Context

As you maybe know, a new tax regime for expatriates has been in force in Spain since 1 January 2004.

This new tax regime allows foreign expatriates in Spain to be taxed as non-tax residents (also for wealth tax purposes) for a period of maximum six years. This means that the individual will only be taxed on Spanish source income and capital gains at the following tax rates:
- Salary: flat tax rate of 25%
- Interest, dividends and capital gains derived from investment funds: flat tax rate of 15%
- Other capital gains: flat tax rate of 35%

The conditions to apply for this tax regime are the following:
- the taxpayer may not have been a tax resident in Spain in the 10 years prior to his/her assignment to Spain,
- the assignment to Spain must be due to a local employment contract or a secondment from another company of the group,
- the work must be performed physically in Spain (with a permissible maximum percentage outside Spain of 15%)
- the work must be performed for a Spanish company or for a permanent establishment located in Spain.
- the salary received due to the assignment cannot be exempt from tax in Spain.

News

On 10 June 2005 the Spanish government approved the Royal Decree that regulates the procedure to apply for this new Spanish tax regime for expatriates.

The application of this option must be made within six months of the start of the individual’s activity in Spain. The Spanish tax authorities will have to provide an answer within ten days of application for this option.

Individuals who change their tax residence status to Spain after 1 January 2004, but before this Rule was approved (10 June 2005), will be able to apply for this option retroactively. They have two months to apply for this special tax regime starting on 11 June 2005, and have three months to file their 2004 tax return.