Right before the summer break, the Spanish Government has published a draft bill (Anteproyecto de Ley de fomento del ecosistema de las empresas emergentes) which significantly improves the existing special income tax regime for expats, with the hope of attracting professionally qualified and high-income earning professionals to the country.
First things first: the special tax regime’s already attractive features would not change. Expats who move their tax residence to Spain and opt for the application of the regime will enjoy already existing tax advantages:
- Income tax is due only on Spanish source income and employment income.
- Employment income is subject to tax at a reduced 24% rate for the first EUR 600,000 of income per year (a rate of 47% applies to any additional income).
- Net Wealth Tax is due only on assets located in Spain (and, in the case of those moving to the Madrid region, a full exemption will apply).
The draft bill would extend the period during which this special regime can be applied as well as easing its requirements. At present, the regime applies during the tax year in which the taxpayer moves their tax residence to Spain and for five years after that. Under the new regime, taxpayers could apply it for ten years. And as for the requirements to qualify for the regime, it would be sufficient if the taxpayer had not been a Spanish tax resident during the preceding five tax years (as opposed to the preceding ten as currently required). However, the taxpayer would still have to move to Spain as a consequence of a job assignment, new job or appointment as a director of a Spanish company (this requirement has not changed).
Another significant improvement is that the taxpayer’s spouse and children under the age of 25 (or of any age if legally disabled) will also be able to benefit from the special regime (as is already possible in the Basque Country region) if they move to Spain at the same time as the taxpayer, or within the first tax year in which the regime is applicable. They would also need to have not resided in Spain in the preceding five tax years, but the requirement of moving as a result of a job assignment, new job or appointment as a director of a Spanish company would not apply to them. They would therefore be able to work from home (or not work at all) and still be eligible for this regime.
The draft bill also contains provisions to facilitate the issuance of work permits to remote workers (when needed), as well as other tax incentives to invest in Spanish start-ups, but that is a story for another blog (perhaps in September, once we have enjoyed a little downtime to unwind). But for now, this is great news if you are thinking of moving to Spain and, if the bill is ultimately passed, it will significantly improve Spain’s international tax appeal. That, together with our fantastic climate, vibrant culture and rich heritage should be enough to make up your mind. But let's not get ahead of ourselves, as the draft bill still has to pass through Congress unscathed.