New Beckham Law, an Opportunity for Economic Development in Spain

You are a retired individual with significant wealth, an investor, an entrepreneur, or simply a digital nomad. What would be your ideal destination to invest your money if you were not Spanish? Climate, gastronomy, culture, infrastructure, cities like Madrid, Malaga, or Seville, among many in Spain, have a golden opportunity with this week’s announcement that Portugal will eliminate tax exemptions for foreign pensioners in 2024.

History

The tax break was created in 2009 for foreigners living in Portugal for at least half the year, and it was total until 2020. Later, it was modified, and new residents could opt for a reduced tax rate of 10%.

The measure, whose procedure was simplified in 2012, aimed to attract foreign capital to Portugal, a country heavily affected by the debt crisis.

This led to the massive arrival of foreigners with the Golden Visa, in exchange for buying a home or making other investments, or with the tax advantages of the impatriates’ regime.

Why is Portugal removing the measure?

Thousands of protesters marched through the streets of Lisbon and twenty other Portuguese cities last Saturday, calling for more decisive action from the socialist government.

The non-habitual resident tax regime has become unpopular.

This has forced the Portuguese government to withdraw the measure. The socialist leader justified this by saying that maintaining this measure in the future would mean prolonging an unjustified fiscal injustice and would also be an indirect way of continuing to drive up property prices. He points out that between 2012 and 2021, the cost of housing has risen by 78% in Portugal.

10,000 residents

Around 10,000 people have benefited from this tax exemption, the majority being French, British, or Italian pensioners who have settled in the Lisbon region or in the coastal cities of the Algarve, and their presence has helped boost the real estate market.

The question is, are only 10,000 residents responsible for the rise in the real estate market in Portugal?

Beckham Law

The “Beckham Law,” as it is popularly known, is not a law dedicated exclusively to football or David Beckham, although it is closely related to him due to its impact on Spanish football. Law 35/2006, of November 28, on Personal Income Tax and the partial modification of the laws on Corporate Income Tax, Non-Resident Income Tax, and Wealth Tax, is the official regulation we refer to when talking about the “Beckham Law.”

To go into more detail: before its reform in 2010, the Law allowed foreign athletes who moved to Spain to be taxed as non-residents for a period of six years, despite living in the country. As non-residents, these athletes paid taxes only on the money they generated in Spain (rather than their global income) and at a fixed low rate of 24%, instead of the 47% (a percentage that could vary depending on the year and tax reforms) that residents in the highest income bracket paid.

This regulation was especially advantageous for elite footballers who, in addition to their salaries, generated significant income from image rights, advertising, etc. The favorable tax regime became an attraction for many international footballers to join the Spanish League. However, due to criticism and the economic crisis, the law was modified in 2010, and new footballers arriving in Spain from that date could no longer benefit from this tax regime.

New Beckham Law

Spain aims to attract executives, qualified professionals, and digital nomads with improvements in tax benefits.

The new Beckham law, promoted by Vice President Nadia Calviño, involves changes to the tax regime embedded in the Startup Law approved in December. These modifications enhance the appeal of the tax regime for Spanish impatriates, which is much more limited than Portugal’s, although Italy and Greece are also competitors.

It is expected that once the Council of State gives its approval, the new Model 149 and the modification of some details of the tax benefits will be approved by ministerial order. In fact, it was supposed to have been approved on July 30, but the call for elections paralyzed everything, and now it is expected to be approved this October.

Under the Spanish regime, impatriates are taxed at 24% on the initial tranche of €600,000, compared to 20% for all income in Portugal. There is an exemption on remuneration in kind for startups from €12,000 to €50,000, including stock options, and 50% of managers’ participation in profits (carried interest, which the Tax Office considers as labor income) will be eligible for a tax benefit. The deduction for investing in new businesses increases from 30% to 50%, with a maximum base raised from €60,000 to €100,000. To make it easier for executives or professionals to return, the minimum period the taxpayer must have been out of Spain is reduced from 10 to five years to qualify.

Opportunity

Spain has high chances of attracting international talent that previously only favoured Portugal or was debating between the two countries.

For some time, the regime of non-habitual residents has been blamed for the shortage of housing, especially for young people, but no study confirms such a relationship. Instead, the Spanish regime has been improved with the Startup Law and remains very attractive to executives and scientists from around the world.

Why It’s Positive for Spain

Attracting investment through tax exemptions can have several benefits for a country’s economy and its citizens:

1. Investment and Economic Growth

The arrival of investors entails investments in different sectors of the economy, promoting economic growth and job creation.

2. Stimulus to the Real Estate Market

They can invest in properties, thus stimulating the real estate market and possibly increasing indirect tax revenues through property and transaction taxes.

3. Consumption

They can increase the consumption of goods and services, boosting various industries and, in turn, promoting production and employment.

4. Development of Infrastructure and Services

Direct investment can be directed towards the development of infrastructure and the improvement of services, benefiting both the local population and new residents.

5. Economic Diversification

Foreign investment can help diversify the economy, reducing dependence on specific sectors.

6. Income for Citizens

The presence of new wealthy residents can generate job and business opportunities for local citizens.

7. Increase in Tax Revenues

Even with tax exemptions granted, increased economic activities and consumption can generate additional tax revenues in other areas, such as VAT or taxes on goods and services.

8. Tourism Development

The presence of wealthy foreigners can also attract more visitors, boosting the tourism sector.

Time will tell if a country with the cultural and historical appeal of Spain seizes this opportunity. As for the criticisms and opponents of these measures, the key lies in implementing policies that maximize the benefits while mitigating potential negative effects.