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Foreign workers in Spain covered by Beckham Law cannot get tax breaks for IRPF
The special tax regime for foreign nationals working in Spain allows them to pay taxes as non-residents rather than personal income tax, so they are not eligible for some tax exemptions
The governing body of Spain’s Ministry of Finance, the General Directorate of Taxes (DGT, confusingly named the same as the national Traffic authorites), has decided to prevent foreign citizens who come to Spain to work and who are covered by the Beckham Law’s favourable special tax regime from being eligible for certain tax deductions on their IRPF personal income tax returns.
Specifically, foreign nationals working in Spain who benefit from the Beckham Law will be unable to claim tax rebates compensating them for dismissal from their job (exempt from taxation up to 180,000 euros), for contributions to pension plans and for any maternity or paternity benefit they receive from Social Security.
The Beckham Law is a special tax regime in Spain that allows foreigners who move to work the country to pay a fixed income tax rate of 24% regardless of the income they earn.
It is actually named after David Beckham, who signed for Real Madrid in 2003, the same time as the government launched this tax incentive to attract skilled workers from other countries. The British footballer was therefore the first to benefit from the law.In recent months, the taxman has been clarifying the loose ends of this special initiative that allows foreigners or Spaniards who have lived more than five years outside of Spain to pay the Non-Resident Income Tax (IRNR) instead of personal income tax, as long as they come to carry out highly qualified jobs or are administrators of a startup.
The main benefit is that there is a fixed rate for earned income of 24%, unless it exceeds 600,000 euros, the excess of which is taxed at 47%. The clarifications from the Treasury are especially relevant since they are taken into account for the 2023 declaration that is made this year, in 2024.
Taxpayers covered by the Beckham Law cannot apply for the exemptions allowed by the Personal Income Tax Law for income associated with the payment of parental leave.
Similarly, any compensation due to workers covered by the Beckham Law for being let go from their company are not applicable and they also cannot deduct the contributions they make to their pension plan since they are taxed by the IRNR, not by the IRFP.
In Spain, there are currently around 10,000 taxpayers who are benefitting from this tax system, saving them around 14,000 euros a year in taxes.
This year, taxpayers in Spain have to do their tax returns between April 3 and July 1, 2024.
For financial advice in Spain, contact Blacktower Financial
The local Blacktower office address is: 120 Avenida Dr. Artero Guirao 2C. San Pedro Del Pinatar, 30740, Murcia, Spain. Our office suite is easy to find on the main N332 through road of San Pedro del Pinatar with easy parking.If you want more information or wish to make an appointment to discuss your own situation then contact us via:
- Email: keith.littlewood@blacktowerfm.com
- Website: www.theblacktowergroup.com
- WhatsApp: 0034 657 684 094
Blacktower Insurance Agents and Advisors Limited is authorised and regulated by the Cyprus Insurance Companies Control Service (ICCS) under Licence number 5101. Blacktower Financial Management (Cyprus) Limited is licensed and regulated by the Cyprus Securities &Exchange Commission (“CySEC”) with Licence number 386/20.
Financial Advice Issues for Expats in Spain
I have been a Qualified Financial Adviser for almost 35 years now. 25 years in the UK for major institutions such as Natwest, RBS and Royal London. I have been in Spain giving expats financial advice now for 10 years and it is quite remarkable the different approaches as well as advice that are required for an expat now living in Spain. Blacktower is a company that has specialised in providing the best solutions for its clients living outside the UK for 30 years also.
The currency issue is always high on the agenda and a discussion for the long-term future has to be taken onto account. Questions like What will happen if one partner dies? Will the other remain in Spain? What about other family members? What Inheritance tax provisions do you have in place? The list goes on and on.
Existing portfolios and investments that were the mainstay of portfolios in the UK may now be obsolete. An example of this is quite often tax efficient products in the UK like ISA’s and previously held TESSA’s: PEP’s actually have low growth rates and provide no tax advantage to a Spanish fiscal resident.
Existing pension holdings either paid by the state or private pensions built up through working lifetimes are topics that have to be covered. Many expats have lots of small pensions from many ex employers and can be confused by the communications and administration in dealing with them. At Blacktower we specialise in advising on how to consolidate and bring all these pensions together in one place.
Bank accounts and investments in Spain always bring up lots of questions too. Quite often the small print associated with financial products in Spain is in Spanish this can make it very difficult even if you have a good grasp of the language. Understanding Jargon in English is sometime difficult enough. I provide clear easy to understand letters and documents in English so that you fully understand any terms and conditions before making a decision.
Advice on tax efficiency is just as important and offering good returns. There are products available exclusively for Spanish expats that can provide invaluable benefits. Having a good base knowledge of the tax implications both now and in the future is an essential ingredient to making a sound decision.
Click for more information about Keith Littlewood.
The above information was correct at the time of preparation and does not constitute investment advice and you should seek advice from a professional adviser before embarking on any financial planning activity.
This communication is for information purposes only and it does not constitute advice or a recommendation. The value of investments can go up as well as down, and investors may not get back the full amount invested. The Blacktower group of companies operates across multiple jurisdictions, each authorized under its respective regulatory license. For further information, please refer to the relevant regulatory page.
