Category: General

From January 2023 the reform of the special tax regime for workers posted to Spain came into force. This special tax regime is better known as the “Beckham Law”.

What is the Beckham Law?

Beckham law is a special tax regime that allow people who move from abroad to Spain and acquire the tax residence in Spain to opt to be taxed as if they were Non-Residents during the year in which the movement takes place and the following five years. That is, this regime allows them to be taxed at a fixed tax rate of 24%, instead of the general progressive tax rate (which can go up to 47%).

Main requirements for the Beckham Law

To qualify for this tax regime, the following requirements must be met:

a) That the displacement occurs due to any of the circumstances indicated in the Law.

b) Not to have been a tax resident in Spain in the five years prior to the movement to Spain.

Modifications of the Beckham Law

As new features of the reform are the following:

i. Possibility of applying the tax regime for the remote workers, commonly known as “digital nomads” (worker who works remotely, through the exclusive use of computer, telematic, and telecommunication means and systems).

ii. The suppression of the previous maximum percentage of 25% of the stake in the cases in which the displacement to Spain takes place due to the appointment as director of an Spanish entity that develops an economic activity.

iii. The extension of the application of the tax regime to the applicant’s family members.

When you can opt for the Beckham Law

Currently the situations that allow to opt for the special tax regime are the following:

1. Beginning of an employment relationship with a Spanish employer, or when the posting is authorized by the employer of origin by means of a transfer letter. This is the same situation that already existed before the reform.

2. Existence of an employment relationship by a remote worker. New assumption. We remind that non-EU citizens must previously obtain the new Digital Nomad Visa (DNV).

3. Appointment as director of a Spanish entity. Now is indifferent of the percentage of the stake (except for patrimonial entities -non -activity entities- in which they will not be able to have more than 25% of the stake).

4. Development in Spain of an economic activity qualified as entrepreneurial activity. New assumption.

5. Highly qualified professionals who carry out an economic activity in favor of a Spanish company qualified as an emerging company and/or, who carry out training, research, development or innovation activities that represent more than 40% of their income. New assumption.

Benefits for those who opt for this tax regime

The new situations introduced in this special tax regime make it an interesting incentive for those persons who, fulfilling the requirements, have recently moved to Spain or are planning to do so in the future.

The persons who apply for this special tax regime will be able to benefit from the following aspects:

1. Tax rates: They will be taxed at 24% for the income from work and business or professional activities obtained worldwide, with some particularities.

2. Only financial income and capital gains deemed to have been obtained in Spanish territory are taxed in Spain, excluding those from foreign sources.

3. Wealth tax: Only assets and rights located in Spain are taxed, not wealth located outside Spain.

4. Form 720: There will be no obligation to file the informative declaration for assets and rights held abroad.

5. Family unit: With effect from 2023, the extension of the special regime to the spouse and minor children of the taxpayer who travel with her is allowed, under the terms and with the requirements contained in the Law.

Due to the recent and novel nature of this Law there are certain points that require a detailed analysis. We recommend the assistance of tax professionals throughout this process.

At Spanish Lawyer NYC we have closely followed the legislative process of this Law, paying special attention to all those aspects that may be of interest to our US clients, and adapting the possible scenarios to provide them with individualized and quality advice.

While in the USA, in most of the occasions the process known as Probate is avoided through the use of the so-called “Will Substitutes” (trust, insurance policies, TOD accounts, etc.), in the Spanish system is required – in almost all the occasions – to have the authorization of a Spanish Notary who will validate the legality of the succession rights according to the Spanish Law. Additionally, this control will be endorsed by a Commercial or Land registrar when the assets to be acquired are shares or real estate.

The necessity to obtain the authorization of a Spanish Notary to receive the assets located in Spain will require to have adequate documentation to prove the succession rights under Spanish Law. And this is where the problems begin given the enormous differences between the U.S and Spanish successions rules.

In the first place, if the Estate is not subject to the Spanish succession rules, and there is no Spanish will to regulate the destination of the assets located in Spain, we will find ourselves with the need to have an U.S succession title that is adequate in view of the Spanish Law. In these cases it will be truly important to know whether there is a foreign will or the succession is intestate; if the will has passed through the Probate; if a copy of the will has been deposited in the courts; or if additional figures as Trust have been used.

On the other hand, in a great number of occasions additional documentation will have to be produced to adapt the U.S rules to the Spanish Law. Here the relationship between advisors of both countries, as well as the previous conversations with the Spanish Notary who will intervene in the inheritance, will be of special relevance.

Additionally the residence abroad of the intervening people will require an effort in time and money to go to the Spanish Notary, or the need for them to grant the corresponding Power Of Attorney (POA) with sufficient faculties of representation.

Finally all documentation issued by foreign authorities and the drafting in a language other than Spanish will require the obligation to obtain the Apostille of The Hague -to recognize the foreign authority- and the corresponding translation of the document.

Regarding taxes involved in the Estate, there are recent Spanish court rulings that have allowed non-resident heirs to benefit from the same tax allowances that apply to resident heirs. The taxation of non-resident heirs will depend on where the residence of the deceased is located, and if the deceased is not a tax resident in Spain, the applicable regulations will be those approved by the region where the highest value of the assets of the Estate is located. That is why a previous Estate tax planning, when possible, is more than justified in order to try to attract the Estate to more efficient tax legislations.

Regarding the assessment of the assets to be declared in the Spanish Estate Tax it will depend on the applicable regional legislation, the relationship with the deceased, and the final destination to be given to the acquired assets.

Spanish Lawyer NYC can assist you with your Estates in Spain. Contact us through our website or by email at fgs@SpanishLawyerNYC.com

Court of Justice of the European Union (CJEU) has ruled that the Spanish sanction regime of the foreign asset declaration (Modelo 720) is contrary to European law.

In a judgement dated on January 27th, 2022, the Court has considered that this sanction regime is null and void since it goes beyond the statute of limitations, and also because the fines imposed on taxpayers who do not declare or declare incorrectly or extemporaneously are disproportionate.

This judgement opens the door to recover all fines imposed in Spain for application of this sanction regime.

Likewise the judgement may contribute to regularize the situation of those foreigners who – due to lack of knowledge- did not declare, in due time, the assets they have in their respective countries of origin.

As summary, we remind you since 2012 it has been established in Spain the obligation to inform about the assets and rights that a Spanish tax resident has abroad. This informative tax form is known as “Modelo 720”. And the obligation to declare this model remains intact, despite the elimination of the special sanction regime.

This tax form report is the same that is already mandatory in other countries. For example in the US there is a mandatory obligation to report assets and rights hold abroad when the value exceed $10,000.

The reporting established in Spain incorporated the necessity to report about three blocks of assets located abroad (bank accounts, securities, and real estate), when any of these blocks exceeded the amount of €50,000.

Besides, the recent Law 11/2021 about measures to prevent fraud has established a fourth block of information. Since 2021 it is necessary to report about cryptocurrencies located abroad of which a Spanish tax resident is the holder, or in respect of which she is the beneficiary or authorized.

Foreigners arriving in Spain for the first time will have the obligation to file Tax Form 720 before March 31th of the first year in which they are qualified as tax residents in Spain. In other words, they must file this Modelo 720 even before filing their first Personal Income Tax return.

Once the Modelo 720 has been filed with respect to one or more of the blocks of information, this Modelo 720 must only be filed again when in relation to each declared block there is an increase of more than €20,000 with respect to the one that determined the filing of the last declaration.

Spanish Lawyer NYC is able to assist you with this reporting obligation. Please contact us through our email fgs@SpanishLawyerNYC.com

Additionally, on November 10th a new Law -in form of Royal Decree- has entered into force. This new Law establishes a new way of calculating the basis of this tax, due when someone sales or receives by inheritance or gift a real property in Spain.

This memo try to summarize that practically all the situations that are not affected by the statute of limitations are susceptible to be appealed in order to obtain the refund of the money paid to the City Hall.

It is possible to distinguish between the following situations:

A) Situations produced between October 26th and November 9th.

There is no obligation to pay the tax since between these dates there was no formula for calculating the tax.

B) Situations carried out after November 10th

We agree with the majority of the tax advisors in indicating that it is very controversial how this new Law was created (Royal Decree), since the Constitutional Court has been considering unconstitutional the use of Royal Decrees to regulate essential elements of a tax.

Therefore, we guess that appeals will be filed against situations calculated since the entry into force of this new Royal Decree.

C) Situations occurring prior to the Sentence on October 26th

The Constitutional Court considers that situations prior to October 26th that are not final will be null and void, but only in the event that they have been appealed before this date.

In our opinion, this limitation to retroactivity infringes several articles of the Spanish Constitution and the rest of the legal system.

However we understand that all situations that are not final would be subject to appeal. These situations are those in which less than 1 month has passed since the notification of the liquidation or less than 4 years passed since the presentation of the self-declaration.

Therefore, although it will not be an easy path, and it will probably be necessary to wait for the pronouncements of the European Court of Justice, we understand that all non-firm situations prior to October 26th would be subject to appeal.

D) Situations in which the transfer has been made at a loss or with little gain.

These situations are still fully appealable since the previous unconstitutional Judgements dated on 2017 and 2019 are still fully in force, so it will be possible to request the full refund in case of transmission with losses or if more tax was paid than the gain obtained. This would be the first issue that should be analyzed prior to the rest of situations described before.

If you have transferred a property in Spain in recent years you should contact a specialist to verify if you are entitled to a refund of the tax paid to the City Hall.

Spanish Lawyer NYC can help you to recover quickly and easily the amount paid for the Plusvalía Municipal.

You can contact us by e-mail at fgs@SpanishLawyerNYC.com or through the contact form at www.SpanishLawyerNYC.com