Similar to Spain's Beckham Law, introduced in 2005, the Mbappé Law is named after a famous footballer who will be the first to benefit from it.
Like with the Beckham Law, it will mean lower tax rates for foreigners, but this one only applies to the region of Madrid and works slightly differently.
The law has already been approved by the regional executive of Madrid and is in the process of being ratified by the Assembly, but it’s already proving to be controversial and many are not even sure whether it will be worth applying for or not.
La Ley Mbappé aims to reward high earning foreigners who settle and invest in the region by giving them tax breaks.
Those who are approved for the law will be able to deduct 20 percent of all the money they invest in the Madrid region.
It applies to regional personal income tax only, which accounts for approximately half of a yearly tax payments in Spain, as the other part corresponds to the State's collection.
It sounds like a no brainer – of course you’d want to sign up to pay less tax, but in reality it’s not that clear cut. Crucially, it may not be worth it for all foreigners to apply for.
Firstly, it is only open to those who move to the region of Madrid, if you want to move to any other region in Spain, you won’t be eligible. And you can’t move from another Spanish region to Madrid either, as the law requires you to have been outside of Spain for at least five years.
Secondly, you need to plan on staying in Madrid for six years and you need to keep your investment in the region for a total of six years as well. This means if you need to take your money out sooner for whatever reason, you would lose your tax benefits.
It’s important to note that it is only worth it if you want to invest in bonds, shares and companies. If you invest in real estate or cars for example, they will not be included in the deduction.
The entity in which the investment is made cannot be a tax haven. In addition, the participation of the taxpayer or his/her spouse cannot exceed 40 percent of the share capital and he/she cannot perform executive or management functions in that entity.
So will you really be able to benefit from this deduction and save on half of your personal income tax?
According to tax experts, it really depends on how much risk you’re willing to take and how much you invest in the region.
The law is really aimed at high-net-worth foreigners like Kylian Mbappé, who presumably would be on the highest tax bracket of 45 percent.
For example, let's say you’re on a top footballer's type of salary, around €15 million per year. Of that amount, you will have to pay approximately €3.06 million in personal income tax to the region of Madrid.
If you invest one million in companies, you can obtain a deduction of €200,000.
But if you want to deduct all of this amount, so that you don’t have to pay anything on half of your income, you will have to start making some serious investments of about €15.3 million, which even Mbappé may start questioning.
Remember you have to stay in Madrid and keep your investments for six years, so in order to not pay half your income tax in the subsequent years, you would have to invest around €90 million in total.
It's worth noting as well that the more you earn the more you will need to invest to make it financially worth it.
Even if you’re not earning this much, it stands to reason that you can make small and limited deductions, but it’s unlikely to be a huge sum, unless you make huge investments.
Finally, it is not even clear yet if the 25-year-old French football star will actually use the law that's named after him or if he'll meet all the requirements, which explains why some experts believe the law is wrongly named.
What does seem clear is that even if Mbappé does decide to use this special tax regime, he will not be able to pay as little income tax as he may have hoped.
READ ALSO: Beckham Law - What foreigners need to know about Spain's special tax regime
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