SPECIAL SCHEME FOR RELOCATED EMPLOYEES
Those people who come to work in Spain can benefit from the special regime for displaced workers, known as the «Ley Beckham». This special scheme assumes that, the worker who comes to Spain will be considered non-resident only for tax purposes, therefore applies the rules of non-residents with peculiarities.
In order to understand the explanation of the various regimes applicable to displaced workers, the various definitions should be clarified:
Spanish tax resident is considered to meet any of the following assumptions:
a) Stay more than 183 days in a year in Spanish territory.
b) Your spouse and children are tax residents in Spain.
c) lies in Spain the main nucleus or the basis of its activities or economic interests.
Depending on whether or not a fiscal resident is considered, a tax regime or other shall apply:
IRPF. If you are considered a Spanish tax resident the general tax system for residents (income tax).
IRNR. If you are not considered a tax resident in Spain, you are taxed under the general non-resident regime without any speciality (IRNR).
«Ley Beckham». Special regime. In this case it is a tax resident in Spain but the tax regime of non-residents with specialities applies.
«Ley Beckham» SPECIAL TAX REGIME.
This is a special regime applicable for those workers who, despite being resident in Spain are considered non-residents, applying the rules of non-residents (IRNR) with specialties. This regime is applicable in the year in which the tax residency in Spain is acquired and the following 5 years.
The following conditions must be met:
The individual must not have been a tax resident in Spain in the preceding ten years.
The motivation for coming to Spain should be one of the following:
On the grounds of an employment contract. The foreign employee must have relocated to take up an employment contract in Spain and the work must be performed for a Spanish corporate entity, or for a permanent Spanish establishment of a foreign company. The reason to achieve this special regime has to be the relocation in Spain for a contract purpose. There must not be any doubt about it.
The individual has an employment contract in Spain, which can either be:
(a) a new contract from a Spanish company or a Spanish branch of a foreign entity or,
(b) a secondment to Spain from a foreign employer, but always within a labor relationship. Also a relocation letter is due to exist and the contract from a Spanish company or a Spanish branch of a foreign entity.
The individual has been appointed as administrator (director) of a company that is not considered for tax purposes to be a related party to the individual (the company would be a related party if the administrator held, directly or indirectly, more than 25% of the capital or voting rights of the company)
The individual does not obtain income in Spain that would be considered as obtained through a permanent establishment in Spain.
In general terms, a permanent establishment is understood as a business unit with a Spanish presence because of business purposes. Particularly, it will be presumed that a permanent establishment exists in Spain when the employee holds installations or work premises of any kind, in which all or part of the activity is carried out or acts through an agent authorized to hire in Spain. More specifically, the premises that constitute a permanent establishment are: executive headquarters, branch offices, offices, factories, workshops, warehouses, shops or other establishments, mines, petroleum or gas wells, quarries, farm, forest, livestock or other holdings or any other place used for the survey or extraction of natural resources, as well as construction, installation or assembly work with a duration of more than 6 months.
It is very important that these 3 requirements be fulfilled during all the time that regimen can be applied.
For the application of this regime, the employee must formally apply within six months of the registry in the Social Security in Spain, which corresponds the commencing of the employment contract. There must be a link between the labor contract and the new residence in Spain.
The application must be submitted with:
Personal identification. Spanish NIE.
The labor contract.
A social security registration certificate.
Letter from the contracting company in Spain acknowledging the employment relationship for the purpose of the application of the Beckham Law.
Once the application form is filled, the Tax Authority has ten business days to answer.
The request and following grant of the special BL regime is a simple procedure in which it will be necessary to provide the documents referred above: registry in the Social Security, the employment contract and the certification by the contracting company that the employee is being relocated to Spain for work related reasons.
The verification by Tax Administration in order to grant the «Ley Beckham» regime consists on verifying that the employee has not been a Spanish resident during the previous ten tax periods and that he/she does not own or have run any permanent establishment in Spain, even in the period of application the «Ley Beckham» special regime.
How to get the NIE in Spain.
This procedure should be done in person. The documentation needed for as UE citizens in order to obtain the NIE is the following (it will be obtained during the 90 days following their arrival in Spain):
A copy and the original passport or national identity document and for the minors: birth certificate and their parent’s passport or national identity document. The minors will have to go to the appointment in the Police Station with their parents.
Legalized family book from the expedition country with “Haye apostille” from the expedition country.
Documentation that certifies that he is working in Spain.
EX-18 form, original and copy.
You will have to obtain a NIE number during the 90 days following your arrival in Spain. You have to attend the police station with a prior appointment to sign your NIE card and then go to the Tax Authority also with a prior appointment, and the NIE will be issued operative.
It is clear that the special regime of the «Ley Beckham» applies once the tax residence is acquired in Spain and, knowing that this is acquired, generally, when it is more than 183 days in a year in Spain, we will find different assumptions depending on the moment to come to Spain to acquire the tax residence.
If the arrival date is before July:
During that year the Spanish fiscal residence will be acquired, applying the special regime of «Ley Beckham» that year and the following 5 if it has been granted by the Tax Authorities or the general regime for residents (income tax).
If the arrival date is after July:
In the year of arrival will not be considered a tax resident, therefore taxed under the general regime for non-residents (IRNR), being the following year when it will apply the special regime of LB or the general regime for residents (income tax).
Each one of the following regimes is shown:
Ordinary tax regime
IRPF (Ordinary resident regime)
This regime will apply if it is applied for LB and is not obtained or is not applicable and the Spanish tax residency is obtained or once the LB regime is finished.
Under this regime the tax is paid in attention to a progressive scale, according to the amount of the income obtained and the autonomous community of residence. (The scale of the autonomous community of Madrid is used in this exhibition). In addition, the progressive scale is different depending on the type of income that is obtained. There are two groups:
General Income: Employment income, real estate rental, image rights, prizes. This source of income will be taxed at a rate of:
Up to €12,450 19%
€12,450 – €20,200 24%
€20,200 – €35,200 30%
€35,200 – €60,000 37%
Up to €60,000 45%
Saving Income: interest arising from bank deposits, any gains on sales of shares, capital gain from sale of property, and any other gains obtained from a transfer. This source of income will be taxed at a rate of:
19% for amounts up to €6,000
21% for amounts between €6,000 and €50,000
23% for amounts exceeding €50,000
On the one hand, under this ordinary tax regime, residents in Spain also have to pay income tax on all their other investment income, even if such income originates from outside of Spain – termed worldwide income.
On the other hand, under this regime personal circumstances will be considered for tax calculation: age of children, familiar or personal minimum exempt, etc.
It is important to consider how income is calculated in some cases, for example:
Property rental income will be taxed at the general rate with the maximum of 45% but with a deduction of 60% if the property is the residence of the tenant, which will be added to employment income and other incomes to determine the rate that may vary from 19% to 45%.
All the property owned and not rented, in and outside of Spain, will be taxed as presumed income. The estimate value will be the result of multiplying by 1,1% the cadastral value if it has been reviewed during the past 10 years. If the property is in Spain it will have been usually reviewed in this time period. If the property is located outside of Spain, the presumed income will be the result of multiplying 2% of the 50% of the purchase value.
Once the presumed income has been estimated, it will be added to the rest of the incomes that are taxed at the 45% maximum progressive marginal rate.
The financial gains resulting from the sale of the property outside of Spain will be calculated as the difference between the buying and selling prices, subtracting costs and taxes associated to the purchase and the sale. This capital gain is taxed at the 19-23% progressive rate, but it will be possible to compensate it with losses from other transfers.
In conclusion, once the application of the special «Ley Beckham» regime is finished and you are still a resident in Spain, you will be liable to pay the ordinary tax as resident which implies that you will have to declare and pay taxes on your worldwide income at a maximum 45% (current) marginal rate for your employment and rental incomes, royalties etc. The incomes generated from interests, dividends or gains from transfers will be taxed at the 19-23% progressive rate (currently).
Finally, there are other important obligations under this ordinary regime:
The Wealth Tax will be declared for assets located in and outside Spain. Currently, the residents in Madrid are exempt from paying the Wealth Tax, but they are subject to submit the form if the declarable assets are worth more than €2M.
Every Spanish tax resident must submit an informative declaration of all their assets located abroad if the value of the assets of each category is worth more than €50,000. It is only an informative declaration (called «720 form»).
IRNR (ordinary non-resident regime)
Under this regime personal circumstances will not be considered for tax calculation.
However, in this case only taxed the income generated or obtained in Spain, not the one obtained outside.
The rates are as follows:
General fixed rate: 24%. EU resident 19%.
Pensions: Progressive scale 8-40%.
Employment income: 24%.
Dividends, interest and equity gains as a result of the transmission of patrimonial elements: 19%.
Under this regime it does not have to declare Wealth tax or the form 720.
LB special tax regime
As has been said, in this case is resident Spanish tax but the regime of non-residents with particularities applies which are not included in the IRNR regime.
Under this special regime personal circumstances neither will be considered for tax calculation.
In this case, it is not taxed the world income obtained, but only the income obtained/generated in Spain. Since 2015 there is an exception to this rule, which is typical of this scheme, all income from the employment source will be taxed in Spain, have been generated in Spain or not (except those obtained prior to the application of the regime).
Thus, the application types are as follows:
Employment income (worldwide): 24% and 45% for amounts exceeding €600,000
Other incomes generated in Spain, excluding dividend, interests and capital gains from transfers: 24% tax rate.
Dividends, interest and capital gains from transfers earns in Spain: 19-23% progressive rate.
Incomes earned/sourced outside of Spain, except employment incomes: not taxable in Spain.
The application of the BL special regime has the benefit of applying a flat tax rate of 24%-45% for employment incomes generated in or outside Spain, but any other ordinary tax benefits are not applicable except a percentage deduction of donation for social interest porpouses, and a limited double taxation deduction in the employment incomes generated and taxed abroad.
Finally, under the BL regime foreign employees are subject to declare the Wealth Tax of assets located in Spain. Nevertheless, Madrid’s residents are currently exempt to pay the Wealth Tax.
Under this regime there is no obligation to declare the form 720.
INTERNATIONAL DOUBLE TAXATION.
Under the «Ley Beckham» special regime there are one particularity about international double taxation: you will be considered as a tax resident in Spain, except for double taxation treaty effects. So employees subject to LB special regime can not be considerate residents for the double taxation treaty effects.
It means that if you obtain incomes subject to be taxed as non-resident in any country and there exist a tax benefit for Spanish tax residents from the double taxation agreement, you will not be able to apply such benefit in the country of income source because you will not be able to obtain the Spanish residency certificate. The «Ley Beckham» regime limits the tax benefits that you may obtain as a non-resident in the country in which the incomes are generated.
LOSS OF THE SPANISH RESIDENCE
Once the period for the application of the BL regime has passed and you have acquired the condition of ordinary Spanish tax resident, there are some tax effects on a Spanish ordinary tax resident that loses such condition for moving out of Spain:
First of all there is an “exit tax” special regime which is applicable if: (i) the person has been a tax resident in Spain during 10 of the 15 years prior to the loss of the residency and (ii) the market value of the shares is greater than €4M or the percentage of the equity owned is higher than 25%.
Additionally, the tax and national residents in Spain that lose this condition because they move to a country designated as “tax haven”, will have to pay taxes (on their worldwide income) as if they were tax residents in Spain during the year they move and the following four years.
Nevertheless, under the application of the LB special tax regime, the effects of the loss of the Spanish residence are different.
There are no exit taxes for you if you leave Spain before the end of the application of the BL regime because it is not fulfilled the requirement of having been a tax resident in Spain for 10 years of the 15 preceding the displacement.
If you leave Spain and change your residency to a tax haven during the application of the special BL regime, the rule of being considered a tax resident in Spain the following 4 tax periods will not be applicable because such rule is not stated in the special «Ley Beckham» regime.
MOVING PROCESS TO SPAIN
Finally, we can’t forget about the moving process. Once we decided to establish the new residence in Spain, there is the great inconvenience of moving all the belongings from one country to another.
At this point it is important to be clear that, for the case where the transfer takes place from a country located outside the EU territory, it will be found with two tax burdens:
Value Added Tax (VAT):
The importations to Spain are subject to VAT. Nevertheless, the importation of the personal belongings due to the relocation to Spain are exempt if the following requirements are fulfilled:
Residence outside the UE during the twelve months prior to the relocation.
The goods imported are destined to the new residence.
No VAT exemptions in the country of origin.
The goods have been belonging to the individual in the six months prior to the relocation.
The importation must take place during the twelve months following the relocation or before, and with the compromise to establish the new residence during the six months following the importation.
Important: for VAT exemption to be applied it will be necessary to obtain a certificate from the country of origin (UAE) that states the previous and no longer residence in the country. Without the certificate, you will have to pay the 21% on the imported goods valued at a normal market value. This estimated value for VAT porpouse will be provided for custom agent.
There will be no custom tariffs because all the goods imported are personal effects and used. In order to avoid paying Spanish custom import duties it will be necessary to get the following documents:
NIE. It must be available prior to the recolocation.
The process is as follows: You will have to obtain a NIE number during the 90 days following your arrival in Spain. Normally it is done in one single day. You have to attend the police station with a prior appointment to sign your NIE card and then go to the Tax Authority also with a prior appointment, and the NIE will be issued operative.
“Alta de Empadronamiento” (census at a Spanish town hall), issued within the 3 months prior to the recolocation.
Must register in Town Hall at location where you will reside (it takes a few minutes to obtain it by providing the original of the passport and original of the home rent/purchase contract).
A third visit the same day to the City Hall and you will obtain the “Alta de empadronamiento”.