Tax Regime for Employees in Spain

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Tax Regime for Employees in Spain

The New Tax Regime for Inbound Employees Posted to Spain 

On June 10th, 2005 the Spanish government approved Royal Decree 687/2005 implementing the Personal Income Tax (hereinafter, PIT) regulations in relation to article 9.5 of the Spanish PIT Law, which is commonly known as the "Beckham law" and regulates the procedure to apply for the new Spanish tax regime for expatriates in force since January 1st, 2004.

Pursuant to this law, expatriates who acquire their tax residence in Spain as a result of being posted to Spanish territory may opt for assessment under Spanish Non-Resident Income Tax rules for a period of up to six tax years instead of under PIT rules for resident individuals provided that certain conditions are met.

Should such an election be made, the expatriate will be subject to Spanish taxes on their Spanish source income and on their patrimony located or exercisable in Spanish territory, being subject to a flat 25% tax rate on his salary income instead to the progressive tax scale for resident individuals (ranging from 15% up to 45%) during the year of acquisition of the Spanish tax residency and the following 5 consecutive years.

The new regime allows the expatriate to request and obtain a Spanish Residency Certificate issued by the Spanish Tax Authorities under the assumption that they meet the residency criteria established in the applicable Double Tax Treaty.

The new expatriate's tax regime is clearly intended to motivate the impatriation of middle and high earning inbound managers that will only be taxed on their Spanish source income and capital gains by applying the tax rates set forth for non-resident individuals.

Eligible expatriates should meet the following requirements:

• They must at no time have been resident in Spain during the 10 years preceding their current posting to Spain
• The assignment to Spain must be due to a local employment contract or a secondment form another company within the group
• The work must be carried out in Spain. Notwithstanding, employees who also perform part of their duties abroad may still be eligible for the regime if the percentage of their annual earnings relating to duties performed abroad does not exceed 15% (30% if employees have duties in other group companies)
• The work must be performed for a Spanish company or for a Permanent Establishment of a foreign company in Spain.
• The expatriate earnings should be subject to the Spanish Non- Resident Income Tax.

The election for the new regime should be made through a special application form which must be filed with the Spanish Tax Authorities along with additional supporting documentation within 6 months from the commencement of the activities of the expatriate in Spain, being also possible to withdraw such an election.

In summary, the main features of the new regime read as follows:

1. The election for the new regime entails taxation as a non-resident individual for income and net-worth purposes, not being limited to salary income.
2. Salary income is taxed at 25% flat rate on the gross income, not being applicable those reductions, deductions and allowances set forth for resident individuals.
3. Capital gains obtained in Spanish territory will be taxed at a 35% tax rate, regardless the holding period of the asset transferred.
4. The expatriate will be subject to the Spanish Net Worth Tax for the assets and rights located or exercisable in Spanish territory.

Further Information

• See AngloINFO INFOrmation page Capital Gains Tax on Real Estate in Spain
• See AngloINFO INFOrmation page Spanish Tax & Taxation in Spain
• See AngloINFO INFOrmation page Personal Income Tax Regulations in Spain
• The Spanish Government Tax Offices website

Information supplied by Inma Sallent of JAUSAS 
e-mail / Website
Paseo de la Castellana, 60, 5ª Planta, 28046 Madrid 
Tel: 915 757 053 / Fax: 917 810 841
and at Passeig de Gràcia, 103 7ª Planta,08008 Barcelona 
Tel: 934 150 088 / Fax : 934 152 051
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