Not every famous English football player can point to a law in Spain being named after him. However, under Article 93 of the Spanish Tax Code there is a special tax scheme administered by the famous (or some may say infamous) Agencia Estatal de Administracion Tributaria (Spanish Tax Agency or 'STA'), which has for some years been known as 'Beckham's law'.
Enacted in 2004, the year after David Beckham's transfer from Manchester United to Real Madrid, it offers extremely favourable tax benefits to those who qualify for what is also known as 'The Impatriate Regime'.
Once accepted, foreign source investment income and gains are excluded from taxation in Spain. Impatriates (as they become known) are taxed as if they were non-resident (except for their employment income wherever earned). Spanish employment income is payable at a lower rate up to a certain level. The precise rates and limits have changed at various times, so one needs to check the relevant years, but overall, the law is extremely favourable. It was clearly designed to attract successful employees and their wealth into the Spanish economy. The current rate is 24% on Spanish earned income up to €600,000pa compared with the Spanish top rate of tax at 47%. Of course, other countries also compete to attract high net worth individuals and their families – notably Italy, Switzerland and even the UK – so it's worth seeking advice on the what may be offered in any given location.
In Spain, it has always been straightforward to qualify although the exact terms have varied from time to time. For example, between 2015 to 2020 the main requirements were that you had not been resident in Spain during any of the previous ten tax years; and were taking up residence under an employment contract or becoming a board director of a company without owning 25% of voting rights. The STA say they will accept or refuse an application within ten days, although in practice they frequently take significantly longer. If accepted, a certificate is issued allowing employers to deduct the lower rate of tax and ensuring that the taxpayer shall submit different forms each year from persons taxed under the general law. It is important to note that no space is included for any other income than that taxable under the scheme. Enjoyment of all these benefits lasts for five years, plus the year of acceptance, making six years of considerable tax benefit in total. What's not to like?
Unfortunately, we are aware of many cases where the STA has waited until the six years are almost up, including examples where individuals have already left Spain, before starting an audit. This is a formal and intrusive form of investigation where expensive local professional representation is essential - unless one wants to return to Spain and attend alone.
In Spain, tax inspectors are motivated by how much tax they collect. There seems to be a different ethos from that in the UK Taxpayers Charter. In the UK, HMRC strives to work with you to collect the 'right' amount of tax. In Spain, the emphasis seems to be on prioritising speed and amount over accuracy, with inspectors keeping their bonus even when a taxpayer eventually succeeds on appeal against assessment. Questions raised as to the relevance of information demanded are usually brushed aside or ignored.
There have been examples of well-known people (like Shakira), as well as football players and managers, whose cases have been 'flipped' into criminal investigations. When this happens, the individuals concerned have come under pressure to 'do a deal' rather than risk reputational damage or going to prison. Even during the non-criminal audit stage, the STA has visited the schools of taxpayers' children to make enquiries, as well as demanding that suppliers and customers attend for questioning. Those questioned, usually believe their own affairs are under scrutiny before the focus of the STA's true target is revealed. Such occurrences are never good for business or health and significantly add to anxiety levels while driving a desire to reach a speedy settlement.
We have been involved where the STA has relied on requests for mutual assistance between nations; for example, by requesting access to all manner of private financial information including personal bank statements. The UK's exchange of information team at HMRC is experienced at handling such requests and considers them carefully and in accordance with the relevant legislation and case law when deciding whether to issue a Financial Information Notice (commonly called a FIN). There is no right of appeal against a FIN. If there is a disagreement, the remedy is to seek a judicial review. We have seen this time and again and often work together across teams and offices – as well as with specialist lawyers in other jurisdictions – to provide a strategic approach, globally, and appropriately defended should this issue arise.
Spain may offer more hours of sunshine and better tapas and wine than one can enjoy in the UK, but there are dark clouds to bear in mind when dealing with Beckham's law, as well as all major tax enquiries and criminal investigations. So, it's important to seek advice on your tax position to ensure you are protected, now and in the future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
