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Exploring legal alternatives to Spain's Beckham Law tax regime

Yesterday 15:20

By: Dakir Madiha

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Spain’s Beckham Law, offering a flat 24 percent tax rate for eligible foreigners, has long attracted international professionals and investors. However, recent scrutiny and legal challenges have led many to explore other legitimate tax-saving options. Here’s a look at some of the alternatives available.

Understanding Spain's Beckham Law

Introduced in 2004, Beckham’s Law allows certain foreign residents to pay a flat 24 percent tax rate on Spanish income up to €600,000 annually. It also exempts income earned outside Spain from taxation. Named after footballer David Beckham, who was the first to benefit from the regime when he joined Real Madrid, the law has been particularly appealing to remote workers, though it excludes self-employed individuals.

However, the law has faced criticism in recent years. Heightened scrutiny by Spain’s tax authorities, particularly targeting U.S. citizens, and a growing number of tax audits and court cases have raised concerns. Reports indicate that over 200,000 tax claims have been filed in Spain in the past three years, with only 40 percent ruled in favor of taxpayers.

Alternatives to Beckham’s Law

1. Incorporate your business abroad

Professionals with international or diversified income streams often choose to incorporate companies in countries like the UK (LTD) or Germany (GmbH). This approach allows for tax optimization, provided operations, management, and employees are genuinely based in the country of incorporation. Ensuring the chosen country has a double taxation agreement with Spain is critical to avoid dual taxation. Consulting a tax lawyer is vital to ensure compliance.

2. Create a limited company in Spain

For digital entrepreneurs, forming a limited company in Spain can be advantageous. While personal income tax (IRPF) can climb to 47 percent, corporate income tax is capped at 25 percent. Additionally, business expenses such as travel, equipment, and software can be deducted. However, this option comes with administrative and operational costs that must be considered.

3. Start a holding company

High-net-worth individuals may benefit from establishing a holding company to manage assets and income. This structure can optimize corporate tax and offer access to specific tax regimes. However, it requires careful planning and professional guidance to ensure legality.

4. Establish tax residency elsewhere

By spending fewer than 183 days per year in Spain, individuals can establish tax residency in another country. To succeed, one must ensure their primary economic interests and family ties are not based in Spain. A tax residency certificate and adherence to double taxation agreements are essential for this option.

5. Transition to business ownership

Setting up as a business owner with commercial activities, rather than operating as self-employed, can provide tax advantages such as expense deductions. This option is often a stepping stone to forming an LLC once income reaches a certain threshold. Professional advice is recommended to navigate this process effectively.

Final advice

While Beckham’s Law remains an attractive option for some, its complexities and challenges have prompted many to explore alternative tax arrangements. Regardless of the approach chosen, seeking advice from tax professionals is crucial to ensure compliance and maximize benefits.