Many foreigners who choose to move to Spain want to take advantage of the special tax regime known as Beckham’s Law, which offers a flat tax rate of 24 percent.
It was introduced in 2004 and allows tax payers to pay a flat rate of 24 percent on their income up to €600,000 per year. It also means tax is paid on only income earned in Spain, instead of a progressive tax on worldwide income. It was named after the football player David Beckham when he moved here to play for Real Madrid as he was the first person to take advantage of it.
This is especially true of remote workers, although you’re not eligible if you’re self-employed.
The problem is that so many people have been trying to take advantage of this law that the Spanish Tax Agency has started to keep a close eye on those who are under the regime, just to make sure they actually qualify and are doing things correctly.
This is especially true when it comes to those from the US, who seem to be targeted more than other foreigners.
READ ALSO: What Americans should know about Spain's Beckham Law tax regime
There have also been many reports in the international media criticising the fact that many have been exploited by the Beckham Law and had to deal with many more tax inspections.
In fact, many high-net worth individuals (and even those who are not earning so much) have had to go through numerous court cases or fork out thousands or even millions in fines or settlements to the Spanish tax agency.
READ ALSO: Spain slams 'insulting' claim that Beckham Law steals from foreigners
In the last three years, more than 200,000 tax claims have been filed in Spain, and only around 40 percent end up ruling in favour of the taxpayer.
Given the hassle that seems to come with this regime, are there any legal alternatives which can still help foreigners save on taxes? Here are some of the options that the experts have come up with.
Incorporate your business abroad
One option that may foreigners choose is to incorporate a company abroad, such as an LTD in the UK, or a GmbH in Germany. This is a good option for professionals with an international business or diversified income. Be aware though, to be legal, you must actually operate in the country of incorporation and have management, employees, offices and services there. It’s important that the country has a double taxation agreement with Spain to avoid paying taxes twice. You should also make sure to consult with a tax lawyer if you take this option as you need to plan carefully to make sure everything is above board.
Create a limited company
A good option and an increasingly popular one for those who have digital businesses is to create a limited company in Spain. Unlike personal income tax (IRPF), which can reach up to 47 percent, limited companies are taxed through corporate income tax at a general rate of 25 percent. It also means you can deduct professional expenses such as vehicles, travel, software and computer equipment. Be aware, however, that having a limited company can involve lots of other costs and payments.
Start a holding company
For high-net-worth individuals, it may be worth forming a holding company and having a family structure which manages assets and income from a business perspective. It means you will be able to optimise corporate tax and apply for special regimes. This again will require the help of a tax professional though as it will require a very specific and well-designed structure to be considered legal.
Ensure you tax residency is elsewhere
Instead of simply having tax residency in Spain, you could choose to spend less than 183 days here in order to establish it somewhere else. To make this option work you will have to keep track of where you spend your time and make sure your main focus of economic interest is not based in Spain and that your family does not live in Spain; otherwise the authorities could say that you should be tax residency here. You may have to provide a tax residency certificate and you will also have to comply with the double taxation agreements.
Become a business owner
Another option is to set yourself up as a business owner with commercial activities, rather than as a self-employed person. This means you can deduct business expenses. This could be the initial step before setting up an LLC company, once you earn over a certain amount. Like many of the other options, you will need to get some good professional advice for this to work.
Our journalists at The Local are not tax experts. This article is intended to be helpful and informative, but before making any financial decisions, you should always seek the advice of a professional accountant or gestor.
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