Regular legal-contributor Raymundo Larraín Nesbitt tells us about a relatively new tax scheme the Spanish Treasury quietly introduced last year that works similarly to the UK’s popular non-dom tax arrangement, and which could make Spain a more attractive destination for wealthy expats when word of this pilot scheme gets around.
By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of July 2016
The Spanish Tax Office quietly, albeit boldly, introduced a tax scheme inspired by the popular UKs non-domiciled tax regime which has proven most successful at attracting foreign investments (particularly in the Greater London area). It is a lukewarm attempt to attract high-achievers and create wealth fostering job creation.
Surprisingly, this pilot initiative has flown under the radar as I do not recall having read a single article published on the matter. I believe it merits exposure and should be made known to our large expat community as the savings on taxes are quite significant for the privileged few who are lucky enough to qualify.
Right off the bat I should make it clear that the criteria to benefit from it is fairly restrictive and it is geared at high-earning individuals who plan to relocate to Spain for professional reasons. Which means that most expats will not qualify.
Without further ado I analyse succinctly what it consists on and how to benefit from it. I will structure it as a FAQ for ease of comprehension.
Who is it aimed at?
This law is tailored to cater for senior corporate individuals (think of a multinational relocating a top executive in Spain). These over-qualified individuals are the ones that will reap the tax benefits of the generous provisions set out by this law. But other cases, such as high-profile artists, are also included.
Professional athletes, such as football players, are barred from making use of it.
The Tax Benefits
In a nutshell, this tax scheme allows expat taxpayers to make spectacular savings on paying Income Tax in Spain. If you opt into this scheme you stand to benefit from both income derived in Spain as well as any other worldwide income.
Who can apply?
When does it apply?
It is time-limited and applies on the fiscal year of relocation as well as on the following five years (up to six years).
Timeline to apply?
Six months as from the start of the economic activity or as from enrolling in Spain´s Social Security (equivalent to the UKs NHS).
Fall from Grace
Unfortunately, this initiative falls short from its UK counterpart for a number of reasons What keeps it from being great in my mind is the fact that the Tax Office requires that the relocation comes as a result of a job offer. This leaves out entrepreneurs which are hands down the greatest source of wealth and job creation through their drive and ingenuity. This, coupled with the fact that it is time-limited, and that the tax is not capped for income derived in Spain holds it back in my opinion from being stellar.
The Spanish Tax Office should be heartily congratulated on offering such tax incentives to high-achievers. This type of tax scheme attracts talented individuals, fostering wealth and jobs at a time where it is much needed in Spain.
It is most certainly a step in the right direction and I for one hope the AEAT continues to venture down this road. Kudos to them.
If you plan to relocate to Spain as a result of a work commitment and happen to earn a substantial amount you may want to look into this tax scheme. Unless you enjoy overpaying taxes that is; bless your heart.
“If you fail to plan, you plan to fail.” – Benjamin Franklin.
Founding Father of the United States. Exceptionally gifted scientist, inventor, diplomat, writer, printer, postmaster and political theorist. Even politician in his spare time; nobody’s perfect.
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