Spain is one of the best and most sought after holiday destinations in the world. Their love and support for their national sport of football is unmatched. Spain’s tax haven also provides opportunities for foreign workers to save taxes while working and investing in Spain.
No wonder they named a law by the name of one of the best football players of all time because he was the first one to take advantage of the law. The ‘Beckham Law’, initially called the Royal Decree 687/2005 is aimed at foreign workers living in Spain and was passed in 2005.
The Beckham rule
Before this law, any foreign worker who lived for more than 183 days in Spain was deemed to be a resident for taxation purposes. This made them liable to Spanish taxes on their worldwide income, and not just the income from Spanish sources even though they were not citizens of Spain. Now under this law, any foreign resident can apply to be taxed under Spanish non-resident taxation rules at 24 percent instead of being taxed progressively between 15 percent and 43 percent based on their income. This also means that they will only be taxed on their Spanish income and not on their global income.
Spain: Tax Haven
The Beckham law has rendered Spain tax haven for foreign employees and entrepreneurs. Officially, Spain has been a country with high tax rates. Foreigners can live in Spain without paying high direct taxes. This also encourages citizenship by investment in the country as the option to reside has become easier. In the while that a person stays in Spain as a resident and is employed under a company, he can avoid dual taxation and paying high taxes on income earned locally.
The citizenship by investment program that renders the ‘golden visa’ to foreigners has also made Spain a ‘golden visa haven’ by opening up opportunities to people who are seeking second citizenship. Even though there are at least 13 other states in the European Union that offer similar visas for residency and citizenship, Spain, in the last years, has granted the highest number of golden visas.
Benefits For Foreign Workers
The Beckham law was enacted with the aim to attract professionals and experts to the country for employment and investment opportunities and reduce the burden of taxation on them. The idea was to generate more employment opportunities and create skill development opportunities for Spain that would contribute to nation-building.
The law has greatly benefited foreign workers and entrepreneurs as they have a choice in being taxed either on the worldwide income or only on domestic income, for the duration of a total of six years from their date of arrival in Spain. This also encourages entrepreneurs to establish their company headquarters in Spain itself and apply for dual citizenship. They end up saving tax on their global income if they opt for the scheme under this law.
Benefits For Citizenship By Investment
The Spain golden visa program was launched in 2015. Those interested can only apply for citizenship in Spain after having lived there for 10 years. Until then, a family residence can be obtained by investing €5,00,000 in real estate. Permanent residency can be obtained after 5 years though. The investor visa can also be renewed every 2 years. The Beckham law also promotes citizenship by investment in more than one way.
Given that it is of great importance to stay in Spain for a long duration in order to attain citizenship, it is interesting that having such tax benefit options makes it so much more lucrative to stay in Spain for all these years. It also gives the foreign workers an option of diversifying their income sources and earn without paying dual taxes. If the tourism value of Spain was not enough to attract investors, this added financial bonus should do the trick.
Footballers Tax Avoidance
The Beckham rule, intended to encourage foreign workers to work in Spain, ended up benefiting the foreign football players who resided in Spain. For footballers, tax avoidance was made easy with this law as they applied to be taxed as non-residents only on their local income.
This made the law infamous as it helped the footballers to evade tax payments. Three years after David Beckham left Spain, the law was amended to limit annual earnings to €600,000 and anything beyond that would be taxed at 45 percent. Eventually, professional athletes were also excluded from the benefits.
Even though the law primarily benefits international football players by targeting footballers tax avoidance practices and high-income foreign workers in Spain, it also makes getting a second citizenship in Spain more lucrative as it enables an individual to avoid dual taxation and helps in tax-saving strategically throughout the years of residence.
Book an appointment with us to know the process in detail and discuss options for getting a second passport. We will help you with your second citizenship planning.