Madrid is once again giving a twist to its personal income tax by offering a 20% tax deduction on investments made by a foreigner who has recently arrived in the community for six years. The deduction is on the regional income tax section, which at its maximum rate is 20.5%. The rule does not exclude that the taxation of the autonomous section is zero if that taxpayer makes high investments. If so, you would only be taxed for the state bracket that has a maximum of 24.5%. It is a measure announced in January of last year but was overturned by Vox in the Madrid Assembly, considering that it did not benefit the Spanish people.
Now, the government of Isabel Díaz Ayuso is back on track but this time allowing Spaniards who have been living abroad for more than five years and who have their tax domicile in Madrid to also benefit. Yesterday the public consultation period for the regulation ended, which is expected to be approved shortly.
The deduction, however, has fine print. First: its beneficiaries must remain residents of the community for six years. If they leave before they must return the deducted amounts. Second: the investments that give rise to the deduction must be made in the year in which the taxpayer establishes residence in the Madrid community or in some cases in the preceding year. Third: the deduction is incompatible with the taxation of impatriates (the old Beckham Law, today widely laminated). And fourth: investment in housing is excluded from the deduction.
The rule prepared by the Ayuso executive can benefit any foreign worker who arrives in Madrid, as would be the case of the PSG soccer player, Kylian Mbappé. If the footballer's salary were around 100 million a year, in order to benefit from zero taxation in the regional section during the 6 years, he would have to invest around 600 million euros at once the year he arrived in Madrid. And if before six years he signs for Manchester City and leaves the country, he would have to return all the deducted amounts. Or if before that period he undoes the investments and does not reinvest them within a month, he should also proceed to return the amounts he has saved. The investment can be in listed or unlisted shares of Spanish or foreign companies or in debt of the State or companies.
José Luis López-Hermida, director of the private client and family office area at KPMG Abogados, explains that “to benefit from the deductions it is necessary to carry out complex tax planning.” While waiting to know the definitive publication of the rule, López-Hermida recalls that if a taxpayer (like the theoretical example of Mbappé) had to make an investment of 600 million, it would be necessary to take into account that he would have to face the tax on wealth that taxes assets. “Any fiscal measure must be analyzed jointly,” he adds.
Sources from the General Council of Economists-REAF recall that for certain professionals it may be more worthwhile to take advantage of what remains of the Beckam Law than the new rule of the Madrid regional government. This law for impatriates specifies that the first 600,000 euros of income are taxed at 24% and the rest at 47%. The aforementioned law excludes professional athletes, so Mbappé or anyone else cannot benefit. López-Hermida explains that apart from footballers, artists and senior executives, the rest of the large taxpayers with high net worth tend to pay little tax through personal income tax since their income does not usually come via payroll.
In the economic report that accompanies the law prepared by Ayuso, it is estimated that the beneficiaries could be around 30,000 and that they would save around 60 million globally.
José María Mollinedo, from the Treasury technicians union, believes that the rule could be overturned in court as it is discriminatory regarding a transfer of a taxpayer from another community.
