LET’S TALK ABOUT THE RISKS OF THE BECKHAM LAW, THE SPECIAL BASQUE TAX REGIME AND THE MBAPPE LAW

We have written extensively about the Beckham Law before –

https://htj.tax/?s=beckham+law

We also have several videos about it –

https://www.youtube.com/@offshore_tax_with_HTj_tax/search?query=beckham

Now an international law firm is accusing Spain of running a “bait-and-switch scheme” targeting foreign executives who relocated to the country to take advantage of a favorable tax law.

Before we take a deeper dive into the criticisms of the Beckham Law, I wanted to touch on 2 other special tax regimes on the Spanish mainland.  The Mbappe Law and the Special Tax Regime in the Basque Region

The ‘Mbappé Law’

This is a new tax incentive introduced by Madrid to attract foreign investors and talent to live in the region.  The Community of Madrid published the new Law 4/2024 in its Official Gazette on 28 November 2024. The key aim is to attract wealthy individuals, families and sports stars to Madrid from abroad by offering a significant deduction for personal income tax on certain assets.

Law 4/2024 is more familiarly known as the “Mbappé Law” after French football star Kylian Mbappé, whose high-profile signing by Real Madrid coincided with the law’s approval.

How does the Mbappé Law work? 

With effect from 1 January 2024, new residents in Spain who establish tax residence in Madrid can benefit from a deduction equal to 20% of their investments in the regional tax bracket of the personal income tax.  Since income tax rates in Spain are comprised of both regional and state rates, this new deduction can only apply to the regional Madrid half.

This tax deduction applies to securities representing the transfer of capital (such as bonds, fixed interest, etc.) or equity participation.  If you meet the conditions and eligibility criteria, the deduction can be applied in the fiscal year when the investment is made.

For example, if you earn €10 million per year and decide to invest €2 million in local companies, 20% of your investment would be exempt from Madrid’s regional taxes. This would be a tax saving of €400,000. Depending on how much is invested, the regional tax bracket will be reduced accordingly.

 If the taxpayer’s tax liability is insufficient to absorb the full deduction, the unused amount can be carried forward and applied over the next five years.

Special Tax Regime in the Basque Region

Thanks to its unique fiscal system under the Basque Economic Agreement (Concierto Económico Vasco), the Basque Country allows Bizkaia, Gipuzkoa, and Álava to manage and collect their own taxes. This system offers flexibility and proximity in tax administration and provides substantial fiscal incentives to attract businesses and highly qualified professionals.

Tax Benefits

1. Exemption on Employment Income:
   • In Bizkaia and Gipuzkoa, 30% of gross employment income from qualified work is exempt from taxation.
   • In Álava, the exemption is 15%​.
2. Deduction of Moving Expenses:
   • In all three provinces, up to 20% of gross income can be deducted for moving and relocation expenses, provided they are properly documented.
3. Exemption on Foreign Assets:
   • Foreign assets are excluded from the Wealth Tax calculation. Only assets located in Spain are included when calculating the Wealth Tax and the new Solidarity Tax on Large Fortunes. This exemption applies not only to the expatriate worker but also to their spouse and dependent family members​.
4. Exemption on Foreign Income:
   • Income derived from foreign assets is exempt from taxation, provided it has been taxed in the country of origin under a similar tax system.
   • This exemption also extends to spouses and descendants who acquire residency in the Basque Country due to the expatriate’s move, as long as they meet the same conditions​.

Requirements to Apply for the Regime

1. Prior Tax Residency:
   • The applicant must not have been a tax resident of Spain for five years before relocating to the Basque Country.
2. Qualified Work:
   • The work must be related to research and development, scientific, technical, financial, or commercial activities.
   • In Bizkaia and Gipuzkoa, management, organisation, and financial control activities are also considered qualified​.
   • In Álava, however, management activities are not included as qualified work​.
   • Workers must belong to Group 1 of the Social Security System or an equivalent professional group.
3. Investment in Innovative Entities (Specific to Gipuzkoa):
   • Expatriates can apply for this regime if they invest in newly created innovative entities.
   • The investment must be made within two years of the expatriate’s relocation, either by founding the entity or acquiring shares in the primary market.
   • The expatriate must also be personally involved in the entity as an employee, director, or administrator​.
4. Creation of Venture Capital Companies or Funds (Specific to Gipuzkoa):
   • The regime is also available if the expatriate establishes a venture capital company or fund within two years of relocation.
   • The expatriate must serve as a senior executive in the managing entity of the venture capital fund or company​.
5. Employment with a Spanish Entity:
   • The expatriate must work for a Spanish or foreign company with a permanent establishment in Spain. This is a mandatory condition unless the person is self-employed.
   • The work may be performed remotely (telecommuting), provided these employment conditions are met​.
6. Self-Employment:
   • The regime is also available for self-employed individuals.
7. Duration of the Regime:
   • The regime can be applied for 11 years (the year of moving plus the following ten years).
8. Flexible Application:
   • There is no specific deadline to apply for the regime during the year. You can decide to apply it in any year within the 11 years, and it can be applied intermittently, skipping years if desired, as long as you remain within the eligible timeframe​.

Returning to the Risks of the Beckham Law

An international Law Firm, Amsterdam & Partners LLP,  reported on its website spanishtaxpickpockets.com that it has placed full-page ads in the Financial Times and The Wall Street Journal, saying in one that Spain has become “a nightmare destination” for U.S. citizens who moved there expecting to benefit from tax advantages under the so-called Beckham Law.

The Beckham Rule offers significant tax advantages for individuals relocating to Spain, making it an attractive option for entrepreneurs, digital nomads and highly skilled professionals.With

• a flat 24% income tax rate on Spanish employment income up to €600,000 and exemptions on most foreign income and assets,
• the regime provides substantial opportunities for income and wealth tax optimization.
• The benefits are granted for the year of application, plus an additional five years all over Spain.

However, it is important to conduct a comprehensive tax and immigration review of all aspects related to the application and continuously monitor compliance.

Why?  Because while the election to be taxed under the Beckham Rule can easily be granted, almost by default under a Digital Nomad Visa, the tax authorities are likely to conduct further inquiries to ensure full compliance.

1. The level of compliance needed to keep the Beckham rule is often underestimated.  While the application process for the Beckham Rule is relatively straightforward, the tax office’s authority to revoke the regime poses a significant risk for those who fail to adhere to the requirements during the application year or during the following five years in which the rule is applicable.
2. Concerns may arise when employment contracts lack the necessary economic substance to qualify as genuine employment or when the employer does not engage in real trading activities. Tax authorities may also challenge relocations if they are perceived to be motivated by reasons unrelated to employment or corporate needs. The resolution of such issues typically depends on the tax inspector’s evaluation of the case, supported by expert guidance in responding to the inquiry.
3. This obligation applies to both the applicant and any family members benefiting from the regime. Particular attention should be given to monitoring the employment income levels of all family members to ensure ongoing compliance.
4. Another often underestimated aspect of the Beckham Rule is its exclusion of individuals earning income through a permanent establishment (PE) in Spain. A PE can be easily created by a foreign employer if, under Spanish tax rules and double tax treaty provisions, the company is deemed to be trading in Spain or is managed and controlled from Spain. To mitigate the risk of losing eligibility for the special tax regime, it is essential to carefully review the contractual arrangements and the extent of the main applicant’s capacity to manage and control the company.
5. Finally, digital nomads benefiting from this rule must ensure that their work in Spain is performed remotely, relying exclusively on computer, telematic, and telecommunications systems. Any involvement in meetings, client visits, or business development activities within Spanish territory should be carefully evaluated to maintain compliance.
6. The Spanish tax office has the authority to examine income and contractual relationships from previous years—up to ten or five years, depending on when the rule was implemented—to ensure full adherence to the regulations.
7. The 2005 law, which is named after former British soccer great David Beckham, who played for Real Madrid, allows individuals who relocate to Spain to elect to be taxed as nonresidents. The election means that their Spanish-source earned income of up to €600,000 will be taxed at 24.75 percent for six years, instead of at the country’s progressive rates of up to 47 percent for income over €300,000. Qualifying individuals are also exempt from Spanish tax on dividends, rental income, and capital gains from foreign sources.

In another ad, the law firm says the Beckham Law “has been weaponized by the Spanish tax authority… and transformed into a tool that disproportionately targets foreign earners and senior executives.”

Amsterdam & Partners said it has been approached by a group of purported victims who claim to have been adversely affected by unfair audits, investigations, and onerous financial claims made by the Spanish tax administration (AEAT). The law firm also claimed that the AEAT “has shown a pattern of discrimination and persecution against high-income foreign residents which may involve violations of their legal rights under numerous international treaties.”

Spanish tax investigators receive a share of any sums recovered, even from dispute settlements, the law firm said. “This incentivizes them to aggressively pursue cases and pressure victims into disproportionate settlements, regardless of fairness or legality,” it asserted. “There is no disincentive for failed investigations. Tellingly, the administration will not reveal the formula, which is a high-guarded state secret.”

Rights of appeal are impaired unless taxpayers pay the full amount under dispute up front “or suffer aggressive enforcement actions against their world-wide assets.”

Foreigners’ Home Purchases Targeted

In the last year Prime Minister Pedro Sánchez has announced measures to make Spain less inviting to foreigners who want to put down roots in the country. In a move to provide more housing opportunities for Spanish residents, he announced a plan in January 2025 to apply a 100 percent tax on purchases of properties by non-EU residents. Sánchez said residents of non-EU countries purchased about 27,000 homes in Spain in 2023, primarily for speculation. The government hopes the hefty tax rate will deter such sales.

In April 2024 Sánchez said his government would ask the parliament to end the country’s “golden visa” program, which was implemented in 2013 to provide long-term residency visas to qualifying individuals who invest at least €500,000 in Spanish government bonds, corporate shares, unit trusts, bank deposits, or real estate. Sánchez linked the scheme to real estate speculation, which he said makes housing less affordable.

Spain officially ended its Golden Visa program, allowing non-EU nationals to obtain residency in exchange for investments, on April 3, 2025. This program, which had been in place since 2013, offered residency to those who invested in real estate, Spanish public debt, or other qualified investments. The program’s closure was primarily due to concerns about its impact on the housing market and its effectiveness in generating broader economic benefits