600,000 will be taxed at 24%, and higher figures will be taxed at 45%. The difference between the two regimes’ tax burden lies in fact that the 45% tax rate is applicable from just €60,000 in the general regime.
Del Canto Chambers’ highly experienced international tax experts can help you with your move to Spain. We have assisted many individuals with turnkey projects every step of the way – from their first consultation to final implementation of every detail. Contact us for an initial legal consultation.
Tax Department Manager. European Lawyer and Abogado