The Madrid Regional Assembly has approved a new personal income tax (IRPF) deduction, aimed at foreign investors who relocate to the Madrid region.
Colloquially referred to as the “Mbappé Law”, this measure draws parallels with the special tax regime popularly known as the “Beckham Law”. This nickname arises from speculation that the incoming Real Madrid player, Kylian Mbappé, could be among those benefiting from this new tax incentive.
On November 14, the law amending the Consolidated Text of Legal Provisions of the Community of Madrid was enacted.
This legislation establishes that individuals who are not residents of Spain but move to live in the Madrid region can apply a 20% deduction on the acquisition value (including costs and taxes) of investments such as:
- Debt instruments: Loans, bonds, and other assets representing the transfer of own capital to third parties, whether traded on organized markets or not.
- Equity instruments: Shares or stakes in any type of entity, whether publicly traded or privately held.
Requirements to Qualify for the Deduction
1. For investments in unlisted entities (not public):
The entity may be based in any country, except tax havens. Investments do not need to be located in Spain.
The investor’s maximum stake is limited to 40% of the entity’s capital, whether individually or jointly with a spouse or family members.
The investor cannot hold executive or managerial roles or have an employment relationship with the entity.
2. Investment timing:
The investment must be made either in the year the individual establishes fiscal residency in Madrid or the following year. For investments in Spanish entities, the investment can be made in the year prior to acquiring fiscal residency.
3. Maintenance period of investment
The investment must be retained for at least six years. Premature disposals are allowed if proceeds are reinvested within one month.
The taxpayer must remain a fiscal resident of Madrid for six years.
4. Previous residence:
The taxpayer must not have resided in Spain during the five years prior to the change in residency to qualify for this regime.
Loss of Deduction
The deduction is forfeited if the taxpayer:
- Ceases to be a fiscal resident in Madrid during the required period.
- Fails to maintain the investment for the stipulated time, including cases of transfer without reinvestment.
In such cases, the taxpayer must include the improperly claimed deduction in their self-assessment for the tax year in which the non-compliance occurred, along with applicable late-payment interest.
Period of Application
The deduction applies to the tax year in which fiscal residency is established and extends to the following five years if the tax liability is insufficient to fully utilize the deduction.
The regime will apply to all tax periods starting on or after January 1, 2024, regardless of the law’s enactment date. Therefore, it covers foreign individuals who move to Madrid and acquire fiscal residency starting in 2024 and beyond.
Conclusions
Notably, the law excludes real estate investments from eligible assets for this deduction. This aligns with the Spanish Government’s anticipated phase-out of the Golden Visa program.
This new regional deduction increases the tax incentives available to foreigners moving to Spain and, together with the special tax regime of the Beckham Law, reinforces the development of a favourable environment for attracting foreign capital to Spain.
The Law that introduces this regional deduction does not contemplate any quantitative limit to the amounts to be invested, so these may reach any amount.
This deduction comes to mean a total reduction in the amount to be paid in Personal Income Tax for the regional bracket. It even applies to the amount pending deduction, due to insufficient quota, in the following five years.
In this way, with this deduction it becomes effective taxation like that of Beckham Law. In addition, to be a beneficiary of this new tax benefit it is not necessary to have a job that allows the taxpayer to apply, it is only necessary to invest in the indicated assets.
Given the mutual exclusivity of Beckham Law and the Mbappé Law, taxpayers should evaluate their circumstances to determine which regime offers the greatest advantage.
At SLNYC, we are available to advise you on your relocation to Spain.
