Amendments to special tax regime for inbound expatriates

Effective 1 January 2023, Spain’s special tax regime for inbound expatriates has been amended to improve Spain's tax competitiveness and attract talent from abroad.

The final version of Law 28/2022 to Promote the Start-up Ecosystem, was published in Spain’s official gazette on 22 December 2022.

The requirements for applying to benefit from the special tax regime have been relaxed, and now highly qualified entrepreneurs and self-employed workers who provide services to emerging companies (startups) may apply. In addition, spouses and children under 25 may also apply for the special regime.

Individuals who move to Spain and acquire tax residence in Spain may opt to be taxed under the Non-Resident Income Tax (NRIT) rules instead of being taxed under the Spanish Personal Income Tax (PIT) rules. This would imply being taxed at a flat rates of 24% on Spanish-source employment income up to EUR 600,000.

The special tax regime will apply during the tax period in which tax residence in Spain is acquired (once the individual has moved to Spain) and during the five following tax periods, without prejudice to cases of renunciation or exclusion.

Although the regulations that will implement the changes introduced by the Start-ups Law are still pending, the general terms are known. The requirements for applying the special regime include the following:

• The individual must not have been tax resident in Spain during the five tax years before moving to Spain.
• The move to Spanish territory must have one of the following purposes:
  • A work contract (this requirement is met when the individual signs an employment contract with a Spanish employer or when he is relocated to Spain by the foreign employer pursuant to an assignment letter to a Spanish entity).
  • Appointment as administrator of a Spanish entity, if the individual does not acquire an ownership interest in that entity, or if he/she does, the ownership interest does not render them related parties under Spain’s transfer pricing rules.
  • To work remotely from Spain through the exclusive use of computer and telecommunication means and systems. In this case, a relocation order from an employer is not necessary, as long as the individual has an international telework visa.
  • To carry out economic activity in Spain that qualifies as entrepreneurial activity.
  • Highly qualified professional providing services in Spain to start-up companies or carrying out training, research, development and innovation activities, for which the individual will receive remuneration that represents more than 40% of the total income from business, professional and personal work.
• The individual may not obtain income that would be classified as obtained through a permanent establishment situated in Spanish territory, unless the purpose of the move to Spain is described in the last two points above.

Individuals taxed under the special tax regime will be subject to personal income only on income obtained in Spanish territory, except for employment income. All employment income obtained by the individual (in Spain and abroad) during the application of the special regime will be considered obtained in Spanish territory. If the work performed abroad is also taxable in the other country, the individual could apply for an international double taxation deduction. Spain, as state of residence, would apply a tax credit to avoid double taxation.

There is a strict six-month deadline to apply for the special tax regime. The Spanish tax authorities deem this period to begin from the date of commencement of the employment activity in the Spanish Social Security or the documentation that allows the maintenance of home legislation of Social Security.

Solidarity tax on wealthy individuals

Spain also introduced a new tax -- the temporary solidarity tax on large fortunes, a complementary tax to the wealth tax – as Law 38/2022 of 27 December 2022.

The new tax is levied on taxpayers with net wealth in excess of EUR 3 million, with a EUR 7000,000 exemption and an exemption for the main residence of EUR 300,000.

The tax rate will be determined by applying the following scale to the taxable base:

 

 

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