tax regime for digital nomads and startups

Beckham's Law is one of the most common tax questions in Spain when applying for a startup visa and a digital nomad visa. The law was updated in 2023, providing even greater tax breaks for digital nomads and startups.

In this article I tried to summarize all the information about the preferential tax regime at the moment.

Content

1. general description

2. Advantages

3. Beckham's regime for family members

4. Flaws

5. Changes at Beckham Law

6. Changes in 2023

7. Who can apply

8. Changes in the law over time

9. Basic provisions of the law

10. Instructions for submitting an application

11. Filing an application

12. Flaws

13. Changes to the Beckham Act 2023

14. Practical tips and advice

15. FAQ

16. Conclusion

General description of Beckham's law

Royal Decree 687/2005, better known as the Beckham Law, introduced in Spain in 2005, is a special tax regime designed to attract highly qualified foreign professionals and workers throughout Spain.

It got its name thanks to the English football player David Beckham, who was one of the first to use this mode after taking a place in the Spanish football club Real Madrid. His case has become a symbol of the law, showing how Spain can attract major international stars and top talent.

The main purpose of the law is to create favorable tax conditions for foreigners working in Spain, which helps attract talented professionals from abroad. This, in turn, improves the investment climate in the country and other key economic metrics.

According to the law, individuals – foreign professionals recognized as tax residents of Spain, can pay income tax at a flat rate for non-residents (Impuesto de la Renta de no Residentes – IRPFNR) for the first six years. 24% on income earned in Spain, instead of the progressive rate of up to 47% applicable to residents.

History and background: The law was introduced as part of measures to improve the investment climate and make Spain more attractive to highly skilled foreign workers in 2005.

Advantages: Tax benefits, reduced tax burden and simplification of Spanish tax reporting for foreign professionals.

The target audience: Highly qualified specialists, top managers, researchers and professional athletes.

Benefits of Beckham's Law

1. Low Tax Rate

The Beckham Law offers a flat tax rate of 24% for income up to €600,000. For income exceeding this amount, a rate of 47% applies. This is significantly lower than standard rates in Spain, making the tax burden on new residents more predictable and manageable.

• Rate 24%: Applies to income up to €600,000.

• Rate 47%: Applies to income exceeding €600,000.

This is the IRPF scale in the Valencian Community (rates applied in 2020 for income received in 2019):

2. Limited taxation

One of the key benefits is that only income earned in Spain is taxed. This means that income earned outside Spain is not subject to tax, which is especially attractive to international professionals and entrepreneurs.

• Spanish income only: Taxation applies exclusively to income received in Spain.

• Foreign Income Exclusion: Foreign income is not subject to tax, which reduces the overall tax burden.

3. Lack of Declaration of Foreign Assets

The law exempts new residents from the obligation to file Form 720, which requires a declaration of foreign assets. This greatly simplifies the tax reporting process and reduces the risk of penalties for failure to declare capital.

• No Form 720 required: Exemption from filing a declaration of foreign assets.

• Reduced administrative burden: Less paperwork and reporting.

4. Simplified Real Estate Taxation

Property tax is only levied on assets located in Spain, making property ownership in Spain less tax-intensive.

• Only Spanish assets: Wealth tax only applies to assets located in Spain.

• Simplification of procedures: Easier to manage property taxes.

5. Appealing to digital nomads and startups

Beckham's Law is also specifically designed to attract digital nomads and highly skilled professionals. This makes Spain an attractive destination for talented professionals from around the world looking to minimize their tax burden.

• Support for digital nomads: Benefits for remote workers and freelancers.

• Talent attraction: Favorable conditions for highly qualified specialists.

Beckham's regime for family members

The law also provides certain benefits for family members of foreign specialists. This includes the possibility of spouses and children receiving tax benefits, making moving the whole family to Spain more attractive and financially rewarding.

The spouse of the taxpayer referred to in article 93.1 LIRPF (subject to the above requirements), as well as their children under 25 years of age or any age in the case of disability, or the parent of children in the absence of marriage, can benefit from the benefits if the following conditions are met:

1. Moving to Spain with the taxpayer or later, but before the end of the first tax period using a special regime.

2. Acquiring tax residency in Spain.

3. Compliance with the requirements of paragraphs a) and c) of Article 93.1 LIRPF: no residence in Spain in the last five tax periods before the move and no income from a permanent establishment in Spain (except as provided for in paragraphs b.3º and 4º of Article 93.1 LIRPF).

4. The sum of the taxable bases of each taxpayer during the periods of operation of this regime must be lower than the taxable base of the main taxpayer referred to in article 93.1 LIRPF.

Simply, family members can receive the same preferential taxation if:

Moved to Spain in the first year or earlier. Became tax residents of Spain. Have not lived in Spain for the last five years before moving and do not receive income from work related to a permanent establishment in Spain. The total income of the remaining family members in Spain is less than the income of the main taxpayer.

Disadvantages and limitations of Beckham's Law

The Beckham Act, while providing significant tax benefits, has its drawbacks and limitations that should be considered before applying.

1. Limitations on Double Tax Treaties

Most double taxation agreements (DTAs) do not apply to participants in the regime. This may result in double taxation of foreign income, increasing your overall tax burden.

2. Deprivation of standard tax benefits

Participants in the regime cannot take advantage of standard tax benefits, such as the Social Security deduction, the child and spouse deduction, and the severance pay exemption. This may reduce the total amount of tax deductions available.

3. Declaration and taxation of real estate

Owning property in Spain requires filing a declaration as a non-resident and paying imputed income for it. This creates additional tax obligations and administrative tasks for property owners.

4. Duration of the regime

Tax benefits under the Beckham Act are valid for a limited time – up to six years. After this period, participants switch to the standard tax system, which can significantly increase their tax liability.

5. Administrative complexity

The application and annual income tax return process requires careful preparation and can be difficult to understand without the help of professional advisors. This may increase administrative costs and require additional effort.

Changes at Beckham Law

1. Initial Introduction (2005): The law provided a flat tax rate of 24% for foreigners for the first 183 days of their stay in Spain.

2. Updates (2010): The law was revised, and some categories of specialists lost the right to benefits. The main changes concerned professional athletes.

3. Changes (2021): The law has been expanded to include Digital Nomad workers and entrepreneurs, giving them the opportunity to benefit from preferential tax treatment.

4. Latest changes (2023): Additional tax incentives for digital nomads and remote workers have been introduced, making Spain even more attractive to foreign professionals.

Beckham Law changes 2023

New regulations and benefits for digital nomads

In 2023, the Beckham Act was updated to include special provisions for digital nomads. This innovation allows remote workers working for companies outside Spain to benefit from preferential tax treatment. The goal of these changes is to attract remote workers to Spain and stimulate the digital economy.

In 2023, the Beckham Act was updated to improve tax incentives and attract even more foreign talent to Spain. Here are the main changes:

1. Expanding the Circle of Applicants

The law now includes not only highly skilled professionals, but also digital nomads, remote workers and freelancers. This is done to attract modern professionals working internationally.

• Digital nomads and remote workers: May qualify for tax benefits if their activities meet the criteria of the law.

• The person must not have been a resident of Spain for five tax periods preceding the one in which he moves to Spanish territory (this period of five tax periods was introduced by Law 28/2022 of December 21, known as the “Startup Law”, with the entry effective from January 1, 2023; previously this period was 10 years).

• The move to Spanish territory must occur either in the first year of application of the regime or in the previous year.

• A person must not receive income that would qualify as received through a permanent establishment located in Spain, except as provided in the last two paragraphs above.

• A taxpayer who chooses to be taxed under the Non-Resident Income Tax will be subject to real taxation under the Property Tax.

• The special treatment will apply for subsequent tax periods when these conditions are met and will also apply to the taxpayer provided for in article 93.1 LIRPF. The regulations will establish the conditions and procedure for applying this special regime.

2. Simplification of the application procedure

The application process has been simplified, making it quicker and easier to complete paperwork and begin enjoying benefits.

3. Changes in tax rates

Tax rates for various income categories have been revised, allowing for more flexible adjustment of the tax burden for different income levels.

In this mode the following rules will apply:

1. Income classification: All income from economic activities classified as business or employment income received by the taxpayer under the special regime is considered to be received in Spanish territory.

2. Income before and after relocation: Income derived from activities carried out before the date of relocation into Spanish territory or after the date of notification provided for in section 3 of article 119 RIRPF is taxed in accordance with the provisions of the LIRNR if such income is considered to have been received in Spanish territory.

3. Taxation of income: Income received by a taxpayer in Spain during a calendar year will be taxed cumulatively, without the possibility of compensation between them.

4. The tax base: The tax base will consist of all income mentioned in the previous paragraph, with the exception of income referred to in article 25.1.f LIRNR and other income.

Exclusions from the tax base:

1. Dividends and other income received from participation in the capital of organizations.

2. Interest and other income received from the provision of equity capital to third parties (loans and credits).

3. Income from the transfer (sale) of property elements, both movable and immovable property.

Basic provisions of the law

The Beckham Act gives foreign professionals who move to Spain the option of being taxed at a flat rate of 24% on income earned in Spain, instead of the progressive rate of up to 47% applicable to residents. This rate applies for the first six years of stay in the country. The law also exempts income earned outside Spain from taxation.

Conditions under which you can take advantage of the tax regime

1. New residency: The applicant must not have been a resident of Spain for the last five years.

2. Labor contract: Must have an employment contract with a Spanish company or be appointed to a management position in the company.

3. Submission time: The application for tax treatment must be submitted within six months of starting work in Spain.

4. Employment type: The law is intended for highly qualified professionals, including researchers, top managers and athletes.

5. Duration of use: The preferential tax regime is valid for six years from the date of relocation.

These terms and conditions make the Beckham Act an attractive tool for attracting highly qualified specialists to Spain.

Requirements for obtaining status

To benefit from the Beckham Law tax regime in Spain, you must meet the following conditions:

1. Not be a resident of Spain in the last five years

The applicant must not have been a tax resident in Spain for the last five years before applying to participate in the tax regime.

2. Reason for Relocation

The move must be justified by the following circumstances:

• Employment contract: Concluding an employment contract with a Spanish employer.

• Entrepreneurial activity: Establishing or running a business in Spain.

3. Lack of permanent establishment

The applicant's income must not come through a permanent establishment in Spain unless he is an entrepreneur. This condition applies to persons whose activities are international in nature and whose income comes from abroad.

4. Application deadlines

The application for the tax regime must be submitted within six months of registration in the Spanish social security system. Filing on time is important to receive tax benefits.

5. Additional requirements for digital nomads

There are also special requirements for digital nomads regarding remote work and contracts with foreign employers. I wrote about this in more detail here. These conditions provide tax benefits for professionals working remotely.

Who can apply

The Beckham Act provides tax benefits to highly skilled professionals and entrepreneurs who meet certain criteria. Here's who can apply for tax breaks:

1. Foreign Specialists and Workers

• Have not been tax residents of Spain in the last five years. This condition is important in order to avoid the tax burden that may be associated with a previous stay in the country.

2. Entrepreneurs and self-employed

• Conducting business activities in Spain. This may include creating start-ups, opening a business or operating a business within the framework of Spanish law.

3. Digital Nomads and Freelancers

• They work remotely and have international income. Digital nomads, freelancers and professionals working for international companies can take advantage of the benefits if their activities meet the legal criteria.

• Have contracts with foreign employers. Conditions for digital nomads include contracts with foreign companies, which confirms their status as remote workers.

Instructions for applying for the Beckham regime

Applying for Beckham Act tax benefits involves several key steps. It is important to follow each one to ensure that you are properly processed and receive your benefits.

1. Registration in the Social Security System (RETA)

Register with the Spanish social security system (Seguridad Social). This is a mandatory step for anyone who wants to take advantage of tax benefits. You will need:

• Fill out the registration form.

• Provide personal data and documents.

• Get a Social Security number.

2. Submitting an Application to the Tax Service

Apply for Beckham Tax treatment to the Spanish Tax Authority (Agencia Tributaria). To do this you need:

1. Fill out a special form (Modelo 149) on Beckham.

3. Waiting for a Decision

After submitting your application, wait for the decision of the Spanish tax office. The review process usually takes several weeks. At this time, the IRS may request additional documents or information.

4. Receiving Confirmation

Receive official confirmation from the tax office that your application has been approved and you can take advantage of the tax benefits. This confirmation will include details of the application of the reduced tax rates.

Practical tips and advice

1. Preparation of Documents

Before starting the application process, make sure you have all the required documents:

• Passport or ID.

• Employment contract or business documents.

• Certificates of registration in the Spanish social security system.

2. Consult

Before applying, I recommend talking to those who have already applied for special treatment. To correctly interpret the terms of the law and maximize its benefits. This will help save time and better understand the nuances.

3. Submit your application on time

The application must be submitted within six months of registration with the Spanish social security system. Meeting filing deadlines is critical to receiving tax benefits.

4. Regular declaration of income

Once approved for tax benefits, tax returns must be filed annually. This will help you avoid problems with the tax authorities and maintain your tax benefits for as long as they are valid.

5. Risk Assessment

Evaluate all the pros and cons of switching to the Beckham Act tax regime. It's important to understand how this will impact your finances and long-term plans. Planning will help you avoid unpleasant surprises and optimize your taxes.

6. Financial accounting

Keep careful records of all income and expenses. This will simplify the tax filing process and help avoid mistakes.

FAQ

1. Who can benefit from Beckham's Law?

The law is intended for entrepreneurs and digital nomads who have not been residents of Spain in the last ten years.

2. What is the Beckham Act tax rate?

The flat tax rate is 24% on income received in Spain.

3. What income is exempt from taxation?

Income received outside Spain is exempt from taxation.

4. How long does the preferential treatment last?

The preferential tax regime applies for the first six years of stay in Spain.

5. What documents are needed to apply?

Registration with RETA, confirmation of the status of digital nomad or residence permit for a startup, confirmation of registration with the tax office.

6. What is the deadline for submitting an application?

The application must be submitted within six months of starting work in Spain.

7. Can I seek professional advice?

Yes, it is recommended to contact tax consultants for optimal use of benefits and correct execution of documents through contacts.

Does the tax rate for residents vary depending on the region?

Yes, Spain Tax varies in Barcelona, ​​Malaga, Alicante, Madrid, Valencia. Everywhere there will be stakes. However, Beckham's law applies throughout the country.

Conclusion

The Spanish tax regime for nomads and startups is quite simple and straightforward. The issue of obtaining it should be addressed after opening an autonomous or SL. As a rule, a new status is assigned in a couple of days, less often weeks. Cases of failure are still rather isolated.