Tax residency in Spain: is it worth changing your tax residency to Spain in 2024?
The demand for Spain among immigrants and digital nomads around the world has grown exponentially.
Whether it's because of the Mediterranean climate, the language, the music, the soccer, the architecture, the safety, the quality of life, etc. The fact is that Spain had 56,800 irregular immigrants in 2023 alone[1].
Faced with this significant number, Spain has been creating tax incentives for qualified professionals who want to immigrate to the country, thereby encouraging regular immigration.
However, in order to enter Spain on a regular basis and benefit from the tax incentives, the immigrant - whether a digital nomad or not - will have to do a lot of planning: financial, migratory, fiscal, among others.
Before going into taxation itself, it's worth explaining what tax residency is.
[1] https://www.folhape.com.br/noticias/chegada-de-imigrantes-irregulares-na-espanha-quase-dobra-em-2023/309401/
What is Tax Residency?
Tax residence is nothing more than the place where an individual carries out their vital economic activities. This place can be their fixed residence or their habitual residence.
Digital nomads do not have a fixed residence, but they do have a habitual residence. Therefore, the assertion that, because they have no fixed abode, they don't have to declare their taxes anywhere is false.
It doesn't matter if the digital nomad travels every 3 months, every month or every week, everyone in the world will have a tax residence somewhere.
If you declare taxes for two countries at the same time, you will have double tax residence, i.e. you will be subject to declaring and paying taxes for two countries at the same time.
Taxes in Spain
Spain levies income tax on individuals through the "Impuesto sobre la Renta de Las Personas Físicas - IRPF".
All citizens who are considered taxpayers under Spanish law are obliged to declare and pay the IRPF every year.
To do this, they add up all the income earned over the course of a year, and apply the following rates, respecting the progressivity according to the total amount of income (table updated until 2023):
Annual Income | Rate |
From 0€ to 12.450€ | 19% |
From 12.450€ to 20.2000€ | 24% |
From 20.200€ to 35.200€ | 30% |
From 35.200€ to 60.000€ | 37% |
From 60.000€ to 300.000€ | 45% |
More than 300.000€ | 47% |
Those considered by Spanish law to be tax residents in Spain have the duty to declare the "Impuesto Sobre La Renta De Las Personas Físicas" every year, in a universal and progressive manner.
In other words, they must declare all of their income, and those who earn more will contribute more.
It is important to remember that anyone who stays in Spanish territory for more than 183 days will automatically be considered a tax resident in Spain.
In addition, those who stay in Spain for more than 183 days, whether as a habitual resident or a permanent resident, will have to worry about VAT (Value Added Tax). VAT is the tax on products and services levied and instituted in all European Union countries.
In the future, I'll be writing an article about VAT, both in the European Union and in Spain.
In addition, those wishing to start a business in Spain will have to worry about "Impuesto sobre la Renta para Persona Juridica - IRPJ", in addition to IRPF and VAT.
However, there is a beneficial tax regime that Spain grants, through the Beckham Law, which disqualifies the individual as an ordinary tax resident, placing them in a sui generis category, even if they stay for more than 183 days in Spain.
Anyway, we'll go into Beckham's Law with the main changes to the Startups Law.
What is Beckham's Law?
The Beckham Law was introduced in 2005 by Royal Decree 687/2005 with the aim of attracting skilled foreign labor to Spain.
Those who fall under this regime will be able to stay in Spain for a further 183 days without being considered ordinary tax residents, unlike other Spanish taxpayers.
Beneficiaries of this scheme will only pay income tax earned within Spain at a flat rate of 24% or 47%.
However, there are a number of requirements to qualify for the Beckham Law, such as:
a) you must not have resided in Spain for the last 5 years;
b) employees who come to Spain to work for a Spanish company or who have an employment contract with a foreign company; or
c) self-employed persons who can prove that they intend to open a business in Spain; or
c) who is a high-income expatriate holding managerial positions in a Spanish company or;
d) who is an administrator immigrating to Spain to work for a Spanish company or who is an administrator of a start-up.
Those who fall under this regime can benefit from it for up to 5 years.
However, it is important to note that, despite falling under this regime, the individual will remain tax resident in their country of origin.
An important note: the granting of a digital nomad visa has nothing to do with falling under the Beckham Act tax regime. It is possible to have a digital nomad visa and file the IRPF tax return like other Spanish taxpayers and apply the progressive rate of the IRPF table.
If you want to understand more about the changes to the Beckham Law through the Startups Law, I've written about it in this article.
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. All you have to do is contact us via WhatsApp or by email: thyanipuppio@gmail.com
After all, is it worth changing your tax residence to Spain?
There is no right answer to this question. Everything will depend on each specific case. In other words, the reality and objectives of each individual.
In law, especially when it comes to taxation, although it is largely a matter of calculations, the answer will never be the same for everyone. In other words, there is no 2 + 2 = 4 for all cases and all people. What fits perfectly for one person may not fit for another because of a simple detail, which can often go unnoticed or even ignored because the person considers such a detail "irrelevant".
That's why it's extremely important for those who intend to create some kind of link in Spain, whether by choosing to live there for longer than 183 days, or to carry out some economic activity within the territory as a self-employed person or entrepreneur, to carry out tax planning.
Alert for Double Tax Residency
Even if they fall under Beckham's Law, they do not leave their country of origin. In other words, they will remain tax resident in their country of origin.
The mistake many people make, mainly because they are unfamiliar with tax legislation, is to declare in their country of origin only the income earned in their country of origin, and to declare in Spain only the income earned in Spain.
However, what many people don't know is that this is not just a mistake, it is a crime of tax evasion.
The big headache of having a criminal conviction is a criminal record. If you have a criminal record, your passport will be invalidated. They won't be able to leave the country.
In addition, Spain requires you to present a valid passport in order to obtain a digital nomad visa. In other words, no valid passport, no visa.
What's more, in addition to a possible criminal conviction, the tax authorities will be able to demand the amounts evaded retroactively, plus interest and monetary correction.
Spain has several cooperation agreements to exchange information on its taxpayers in order to detect fraud and evasion, as well as criminal cooperation treaties.
It is therefore extremely important to carry out tax planning, as in addition to optimizing tax payments, it avoids various problems, such as tax evasion and double taxation.
If you are interested in hiring professional legal services to carry out tax planning, we are a law firm specializing in the subject. To do so, please contact us via WhatsApp or by e-mail: thyanipuppio@gmail.com
