Spain tax: Amendment to the Spanish special tax regime for inbound assignees

Spanish special tax regime for inbound assignees – overview of the tax regime currently in force Current Spanish Tax Legislation foresees a special tax regime for employees who come to work to Spain. This regime establishes the possibility for individuals who acquire the status of tax residents in Spain as a result of their move to Spanish territory for labor reasons to opt to be taxed under Non Resident Income Tax (not Personal Income Tax) the year they acquire the Spanish tax residence plus the following five years, provided that the following conditions are met:
- The individual must not have been resident in Spain in the 10 years prior to his move to Spanish territory.
- The move to Spanish territory must occur as a result of a labor contract/assignment letter.
- The work must be actually performed in Spain. This requirement will be deemed to be met when part of the work is performed abroad, provided that the remuneration received for such work does not exceed 15% of all the remuneration for work received during the calendar year. If under the labor contract the taxpayer assumes duties in another company of the group situated abroad, the above limit will be 30%. If the remuneration received for the work performed abroad cannot be proven, the days during which the employee has actually been abroad must be taken into consideration.
- Such work must be performed for an enterprise or entity resident in Spain or for a permanent establishment located in Spain of an entity not resident in Spanish territory.
- The salary income derived from such labor relation cannot be exempted from Nonresident Income Tax.


Special tax regime – advantages

Employees eligible for this special tax regime would be taxed (as non Spanish tax resident) only on their Spanish income and capital gains. As regards employment income, they would be taxed on the employment income which relates to their Spanish duties at a flat rate of 24%, which is applicable to the gross income received, instead of being taxed according to the progressive tax scale applicable to regular tax resident individuals, which ranges from 24% to 43%.


Proposed amendment to the Spanish special tax regime

An amendment has recently been proposed to the Spanish special tax regime for inbound assignees, to be included in the Spanish preliminary Draft of National Budget, which is currently being discussed and negotiated. The proposed amendment can be summarized as follows:
- Spanish personal income tax legislation would include an additional requirement (apart from those mentioned above) in order to apply for the aforesaid regime. The new requirement would exclude the possibility to opt for the special tax regime for those inbound assignees whose foreseeable annual gross employment income is over €600,000, i.e. employees whose annual earnings exceed this limit would not be eligible for the special tax regime and would be taxed under Personal Income tax rules for tax resident individuals (which basically means taxation on worldwide basis according to a progressive tax scale, being maximum marginal tax rate 43%).
- In principle, this amendment would only affect employees who arrive in Spain after 31 December 2009. In this sense, Spanish special tax regime already granted before 31 December 2009 would remain valid for the "application period" which is 6 years (including the year when it was granted) without the salary threshold above mentioned.
This suggested amendment has been now incorporated to the Spanish Draft of National Budget. However this has not been finally approved yet and modifications can still be introduced.

It is important to bear in mind that the special tax regime for inbound assignees remains valid for those employees that have already been granted with it. The € 600.000 exclusion shall not apply to them.

If the amendment is finally approved with the current draft wording, applications for the Spanish special tax regime related to assignments started after 1 January 2010 would have to take into account this new requirement.

This effectively means that the assignments, planned for early 2010, should be structured to take place before 31 December 2009 when possible. It is also important to bear in mind that either the "Certificate of Coverage for Social Security purposes" (E-101) or the "Registration with Spanish Social Security Authorities" for the employee must be dated before 31 December 2009.