Spain: Proposed cap to the elective regime applicable to incoming sportsmen
The parliamentary groups of the Spanish Socialist Party, the former Communist Party and the Galician Nationalist Party announced on the first week of November that they had reached an agreement to propose an amendment (the ?proposal?) to the Annual Financial Law 2010 establishing a cap on the elective regime applicable to new migrants into Spain (hereinafter the ?elective regime?). The notoriety of some of the first applicants to the elective regime back in 2004, when the law was first applied, made some dub the elective regime as the ?Beckham law?. However, in the context of the social debate provoked by this proposal it has now emerged that football players count for just 47 out of the approximately 2,000 taxpayers being charged to tax under the elective regime in fiscal year 2008.
It is unclear whether the proposal will finally be adopted into law. A similar agreement had been reached by the same parliamentary groups in June this year just to be withdrawn by the Socialist Party only six hours later. The three proposing groups fall short of the required majority both in Congress as well as in Senate; thus, if no other group joins to the proposal it might finally not be adopted. The proposal comes at a time where Government?s popularity is at its low due to record-breaking unemployment rates and announced VAT and Individuals? Income Tax increases that will impact the generality of the taxpayers. The move, which was announced with some other ?social? proposals, has been denounced by the rest of parliamentary groups as an attempt by the ruling Socialist Party to give satisfaction to its left-wing electoral base.
Under the elective regime those individuals relocating to Spain on the basis of an employment agreement and not having been tax resident in that country for the ten years preceding to its relocation are eligible to opt to be taxed as non-residents for a period not exceeding 6 tax years. As deemed non-residents, such taxpayers will be taxed at a flat 24% rate on their gross Spanish source income (viz-?-viz the progressive 24-43% rates applicable to the net worldwide income of resident taxpayers). Investment income and capital gains are taxed at a flat 18% rate both for residents as well as for non-residents, again on net worldwide income/gains in the case of residents while non-residents, including deemed non-residents, do pay tax on gross Spanish source investment income and gains.
Although its terms have not yet fully been disclosed it has been announced that, under the proposal, taxpayers with employment income in excess of ?600,000.00 per year (the ?cap?) will no longer be able to file for the election. In this respect it is unclear whether the cap applies to Spanish source or to worldwide employment income. However, information disclosed by the Spanish Tax Authorities that in 2008 a total of 60 ?elective? taxpayers were above the cap seems to indicate that the relevant metric will be the Spanish source income. Under grandfathering rules allegedly introduced by the ruling party into the original proposal of the former Communist Party, if adopted into law the proposal will not apply to those taxpayers having filed for the election on or before 31 December 2009. For those taxpayers the 6-year application of the elective regime will be respected no matter whether their Spanish employment income will be under or over the cap.
