More and more foreign investors, concerned about the Spanish taxation that applies to them, ask Golden Partners how to pay less taxes in Spain legally. Especially when they have considerable assets in Real Estate and want to maintain it to continue obtaining the high profitability that the Spanish real estate market offers.
Thanks to a recent Law applied by the Government of the Community of Madrid, known as the Mbappé Law, following the name of the footballer who will start playing for Real Madrid, and for now in draft law, you could also benefit if you decide to invest in Spain.
Therefore, in this post, our experts in Tax Advisory explain what the Mbappé Law of the Community of Madrid consists of, its differences with the other special tax regime for impatriates that move to Spain as well as a series of tips so to answer how to pay less taxes in Spain.
Our tax experts answers you.
Mbappé Law: What is it and its requirements
Unlike the Beckham Law, the Mbappé Law is tax deduction in the regional rate of Personal Income Tax (IRPF) of 20% of the contribution made in debentures, bonds, treasury bills, shares of listed and unlisted companies or contributions in limited companies, among others.
Regarding the requirements to be subject to the Mbappé Law:
- The investor cannot have lived in Spain during the last five years.
- The investor must maintain residence and capital in Madrid for a minimum period of six years. This means that for the French footballer Kylian Mbappé to benefit from this legislation, he must remain in the capital region until 2030. The same for any interested foreign investor.
- The entity in which the investment is made cannot be incorporated or domiciled in any tax haven for Spanish tax purposes.
- The direct or indirect participation of the taxpayer cannot exceed 40% of the capital or its voting rights on any day, together with that of his or her spouse or any person linked by kinship, in a direct or collateral line, by consanguinity or affinity, up to the second degree included. Nor may he exercise executive or management functions, nor maintain an employment relationship.
According to Golden Partners experts, no limitations on investments emerge from the draft draft, which benefits people who make major investments. In fact, it is possible that in those cases the new Madrid taxpayer saves the entire amount of the full regional contribution, which in the case of the Community represents 20.5% of the taxable base.
What is the Beckham Law in Spain and its differences with the Mbappé Law
These are some of the differences between the Beckham Law and the new Mbappé Law that will come into force soon and that our tax experts already explained in the Spanish media:
- While the Beckham Law is intended for senior managers with high salaries, the Mbappé Law is intended for large investors.
- The Beckham Law applies to all foreigners who acquire tax residence throughout Spanish territory, while the Mbappé Law only applies to those who settle in the Community of Madrid.
- The Beckham Law is structured differently fiscally than the Mbappé Law: the first does not take into account income that is not from a Spanish source except for salary and subjects them to tax rates much lower than the marginal one, the second takes into account income worldwide but a 20% deduction applies to the Madrid regional Personal Income Tax fee (IRPF).
- The period of non-prior residence in Spain is at least 5 years outside in the case of the Beckham Law and 6 years in the case of the Embappé Law, although referring to the Community of Madrid only and not to the rest of the Spanish territory.
In both cases, both regulations are designed for wealthy foreigners who wish to transfer their tax residence at some point in their work career, help their children study and reside in Spain or even to spend their retirement in Spain.
Other tips to know how to pay less taxes in Spain
Both before making an investment in Spain and after making it, large investors never stop wondering how to pay less taxes in Spain.
This is a question given that, according to the Spanish Tax Agency data compiled by Funcas (by the aronum in Spanish, ‘Savings Bank Foundation’), the fiscal pressure from the Personal Income Tax (IRPF) experienced in 2023 an increase in tax pressure. For this reason, at Golden Partners we have decided to offer you a series of tips that will undoubtedly help you save on your tax bill.
Tax planning to save when paying taxes in Spain
The first tip to know how to pay less taxes in Spain is to plan in advance the actions you are going to take with your assets throughout the year. For instance, in the case of Personal Income Tax (IRPF), know that it accrues in April of the year following the year it is declared, the month in which the voluntary period for filing income tax returns begins. If, for example, Spanish Government intended to lower tax rates next year, a recommended action would be to wait to sell that asset.
Take advantage of regional deductions as Community of Madrid
When submitting your Personal Income Tax return, if you are a tax resident in Spain, you may have a loot at regional deductions to which we could have access depending on our region of tax residence.
Housing tax deductions are especially relevant, that is, those for which the habitual residence is purchased. For instance, it is fiscally permitted to amortize your mortgage early up to a certain amount per year, which directly affects tax planning regarding the period in which you decide to amortize the financing of your home. Even if you are close to 65 years old and are thinking about selling or donating your home, good advice would be to wait until you reach that age, as then the transfer is tax-free.
Communication of changes in the family situation
If you are not a businessman or self-employed person, but rather a company worker and you have a child, get divorced, or a disability arises in a close relative dependent on you, you must notify the Spanish tax authorities. Family circumstances, known as ‘situación familiar’, vary considerably the amount that can be withheld for Personal Income Law (IRPF) in your tax return.
Bet on salary in kind to save taxes in Spain
Negotiating salary in kind instead of cash is an optimal way to save taxes in Spain. Some salaries are exempt from paying personal income tax up to annual limits.
Among them, i.e., health insurance for the worker, his or her spouse and children, food vouchers, childcare vouchers or transportation vouchers.
Compensate losses with gains
If during the tax year you have obtained large profits from the sale or donation of assets and at the same time accumulate losses from other investments, one way to save is to offset those losses with those profits. Though this compensation in your Personal Income Tax follows some time limitations, so the best advice is to consult with a tax advisor before carrying out any operation.
Tax deductions for electric vehicles and charging points
One of the highest deductions in terms of quantity and at the same time the most unknown to taxpayers are those related to electric vehicles. For example, in the Personal Income Tax return that was declared until last first of July, up to 15% of the value of the electric vehicle acquired since the middle of last year could be deducted, including expenses and taxes, once public aid has been subtracted; as well as 15% of the price of the installation of charging points, with limits in any case. T
herefore, if you are thinking about purchasing an electric or hybrid vehicle, do not hesitate to consult with a tax advisor first to plan great savings on your income tax return.
Keep invoices for all your expenses
During recent years, Spanish Tax Authorities have increased the number of random inspections it carries out on taxpayers, especially those with high net worth.
That is why another great tip is to keep all the proof of the deductible expenses that you could have incurred, for example, for the conservation of your real estate located in Spain. As always, it is best to entrust expense accounting to a tax advisor.
How to bring money to Spain without paying too many taxes
In addition to how to pay less taxes in Spain legally, another of the most frequently asked questions among investors interested in our country is how to bring money to Spain without paying taxes.
Given this intention, at Golden Partners we recommend many options for our clients that can help them not only save on their tax bill, but also obtain another series of benefits for residence and movement through the European Union.
See two clear examples that can help you pay less taxes in Spain:
Make an investment in Real Estate in Spain
If you make an investment of at least half a million euros in properties located in Spain (flats, premises, land, etc.) that are intended for both your own residence and rental, you can obtain the Golden Visa in Spain.
This is a residence and work permit that allows you to work and reside in Spain for an initial period of two years without having to remain in Spanish territory to obtain it. It would allow you to move freely through the countries of the Schengen area (which includes up to 29 European countries) and both you and your spouse and children can benefit, with conditions.
Make an investment in commercial activities, investment funds, bank deposits or Spanish public debt securities
In all cases, at least one million euros per type (i.e., commercial activities, investment funds and bank deposits) or two million euros for public debt securities, that is; for those known as Treasury Bills or State Bonds and Obligations. All of them investment options so that you and your loved ones can access the Golden Visa in Spain and enjoy all the benefits that this Golden Visa offers.
If you were a senior manager and your company was thinking of having you come to work in Spain, you may be interested in having said work done more frequently in order to obtain tax residency in Spain. If this were the case, and as long as you had not resided in Spain during the 5 previous tax years, you could benefit from the well-known Beckham Law, explained above.
Find a good tax advisor in Spain
At Golden Partners, as expert lawyers in taxation and immigration, we offer you the necessary legal advice to make the best decision for you and your family in terms of tax planning and always complying with Spanish and European legislation.
We remain at your disposal in our contact form, and can assist you in Spanish, English or French.
