When thinking of a place in the sun and looking at the possibility of moving to Spain to work, individuals may not be aware that Spanish legislation has a special and beneficial tax regime that might be applicable.
Several years ago the Spanish administration, as part of its legislative initiatives to increase the international presence of the Spanish economy, introduced a regime aimed at attracting foreign talent to work in Spain – so-called ‘impatriates’.
This special regime will allow individuals who have acquired tax residence in Spain by moving to this country to opt to pay tax as non-residents in Spain during the tax year in which they move to the country, and for the next five tax years. In other words, they will pay tax only on income originating in Spain at the rate applicable to non-residents. They will not pay tax on income obtained or originating outside Spain without any remittance rule being applicable.
The basic requirements to apply this regime are the following:
• An individual wishing to take advantage of this regime must not have been resident in Spain during the previous 10 years.
• The move must be due to an employment contract.
• The work must be performed in Spain.
• The work must be carried out for a company or entity resident in Spain, or for a Spanish permanent establishment of a non-resident entity.
The taxation that is applicable includes a fixed rate of 24 per cent for income considered to be obtained in Spain as well as a fixed rate of 18 per cent for earnings from investments and capital gains considered to be obtained in Spain. Wealth tax only applies to assets located in Spanish territory or assets than can be exercised in Spain.
Consequently, from the point of view of personal taxation, the application of this special regime means paying income tax on earnings from employment originating in Spain at a fixed rate of 24 per cent for the duration of the regime. In addition, to the extent that the individual has no other income originating in Spain, no further Spanish income tax would be payable during this period. Finally, no remittance rule is applicable.
Furthermore, no wealth tax would be payable in Spain on rights or assets that are not located in Spanish territory; only those in Spain would be taxed. In some regions, such as Madrid, it is expected that the wealth tax will be abolished in 2009.
However, the impatriates regime is a personal one; it does not apply to the family of the person who lives and works in Spain. This means that it is necessary to examine the extent to which the move could affect the assets and income of other family members who might also decide to live in Spain, but to whom the regime might not be applicable.
So what does an impatriate have to do to qualify for this tax regime? They would need to give formal notice to the Spanish tax authorities within six months of the date of starting the job for which they are registered for social security in Spain, or the job shown in the documentation allowing them to remain in the social security system of their country of origin. After that, within a maximum of 10 working days, the tax authorities would issue a certificate for the Spanish employer, allowing it to deduct income tax at source under the special regime.
Accordingly, and following the Spanish Tourist Office publicity campaign ‘Smile, you are in Spain’, those taking advantage of this regime will have an additional reason to smile.