Proposals to improve Spanish impatriate tax regime

The Spanish special tax regime for non-domiciled individuals (also known as the impatriate regime) regulated under article 93 of the Personal Income Tax Act allows individuals who become tax residents in Spain to choose to be taxed under non-resident income tax ("NRIT") rules—with certain particularities—for the tax year they move to Spain and the following five tax years.

Except for employment income, this means that income and capital gains obtained abroad will not be taxed in Spain. Thus, NRIT is levied only on Spanish-sourced income and capital gains. Domestic rates apply to the savings tax base but employment income is taxed at lower rates (fixed rate of 24% up to €600,000 and 47% for amounts over €600,000).

In an attempt to make moving to Spain an attractive option for employees, professionals, entrepreneurs and investors residing abroad, the Spanish government has proposed several improvements to this special tax regime. In fact, in addition to the proposals initially submitted (see our Legal Flash | New developments affecting funds, entrepreneurs and impatriates), during the parliamentary process, several amendments have been proposed to expand on its subjective scope of application to enable more taxpayers to benefit from the regime. Note that other tax benefits are foreseen, such as those discussed in the Post | New developments concerning carried interest.

The parliamentary process is close to finishing. On November 3, 2022, in a plenary session, the Spanish Congress of Deputies (lower house of parliament) approved the Bill to Promote the Start-up Ecosystem (the “Bill”) and referred it to the Spanish Senate (upper house), so the latter could continue with the parliamentary processing of the Bill, due to finish on November 28 at the latest. We expect the final approval and publication in the Official Gazette of the Spanish State before the end of 2022.

Amendments proposed

Below, we summarize the most significant amendments the Bill aims to introduce for this regime—highlighting in bold those amendments recently proposed—which would come into force from January 1, 2023. The definitive wording of the Bill may vary depending on the amendments included during the deliberations at the Senate:

• The regime will apply to individuals who have not been tax residents in Spain during the 5 tax years before moving to Spain (instead of the current period of 10 years).

•  It will apply to “digital nomads” (employees working for a foreign company remotely through the exclusive use of computer and telecommunication systems and resources).

• It will also apply to individuals that become directors in a company, regardless of their stake. However, if the company is considered a passive company it would be necessary not to be a related party (in general, a shareholding of less than 25%).

• The regime can also be applied by individuals moving  to Spain to carry out an entrepreneurial activity. For this purpose, entrepreneurial activity is defined as any activity that is innovative or of special economic interest and obtains a favorable report issued by Empresa Nacional de Innovación SA or ENISA—national innovation state-owned company.

• The regime will also apply when highly qualified professionals move to Spain to carry out an economic activity that involves providing services to startups or carrying out training, research, development and innovation activities, for which they receive remuneration that makes up over 40% of their income from work and economic activity. The definition of “highly qualified professional” will be further developed.

• The regime also extends to impatriates’ spouses and children up to the age of 25 years, or disabled children of any age. The regulations impose specific requirements for the above individuals to benefit from this regime.

Finally, the Bill also foresees that, under the impatriate regime, income obtained from entrepreneurial activities, and not only employment income, will be taxed in Spain on a worldwide basis.