Impatriate regime – Personal income tax

Impatriate regime - Personal income tax

When we think of a fiscally attractive country, Spain does not spring to mind. The reality is that within the countries that make up the Organisation for Economic Co-operation and Development (OECD), Spain occupies one of the positions of ‘fiscal decline’.

According to the International Tax Competitiveness Index for the year 2023, led by the US tax policy centre ‘Tax Foundation’, Spain would rank 31st out of 38 countries analysed in terms of tax efficiency. Likewise, with respect to the European member states of the OECD, Spain would appear as the sixth least fiscally competitive country.

Notwithstanding the above, within the Spanish tax hurricane, there is an eye, understood as a regulatory section of more lax tax conditions within the Spanish tax system, commonly known as the ‘Beckham Law’. You may be familiar with a former Real Madrid footballer.

This special tax regime for impatriates is regulated in article 93 of the Personal Income Tax Law (‘IRPF’) and its purpose is ultimately to make it more attractive for workers, professionals, entrepreneurs and investors residing abroad to move to Spain. A curious fact is that it no longer applies to sportsmen and women or artists, despite the fact that they were the cornerstone of the project at its inception.

Background

With the entry into force of Law 28/2022 on the promotion of the start-up ecosystem, substantial amendments were made to Article 93 of the Personal Income Tax Law and to the Personal Income Tax Implementing Regulations. These changes redefine the special tax regime for workers, professionals, entrepreneurs and investors who acquire their tax residence in Spain.

In addition, the Spanish impatriate regime is of particular interest following recent events with similar special regimes within Europe, be it the Portuguese tax regime for non-habitual residents (‘RNH’) and the Italian special tax regime, both of which were of great social and political controversy during 2023, with local governments considering the suspension and elimination of these regimes and currently lowering the tax benefits or adoption criteria they enjoyed to date, causing legal uncertainty among taxpayers and potential beneficiaries, and therefore, in many cases, the need to rethink their place of residence and wealth for tax purposes.

Singularities of the Impatriate Regime

Article 93 of the Personal Income Tax Law allows newcomers to Spain to opt to be taxed as non-residents during the tax period in which they acquire residence and the following five tax periods. In turn, the amendment made by Law 28/2022 has reduced the previous period of non-residence in Spain from 10 to 5 years and has extended eligibility to new groups, including teleworkers, entrepreneurs and professionals, as well as their family members, under certain conditions.

From 1 January 2023, the conditions for eligibility for this special regime have been adjusted. Taxpayers must meet specific requirements, such as not having been resident in Spain during the previous five tax periods and moving as a result of an employment contract, acquiring the status of director of an entity, or carrying out an entrepreneurial economic activity, among others.

In this sense, the regime is applicable to relocations motivated by:

  • Employment contract, including the commencement of an employment or statutory relationship in Spain.
  • Acquisition of the status of director of an entity, regardless of the shareholding in the company, with the exception of asset-holding companies.
  • Travel not ordered by the employer for remote work activities.
  • Carrying out an entrepreneurial economic activity. This refers to any innovative activity or activity of special economic interest for Spain, the requirement of which is to obtain a favourable report from ENISA.
  • Provision of services to emerging companies or those dedicated to training, research, development and innovation (R&D&I) by highly qualified professionals.

Meanwhile, the new regulation introduces the possibility that, in the special regime, there are two figures: the main taxpayer and other taxpayers associated with him/her, belonging to his/her family nucleus. This linkage refers to the periods of application of the regime, creating a more flexible framework for those who opt for this tax option.

Option for spouses and children

The regulations also allow the spouse of the main taxpayer and their children under the age of twenty-five (or any age in the case of disability) to opt to pay non-resident income tax while maintaining their status as personal income taxpayers, provided they meet certain requirements, such as moving to Spain with the main taxpayer and acquiring their tax residence in the country.

Tax implications

Taxpayers who take advantage of the special tax regime for Impatriates will be taxed in accordance with the provisions of the Non-Resident Income Tax regulations. In this sense, income from work, income from economic activities and rents will be taxed in the general taxable base, as follows:

  • The first 600,000 euros at 24%;
  • From 600,001 euros onwards, at 47%.

Furthermore, it should be remembered that the Spanish Tax Agency’s Form 720 for the declaration of assets located abroad does not apply to assets located abroad.

Procedure and new forms

The option, waiver or exclusion from the special regime is carried out using form 149, and the tax return is made using the new form 151. As of 16 December 2023, form 149 of Order HFP/1338/2023 replaces the previous one approved in Order HAP/2783/2015.

The maximum period for taxpayers to exercise the option is maintained at 6 months from the start of the activity that is recorded in the Social Security registration in Spain or in the documentation that allows, where applicable, the maintenance of the Social Security legislation of origin or, if registration with the Social Security is not compulsory, in the document that justifies the date of commencement of the activity.

Notwithstanding the above, a transitional regime has been established whereby taxpayers who acquired their tax residence in Spain in 2023 as a result of a move to Spanish territory in 2022 or 2023 prior to the entry into force of the aforementioned ministerial order, which approves the new model of communication of the option for the special regime, may exercise this option within a maximum period of 6 months from the entry into force of the aforementioned order.

As expert lawyers in investment in startups, Metricson can provide comprehensive, professional and close advice in relation to the process of analysing the feasibility of adopting the Special Tax Regime for Impatriates, as well as its subsequent application and application.

José Pérez-FusterArticle by:

José Pérez-Fuster

Senior tax manager

jose.perezfuster@metricson.com

About Metricson

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