Get to know the authorFor Americans considering or planning a move to Spain, reading up on the Beckham Law is a must.
This special tax regime can offer significant tax cuts on Spanish-sourced income and exclude most worldwide income from Spanish taxation. Altogether, this can result in major savings on your tax bill.
But who exactly qualifies for Beckham Law, what does it involve, and how can you claim it? We’ll go over all of these questions and more in our guide below.
Beckham Law background & benefits
The Beckham Law refers to the Spanish Royal Decree-Law 687/2005, a favorable tax program for foreign workers in Spain.
The colloquial name—the Beckham Law—refers to David Beckham, a world-famous soccer player. After moving to Spain to play for the Real Madrid soccer team, Beckham became the first beneficiary of this program.
Beckham Law aims to attract skilled foreign workers to Spain by lowering their personal income tax rate. It effectively treats foreign workers (and eligible family members) as if they weren’t tax residents in Spain.
But what exactly does that look like?
Beckham Law tax rates
For starters, the Beckham Law allows foreigners to pay taxes on Spanish-sourced income at a flat rate of 24%. Compare that to the typical progressive tax rates of up to 47%, and it can mean a major difference in your tax bill.
Even better, most worldwide income is excluded from Spanish taxation. This special tax regime lasts for up to six years.
There are a few things worth noting about the Beckham Law’s benefits, however:
- The flat tax of 24% only applies up to €600,000 (~$651,147); anything over is taxed at a rate of 47%
- Certain types of income do not qualify for the 24% flat tax, including:
- Spanish-sourced gifts/inheritances: Taxed at 7.65% to 34%, depending on the value
- Spanish-sourced capital gains: Taxed at 19% to 26%, depending on the value
- Employment income earned outside of Spain: Subject to standard tax rates (19% to 47%, depending on tax bracket)
- Those whose Spanish assets exceed €167,129.45 (~$181,376.40) will still be subject to a wealth tax of 0.2% to 3.5%, depending on the value
- Beckham Law beneficiaries are ineligible for certain personal allowances & family deductions
Pro tip:
Those who benefit from the Beckham Law can still reduce their taxable income through charitable donations.
Eligibility criteria for US expats
To be eligible for the Beckham Law, US expats must:
- Have moved to Spain to work, either as:
- A new employee of a Spanish company, or
- An intra-company transfer from a foreign company, or
- A highly qualified worker who earns their income from a) working with emerging companies b) conducting training or c) carrying out research, development, or innovation activities
- Note: Generally, self-employed individuals and professional athletes are not eligible for the Beckham Law, though some freelance workers may qualify under other schemes.
- Not own more than 25% of the business that employs them (applicable to director-level employees only)
- Not have lived in Spain within the last five years
- Not have their income fall into a tax-exempt category (such as grants)
- Perform at least 85% of their work in Spanish territory, specifically for those employed by Spanish companies or engaged in qualified activities
- Apply for the regime within six months of registering with the Spanish social security system
Note:
Certain family members are also eligible for the Beckham Law if they join the beneficiary in Spain within a year of their initial arrival. This includes a beneficiary’s spouse, dependent children under 25, parents of older age, and disabled dependents.
Applying for the Beckham Law regime
It’s important to note that you won’t automatically receive the Beckham Law tax treatment, even if you qualify for it. Rather, you must apply for it and receive approval.
Before doing so, you must already possess a few documents:
- An employment contract
- A NIE (foreigner ID number)
- A valid passport
- A residence card (e.g. TIE), or proof that you have applied for one if you haven’t received it yet
Then, you will:
- Register with Spain’s tax office (Agencia Tributaria) by submitting Modelo 030 online, in person (by appointment), or via mail
- Receive your social security identification number (SSN)
- Submit Modelo 149 to the Agencia Tributaria online, in person (by appointment), or via mail (no later than six months after initially registering with the tax office)
- Receive a certificate of approval
- Present your certificate to your employer
The whole process usually takes several months.
Compliance & reporting obligations under the Beckham Law
As a beneficiary of the Beckham Law, you must report your income on Modelo 151 each year. Beckham Law beneficiaries are, however, exempt from having to declare their overseas assets via Modelo 720.
B!T note: After six years of Beckham Law treatment, you will be subject to Spain’s standard tax regime. As such, you will fill out Modelo 100 and Modelo 720 when filing your tax return.
To file, simply submit the form on the Spanish tax agency’s online portal. You can also have a Spanish tax professional do so on your behalf. In either case, you should file your return by June 30th.
Filing accurately and on time is critical.
For each month that you file your taxes late in Spain, you will face a 1% surcharge. After a year, that surcharge increases to 15% plus interest. If the government has to reach out to you to enforce tax compliance, you may have to pay up to 50% in penalties.
The Beckham Law & US tax implications
Even if you live and pay taxes in Spain, you’re not free of your US tax obligations. Anyone who exceeds the minimum income reporting thresholds must file a federal return and potentially pay taxes. The good news, though, is that there are ways to avoid double taxation.
The two key tax breaks the US offers expats are:
- The Foreign Tax Credit (FTC): The FTC gives Americans abroad US tax credits for every dollar of foreign income taxes they pay. This essentially “subtracts” what you’ve spent in foreign taxes from your US tax bill. Note that if you fall into a US tax bracket above 24%, the foreign tax credits you apply from the Beckham Law will only partially cover your US tax liability.
- The Foreign Earned Income Exchange (FEIE): The FEIE allows Americans who pass either the Physical Presence Test or Bona Fide Residence Test to exclude up to $120,000 for tax year 2023 ($126,500 for tax year 2024) from taxation.
Pro tip:
Those who qualify for the FEIE also qualify for the Foreign Housing Exclusion. This provision allows expats to write off certain qualifying housing expenses like rent, utilities, rental insurance, etc. Between these tax breaks, you can typically significantly reduce (and sometimes even eliminate) your US tax liability.
Optimize your taxes with the Beckham Law & more
The Beckham Law can significantly reduce the tax bill of many US expats who move to Spain. Fortunately, qualifying for and applying for it are both relatively simple (as are the reporting obligations).
But as an American expat living in Spain, you need to consider your US tax obligations, especially if you’re a high earner. Partnering with a US expat tax professional is the best way to minimize your liability and ensure compliance.
Resources
- The Beckham Law: Tax benefits for expats
- Beckham Law in Spain: How to Save Taxes as a Foreigner
- Inheritance Tax in Spain for Expats: Exact Rates and Allowances
- Spain – Individual – Other taxes
- Spain’s Special Expat Regime: The Ultimate Guide
- Beckham Law in Spain: 2024 Guide for Expats to Save on Taxes
- How to apply for Spain’s Beckham Law tax regime
- Average annual wages in Spain from 2000 to 2022
