Beckham Bounces Back in Spain

By Barry Davys
This article is published on: 12th November 2014

12.11.14

When David Beckham (Becks) came to Spain to play for Real Madrid in 2003, a special Spanish tax system was set up for him so he did not have to pay tax on his worldwide image rights. This system has been extended to people moving to Spain, although in an ironic twist, professional footballers will be excluded from the scheme from 1^st January 2015.

Tax rates in Spain are falling with plans to reduce the top rate of tax in Spain from 51% (56% in Catalunya) to 47%. The top rate is however still very high.   However, in a bid to attract high earners to Spain the law is being improved.

Why use the Beckham Law?

Well, the three benefits are as follows:

1. Flat rate income tax of 24% on Spanish earnings in Spain.   If your income is derived from Spanish sources then the maximum rate you would pay will be 24% instead of normal rates up to 600,000€ pa. Above 600,000€ the tax rate is 45%. Here are some specific examples of the saving based on the 2015 Spanish Tax rates.

You are allowed to stay on the Becks rule for a maximum of 5 years. The total saving is therefore the figure above x 5. Your individual circumstances will dictate exactly how much saving you will acheive but the figures above are a good guide.

2. No capital gains tax to pay on any gains made outside Spain. This includes the sale of property, shares, etc. This point is especially important if you have a property to sell or a business to sell outside of Spain. As an example an owner of a technology company that sells the business for £20 Million whilst on the Beckham scheme will not pay Capital Gains tax in Spain nor in the UK if he/she does not return to the UK for 5 years.

The potential capital gains tax saving in this example could be £8 Million.

3. Only income obtained in Spain will be subject to Spanish taxation. As an example, bank interest earned from bank accounts outside Spain are not subject to Spanish Tax whilst you are on this method of taxation. Rental income from property outside of Spain is another example.

Beckham tax scheme rules

If you meet the following conditions you can reduce your tax by requesting to be taxed on a non resident basis under the Beckham rule:

1. If you have not been resident in Spain in the last 10 years.
2. If you apply for the “New” Beckham law within 6 months of arriving.
3. You must be resident in Spain. The main condition being living in Spain for 183 days a year.
4. The requirement for work to be primarily conducted in Spain has been reformed.
5. The requirement to work solely for a Spanish company has been reformed.
6. The reduced rate of taxation will apply for a maximum period of 5 years.

If you meet these criterias, you should consider using this method of taxation.

References:

SpainRoyal Decree 687/2005
Baker and McKenzie SLP, Acccountants, Spain

This information is intended as a guide only. A suitable qualified tax lawyer should always be used to calculate a specific liability. Legislation can be subject to change in the future. 

An insight into the good things happening with Spanish Tax

By Barry Davys
This article is published on: 16th July 2014

16.07.14

We are pleased to report that there are a number of proposed schemes to reduce the amount of tax paid in Spain. The proposed reductions in tax apply to personal income, corporation and savings (capital gains) taxes. This will reduce the burden of taxes and some schemes, such as the “Beckham” scheme for retired people, if it passes from a proposal into law, will be particularly beneficial.

Yet it is curious that these proposed changes are getting so much press. In some cases, the proposal is simply to reduce tax back to where it was before the crisis. In addition, there are already other schemes which have already passed into law which are very useful for people living in Spain. For example, if you live in Spain but work outside Spain there is an exemption from income tax for the income from that work. The maximum allowance is 60,100€ per annum.  Mark Twain’s famous quote “reports of my death was an exaggeration” could also be applied to the “Beckham” scheme. There is still a version of this scheme which can be extremely beneficial for people who wish to sell property outside of Spain.

Then there is the taxation of pensions and investments. In the best case, and I emphasis this is the best case, the taxation on pension income and investment income can be as low as 3.25%. A recent report in the press was highlighting a proposed detrimental change in taxation to dividend income without also mentioning this other rate of investment tax.

During the next 6 months there will be up to 17 changes in tax in Spain. Most of the changes will be beneficial. We work with a number of tax lawyers and specialists and we give clients access to these experts for a reason. Spanish Tax need not be painful, but you do need someone on your side who knows their way around the system.

We recommend a strategy for making the most of the changes by taking the following action:

1. Have a review of your Spanish Tax situation to ensure you are compliant.
2. See if there are any back taxes you can claim for the last four years
3. Use the most appropriate of the new rules when they are passed into law (you can only do this if your affairs are in order).