As a very broad statement, the special tax regime applicable to workers relocated to Spanish territory or the “Impatriate” tax regime, created in 2004, would allow taxpayers to be taxed at a fixed rate on the income they obtain in Spain, subject to certain conditions highlighted below. Such regime, designed to attract talent and highly skilled workers (researchers, scientists, executives…) to Spain, was also applied, since its creation, by other taxpayers with significant social relevance, such as professional sportsmen. In fact, the regime was known as “the Beckham amendment”, since its enactment coincided with the signing of football player David Beckham.
The “Impatriate” regime allows individuals, who become tax resident in Spain as a result of relocation and who fulfil a series of requirements, to choose to be taxed under Non-Resident Income Tax rules, with certain special conditions described below. Broadly, election must be formally notified within 6 months as from the start of the activity.
Thus, salary income obtained or generated by the taxpayer on Spanish territory would be taxed at a fixed 24% rate, for the first 600,000 euros and at a fixed 45% rate over any salary income in excess of such amount. Such fixed rates apply instead of the progressive Personal Income Tax scale. Moreover, income and gains from capital investment obtained in Spain would be taxed at a rate between 19% (for the first 6,000 euros) and 23% (from 50,000 euros onwards).
For these purposes, it is important to stress that the current wording of the regime provides for a presumption whereby all of the salary income derived by the taxpayer, while the “Impatriate” Regime applies, would be deemed to have been obtained in Spain, regardless of whether such income derives from work actually performed in Spain or abroad. Such presumption would not apply to salary income obtained by the taxpayer before the relocation to Spain or once notification has been given that such relocation has ended.
In order to be eligible for this regime, the taxpayer should fulfil certain requirements, such as:
- The taxpayer must not have been tax resident in Spain at any time in the 10 tax years prior to relocation.
- The relocation must take place as a result of an employment contract (with the exception of the specific employment law relationship with professional sportsmen, which has been expressly excluded from this regime since 2015) or a result of holding a directorship in a company, provided the taxpayer either has no equity holding in such company or such holding is below the related-parties threshold.
- The taxpayer must not derive income which could be considered as income obtained through a permanent establishment in Spain.
Once election for this regime has been made, the regime would apply in the year during which the taxpayer becomes tax resident in Spain and the subsequent five tax years, unless the taxpayer expressly waives the regime or is automatically excluded due to failure to comply with the requirements necessary for its application. In case of automatic exclusion, such exclusion would take effect as from the tax year where the failure to comply has taken place.
The Spanish General Directorate for Taxes (Dirección General de Tributos “DGT”) has issued guidance (consulta vinculante V1739-17, de 06 de julio de 2017) on the motives for exclusion from the regime, namely, on the need to maintain the employment contract or the directorship, which were grounds for relocation to Spain, during whole term of application of the regime. A strict reading of the requirements for the “Impatriate” regime would lead to automatically excluding all taxpayers who, as a result of a change in their circumstances, would find themselves temporarily inactive due to the discontinuation of the employment contract or the directorship, which caused the relocation.
However, the DGT, in an interpretation consistent with the purpose of the tax incentive and with previous rulings (consulta vinculante V0432-17, de 17 de febrero de 2017 y consulta vinculante V1053-17, de 04 de mayo de 2017), has considered that the fact that the taxpayer remains unemployed or inactive during a brief period of time would not result in the automatic exclusion from the regime, provided that the taxpayer can start a new employment relationship or a directorship, which would fulfil the requirements for the application of the regime.
Although the DGT has not explained what would be considered as a brief period of time for these purposes – we understand that this should be a reasonable period and would ultimately depend on the personal circumstances of each taxpayer –, the DGT does consider the case of a taxpayer voluntarily ending the employment relationship, which resulted in the relocations, to start a new one. In such case, the conclusion would be the same: such change should not lead to an exclusion from the “Impatriate” regime.
As the DGT correctly points out, the aim of the regime is to attract to Spain taxpayers eligible for this regime and this is not at odds with the fact that, once the employment contract or the directorship has ended, the taxpayer may remain unemployed or inactive during a brief period of time.