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Inbound Expatriate Special Tax Regime

The so-called Inbound Expatriate Special Tax Regime can be an interesting incentive for non-resident citizens who are contemplating moving to Spain and establish their fiscal residence in our country. This regime would allow them, provided that the specific requirements are met, to be taxed as non-residents while keeping the status of residents.

Inbound Expatriate Special Tax Regime

Let’s explain in more detail what this special scheme is about and how it could be requested.

Individuals who acquire their fiscal residence in Spain as a result of their move to Spanish territory may choose to be taxed as non-residents (IRNR) while keeping the condition of resident tax payers (IRPF) during the tax period in which the change of residence takes place and for the following five tax periods. The below specific conditions must be fulfilled in order to qualify (under current legislation since 1 January 2015):

  1. The individual must not have been a tax resident in Spain in the 10 years prior to the tax year in which the change of residence takes place.
  2. The move to Spanish territory must be as consequence of:
    • An employment contract with a Spanish or foreign employer (the special employer/employee relationship of professional sport persons shall be excepted).
    • The acquisition of the condition of director on the board of a company in which the taxpayer does not participate or, on the contrary, the participation held does not determine the consideration of related entitiese. less than 25% of the shares.
  3. The individual does not carry out an economic activity in Spain though a permanent establishment.

 

Main Features of the Inbound Expatriate Special Tax Regime

  • The individual will only be liable to taxes on Spanish-sourced income, with the exception of worldwide labor income that will be subject to taxation in Spain, regardless of its source country.
  • The work may not necessarily be carried out in Spain.
  • Sport professionals are excluded from this special tax regime.
  • According to non-resident rules, income resulting from savings originated in another country, for example dividends, will not be taxed in Spain but in the country of origin. It is interesting to emphasize that in the country of origin of such dividends, the individual will be taxed as non-resident as he will be deemed as fiscal resident in Spain. Therefore, if a double taxation agreement between Spain and the country of origin of the income is in place, this could result into important savings for the tax payer, considering the maximum rates that the agreements usually establish.

 

How to apply for the Special Tax Regime?

In order to qualify for the Inboud Expatriates Tax Regime, the individual must file a special form, form 149, at the Spanish Tax Office (Agencia Tributaria), once some formalities have been fulfilled. Tax payers who opt for this regime will use the same form in order to cancel the status or when they become excluded for any reason.

At Navas & Cusí Lawyers, we can carry out a complete analysis of our clients’ fiscal situation in order to determine whether they are entitled to apply for this Special Tax Regime that could be so beneficial for people moving to Spain. Likewise, once the viability is determined, our Fiscal Department would manage the entire application process before the Spanish Tax Office (AEAT) ensuring all requirements are met in the most professional manner.

Navas & Cusí Lawyers

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