NOMAD DIGITAL WORKERS LAW DECEMBER 2022 – NEW SPANISH “BECKHAM LAW”
The Spanish system aimed at attracting foreign talent is widely known, through a special tax regime for workers posted to Spanish territory, better known as the Beckham Law (LIRPF art.93).
This system results in those displaced to Spain being able to «opt» to be regulated by the Non-Resident Income Tax (IRPFNR), during the tax period in which the change of residence takes place and the following five years.
Beckham Law Improvement
December 23, 2022, a new law has been published, L28/2022, BOE 22-12-22 . Also called “Startup Law”. This law has the purpose of expanding and improving the conditions of the regime for workers, professionals, entrepreneurs, investors and those displaced to Spain.
This law makes access to the special regime easier by reducing the number of tax periods prior to moving to Spanish territory during which the taxpayer cannot have been a tax resident in Spain, which goes from 10 to 5 years. In other words, before this law it was required that the applicant had not been a tax resident in Spain for at least 10 years. This new regulation will reduce this time limitation to only 5 years.
Who can have access to this new regime?
1.- FOREIGN EMPLOYEES UNDER EMPLOYEE CONTRACT IN SPANISH COMPANIES : As a consequence of an employment contract, with the exception of the special employment relationship of professional athletes regulated by Royal Decree 1006/1985, of June 26.
This condition shall be deemed fulfilled in the following cases:
- An employment relationship, ordinary or special, or statutory is initiated with an employer in Spain
- When the displacement is ordered by the employer and there is a letter of displacement from the latter or when, without being ordered by the employer, the work activity is provided remotely, through the exclusive use of computer, telematic and telecommunication means and systems.
In particular, this circumstance will be understood to have been fulfilled in the case of employed workers who have the » visa for international teleworking » provided for in Law 14/2013, of September 27, to support entrepreneurs and their internationalization.
2.- ADMINISTRATOR OF A SPANISH COMPANY/ENTITY.
In these cases, the visa and the possibility of access to this regime will be granted in all those cases in which the applicant holds the status of administrator in a Spanish company.
However, this regime will not apply in the event that said company is a «Heritage Company».
Those who wish to carry out in Spain an economic activity classified as an entrepreneurial activity, in accordance with the procedure described in article 70 of Law 14/2013, of September 27 .
4.- HIGHLY QUALIFIED PROFESSIONALS
As a consequence of carrying out an economic activity in Spain by a highly qualified professional who provides services exclusively to companies classified as «emerging» within the meaning of article 3 of Law 28/2022, of December 21 , of promotion of the ecosystem of emerging companies, or that carry out training, research, development and innovation activities, receiving for this a remuneration that together represents more than 40% of all business, professional and personal work income.
A “start-up company” is understood to be :
- Those that develop an innovative entrepreneurship project that has a scalable business model, as provided in article 4 of the law.
– When the company belongs to a group of companies defined in article 42 of the Commercial Code, the group or each of the companies that comprise it must comply with the above requirements.
– Those whose activity requires the generation or intensive use of scientific-technical knowledge and technologies for the generation of new products, processes or services and for the channeling of research, development and innovation initiatives and the transfer of their results.
A start-up company will be considered innovative when its purpose is to solve a problem or improve an existing situation by developing new or substantially improved products, services or processes compared to the state of the art and which carries an implicit risk of technological failure. , industrial or in the business model itself.
Regulations will determine the way to accredit the status of highly qualified professional, as well as the determination of the requirements to qualify the activities as training, research, development and innovation.
5.- DIGITAL NOMADS :
One of the most important novelties of this «New Beckham Law» is that it extends the possibility of taking advantage of this regime to those who are in the following situations:
- a) Employees and employees in foreign companies resident outside Spanish territory. The applicant must
- Work effectively through a work or employment contract, with a foreign company
- You must be able to travel to Spain to carry out said work digitally, remotely, exclusively using computer, digital and telecommunication means.
- b) Self-employed professionals who establish themselves in Spain to provide services to foreign companies.
In addition, in these cases, the possibility of these professionals providing their services for entities resident in Spain is also allowed, with a maximum of 20% of their activity.
- That they have not been residents in Spain during the five tax periods prior to the one in which they move to Spanish territory (this period of five tax periods was introduced by Law 28/2022, of December 21 , known as «Ley of startups », with effect from January 1, 2023; previously there were 10).
- That the displacement to Spanish territory occurs, either in the first year of application of the regime or in the previous year, as
- That they do not obtain income that would be classified as obtained through a permanent establishment located in Spanish territory, except in the case provided for in the last two points above.
- The taxpayer who opts for the taxation of the Non-Resident Income Tax will be subject to real obligation in the Wealth Tax.
- The special regime will be applicable during successive tax periods in which, when such conditions are met, it is also applicable to the taxpayer provided for in article 93.1 of the LIRPF . The terms and conditions for the application of this special regime will be established by regulation.
The spouse of the taxpayer referred to in article 93.1 of the LIRPF (who meets the aforementioned requirements) and their children, under 25 years of age or whatever their age in case of disability, or in the event of no relationship matrimonial, the parent of these , provided that the following conditions are met:
- That they travel to Spanish territory with the taxpayer referred to in article 93.1 of the LIRPF or at a later time, provided that the first tax period in which the special regime applies has not ended.
- That they acquire their fiscal residence in Spain.
- That they meet the conditions referred to in letters a) and c) of article 93.1 of the LIRPF (they have not been residents in Spain during the five tax periods prior to the one in which they move to Spanish territory and that they do not obtain income that is would qualify as obtained through a permanent establishment located in Spanish territory, except in the case provided for in letter b ). 3rd and 4th of article 93.1 of the LIRPF).
- That the sum of the taxable bases, referred to in letter d) of article 93.2 of the LIRPF , of the taxpayers in each of the tax periods in which this special regime is applicable, is less than the taxable base of the taxpayer referred to in section 1 of article 93 of the LIRPF .
What tax advantages does the new Beckham Law have?
The most important advantage of applying this regime is that taxpayers will not be subject to Personal Income Tax, but to Non-Resident Income Tax.
This is the comparison:
In particular, the following rules will apply in this regime:
- All income from economic activities classified as an entrepreneurial activity or income from work obtained by the taxpayer during the application of the special regime shall be understood to be obtained in Spanish territory.
- For these purposes, the income derived from an activity carried out prior to the date of displacement to Spanish territory or after the date of the communication provided for in section 3 of article 119 of the RIRPF, without prejudice to its taxation when the aforementioned income is understood to be obtained in Spanish territory in accordance with the provisions of LIRNR.
- For the purpose of liquidating the tax, the income obtained by the taxpayer in Spanish territory during the calendar year will be taxed cumulatively , without any possible compensation between them.
- The tax base will be made up of all the income referred to in the previous point, distinguishing between the income referred to in article 25.1.f ) of the LIRNR , and the rest of the income.
In other words, the following returns will be excluded from the taxable base of this tax :
1st Dividends and other returns derived from the participation in the own funds of an entity.
2nd Interest and other income obtained from the assignment of own capital to third parties (loans and credits)
3rd Patrimonial gains that are revealed on the occasion of transmissions (sale) of patrimonial elements (both movable and immovable property).
In these cases, said income will be taxed as «Savings» and «Capital Gains», as follows:
Amount to pay
WITHHOLDINGS AND INCOME ON ACCOUNT
Withholdings and payments on account for payments on account of the tax will be made, in the terms established by law, in accordance with the Non-Resident Income Tax regulations.
However, the percentage of withholding or payment on account of work income will be 24%.
When the remuneration paid by the same payer of work income during the calendar year exceeds 600,000 euros , the withholding percentage applicable to the excess will be 47% .
Determination of the differential fee
The differential rate will be the result of reducing the full rate of the tax in:
- The deductions to the quota of article 26 of the LIRNR (deductions for donations and withholdings and payments on account made on the income of the taxpayer). In addition to the payments on account referred to in article 114.3 of the RIRPF , the installments paid on account of Non-Resident Income Tax will also be deductible.
- The deduction for double international taxation referred to in article 80 of the Tax Law applicable to work income obtained abroad, with a limit of 30% of the part of the full tax corresponding to all the income from the work earned in that tax period.
What should I do to qualify for this regime?
- The exercise of the option to pay non-resident income tax must be done by using form 149 , which will be presented within a maximum period of six months from the start date of the activity that appears in the registration in Social Security in Spain or in the documentation that allows, where appropriate, the worker to maintain the Social Security legislation of origin.
- This option may not be exercised by taxpayers who have availed themselves of the special procedure to determine withholdings or payments on account of work income provided for in article 89.B) of the RIRPF .
Duration of the special regime
The special regime will be applied during the tax period in which the taxpayer acquires his habitual residence in Spain and during the five following tax periods, without prejudice to the waiver or exclusion of the regime.
For these purposes, the tax period in which residence is acquired will be considered to be the first calendar year in which, once the displacement has occurred, the stay in Spanish territory exceeds 183 days.
Resignation and exclusion from the special regime
Taxpayers who have opted for the special regime may waive its application during the months of November and December prior to the start of the calendar year in which the waiver should take effect.
The procedure for waiving this regime is as follows:
- Presentation to your retainer of the communication of data provided for in article 88 of the RIRPF, and he will return a sealed copy (Communication of data from the recipient of earned income to your payer)
- Presentation to the Tax Agency of the communication model provided for in article 119 of the RIRPF, attaching a sealed copy of the aforementioned communication ( Model 149 ) .
Exclusion from the special regime occurs due to non -compliance with any of the aforementioned conditions that determine its application and will take effect in the tax period in which the non-compliance occurs.
Excluded taxpayers must report this circumstance to the Tax Administration within a month from the breach of the conditions that determined its application.
Withholdings and payments on account will be made in accordance with personal income tax regulations, from the moment the taxpayer notifies his withholding officer that he has breached the conditions for the application of this special regime, attaching a copy of the aforementioned communication.
At the same time, it will submit to its retainer the communication of data provided for in article 88 of the RIRPF . The calculation of the new withholding rate will be made in accordance with the provisions of article 87 of the RIRPF , taking into account the total amount of annual remuneration.
Taxpayers who renounce or are excluded from this regime will not be able to opt for its application again.
I want to be a Digital Nomad in Spain, what I need to do now?
FIRST STEP.- FORMALISATION OF YOUR STAY IN SPAIN
You need to formalise your ENTRY or your STAY in Spain.
1.- For the ENTRY – VISA: You need to obtain the VISA for Digital Nomad on the Consulate of your country of origin. So, in case you are in UK, USA, Canada, etc, you need to apply for the VISA there.
This VISA will have ONE YEAR validity, while you may o
2.- For the STAY-RESIDENCE PERMIT: In case you are formally stay in Spain already, you may apply directly for the RESIDENCE PERMIT.
The digital permit can be obtained at the UGE – Unidad de Grandes Empresas from Spain.
Requirements to obtain the VISA / PERMIT:
- You need to proof that your work can be carried out remotely.
- That you are contracted by a foreign company. You need to demonstrate that you have a professional relationship with the company for at least three months before the application, and that the company allows your remote working.
- In case of freelance, you need to proof that you work with at least one company outside Spain, and supply the mercantile contracts of collaboration with these companies, where it is also mentioned that you may carry out the work to them
- Criminal records from the country (countries) that they you have lived in for the last five years.
- Private Health insurance policy for at least one year, from a company legally authorized to deal in Spain.
- Economical support: You need to proof, that you and the rest of the members of the family, that you have sufficient funds to live in Spain.
- Visa holder: You need to have the 200% of the Spanish minimum salary, so €1,100 x 200% = €2,200.
- Spouse or partner – 75% of the minimum salary, so €1,100 x 75% = €825.
- Further dependents (i.e. children) – 25% of the minimum salary each, so €1,100 x 25% = €275 each.
You may provide proof the economical aspects with a copy of your contract stating your salary, salary slips or a certificate from your company stating your salary.
May I pass from existing Non Lucrative Visa to a Digital Nomad Visa?
Yes, you may apply for the Digital Nomad Visa while you are legally in Spain and covered by the Non Lucrative Visa.
SECOND STEP.- REGISTRATION AT THE TAX OFFICE
Once you have your stay in Spain in order, then, you need to register at the Spanish Tax office, in the following way:
1.- Registration in the CENSO, with the Model 030
2.- Once Censo is approved, then, you have to submit the formal application for the Digital Nomad Regime with the Model 149.
3.- Later, you need to present your tax declaration for your yearly incomes with the Model 151.
Other tax obligations:
- Model 720.- This model is to declare international assets for Spanish residents subjected to Resident Income Tax. As you will liable for the NON RESIDENT Income Tax, then, you do not need to submit this model.
- Spanish Wealth Tax.- You will be liable for this tax, but just limited to the assets you have exclusively in the Spanish territory.
PRACTICAL CASE.- REAL CASE INTERPRETATION OF A BRITISH NOMAD IN SPAIN
V1162-22 , of May 26, reviews the case of a natural person who moves to Spain to work as an employee of a British company.
The British employee carries out his main job from Spain, although he makes sporadic trips to the United Kingdom where he also does certain temporary jobs.
The British company makes the withholdings from the salary received by the employee. These withholdings are those that are required by law for UK Income Tax, plus certain UK Social Security withholdings.
In this case, the Spanish DGT analyzes the following:
- In which country should earned income be taxed ?
- If the country where income must be taxed is Spain, how can double taxation be eliminated?
- The possible application of the exemption contained in article 7.p of Law 35/2006 (pensions, benefits and aid received by Social Security), for work done abroad
- Deductibility in Spain of Social Security expenses paid to the United Kingdom.
1.- Regarding the income received for the work actually carried out in the United Kingdom —when the querent travels to that country for labor reasons—.
In this case, the DGT confirms the following:
“ According both to the regulations governing Personal Income Tax (since the querent is a habitual resident in Spanish territory), and to the provisions of the Spanish-British agreement to avoid double taxation (particularly in its article 16.1)— that the United Kingdom may tax the income derived from that work , as paragraph 2 of article 16 of the Spanish-British Agreement is not applicable ”.
In this way , it will be Spain, as the country of residence of the querent, who eliminates the double taxation that could occur —as is clear from article 22.1 of the Hispano-British Agreement—, and must apply to that effect what is established in the Article 80 of Law 35/2006.
2.- Income received for the work carried out remotely from Spain for the British company (teleworking ),
The DGT—in accordance with the provisions of paragraph 1 of the Comments to Article 15 of the OECD Model Convention—considers that the income obtained from teleworking, since it derives from work carried out from a private home in Spain, will only be taxed in Spain , since the employment is exercised in our country —being irrelevant that the fruits of the work are received by a British company.
3.- With regard to the possibility of applying the exemption included in article 7.p of Law 35/2006. Taking into account that in this case work is carried out abroad.
– With regard to work income obtained when the applicant travels sporadically to the United Kingdom, the requirement that the income is due to work actually provided abroad may be understood to be fulfilled, a condition that will not be fulfilled with respect to work carried out in Spanish territory.
— On the other hand, the application of the aforementioned exemption requires that the work be provided for a non-resident company or entity, or a permanent establishment located abroad. Thus, to the extent that the beneficiary company or ultimate recipient of the work provided by the consultant abroad, is a company or entity not resident in Spain, said requirement may be understood as fulfilled.
— Lastly, article 7.p of the aforementioned law requires, as a prerequisite for the application of the exemption, that a tax of an identical or analogous nature to that of this tax be applied in the territory in which the works are carried out and not in the case of a country or territory that has been classified by regulation as a tax haven, without the need for effective taxation, this requirement being considered fulfilled in particular when the country or territory in which the work is carried out has signed an agreement with Spain to avoid international double taxation that contains an information exchange clause, as in this case.
4.- Regarding the possibility of considering Social Security expenses paid to the United Kingdom as deductible.
For these purposes, and after attending to the provisions of article 19 of Law 35/2006, the DGT invokes its doctrine according to which, the references that this law makes to Social Security must be understood as made to foreign equivalent public systems.
Therefore, if in accordance with the current regulations on the matter, the Social Security legislation applicable to the querent is British, for which reason she should have contributed to the Social Security of said State due to the development of her work as an employee, and since such contributions are directly linked to the full income from work declared in the Personal Income Tax, they will be considered a deductible expense for the determination of the net income from work.