Home Finance Taxes How Spanish tax breaks could benefit expats
Last update on November 07, 2019
Written by David Cook 

Most foreigners who work for Spanish firms can apply for Spanish tax breaks as long as they fulfill certain criteria.

Special Spanish tax breaks mean that it’s not just the football stars such as Lionel Messi who pay far less tax. Most foreigners who work for Spanish firms can also apply as long as they fulfil certain criteria.

David Beckham had the looks, the talent and – perhaps most importantly – the bank balance to make many green with envy. But it seems David Beckham’s good fortune, where money is concerned, improved when he signed for Real Madrid.

His transfer to the Spanish giant Real Madrid was not just a great move as far as his footballing career was concerned. In fact, he left Manchester United just as the Spanish tax system was changed to benefit foreigners in an effort to draw more highly-paid professionals to these shores.

It came into operation on 1 January 2004 and since then has allowed foreign employees to be treated as non-resident for tax purposes even though they live and work full-time in Spain. In simple terms, a foreigner is now entitled to cut his income tax from a punishing top rate of 56% (current rate for 2012) to just under 25%.

Former Prime Minister Jose Maria Aznar’s conservative government altered the tax laws to make it more attractive for foreigners to live here and to help companies that employ workers from abroad, who are often paid high wages.

Who can benefit

The law was initially engineered to help football clubs reduce their wage bills, as it lowered the tax levied on players’ wages and thus the cost to the clubs. However, this has now been significantly modified as higher wage-earners (earning in excess of €600,000 per annum) are no longer permitted to benefit from the scheme.

That said, the special regime is still applicable to most expats such as executives working for multinational firms, researchers or any other salaried employee who moves to Spain to work for a national company and, as such, is a genuinely advantageous option for many foreigners who come to work here.

Filing US taxes from Spain

Despite the fact that every US citizen and Green Card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so. Many are are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. You do! For more information and help filing your US tax returns from Spain, contact Taxes for Expats and see our Guide to taxes for American expats.

There are, however, a few qualifications.

  • They cannot have lived in Spain for 10 years prior to taking up employment – a measure to stop tax cheats.
  • They must be employed on the payroll of a Spanish company, though this can be a subsidiary of a foreign multinational.
  • The application to be treated as non-resident must be filed with the Spanish tax authority within six months of taking up the position.
  • Finally, the individual cannot earn in excess of €600,000 in any one tax year during the following five years.

Finally, don’t think that it is always beneficial to apply for this special tax treatment. Though the overall rate of 24.75 % is very attractive and significantly lower than the higher rates currently applicable, it’s only of interest to high-income employees. The downside to this non-resident scheme is that the taxpayer cannot claim the normal tax allowances and deductions applicable to resident taxpayers so, as a general rule, it will only be of interest to individuals who expect to earn in excess of approximately €65,000 in a full tax year.

To make the correct decision about claiming the tax status or not, it’s best to speak to a tax advisor who can compare the two regimes for the individual taxpayer and take his or her specific fiscal circumstances into account.