The European Commission has initiated infringement proceedings against Spain, arguing that the current tax treatment applied to primary residences used by taxpayers under Spain’s special tax regime for inbound expatriates (commonly known as the “Beckham Law”) may be incompatible with European Union law, particularly with regard to the free movement of workers and capital.
1. Background: The Special Expatriate Tax Regime
The special tax regime set out in Article 93 of the Spanish Personal Income Tax Law (IRPF) allows certain employees who move to Spain to opt to be taxed as non-residents, even though they are considered Spanish tax residents for other purposes. This optional and temporary regime aims to attract foreign talent and highly qualified professionals.
Under this regime, individuals are taxed in Spain only on their Spanish-source income, at a flat rate, and under the rules of the Non-Resident Income Tax Act (IRNR) rather than the general IRPF. While this offers simplification and favorable taxation, it also entails the exclusion of personal tax benefits, such as those relating to a taxpayer’s principal residence.
2. The Issue: Imputed Income on Real Estate
One consequence of being taxed under the IRNR is that any urban property located in Spain that is not rented out is deemed to generate an imputed income (typically 1.1% or 2% of the property’s cadastral value).
This rule applies even to the taxpayer’s own primary residence if they are under the Beckham regime.
In contrast, taxpayers subject to the general IRPF rules are not subject to imputed income on their primary residence, as provided by Article 85 of the IRPF Law.
3. The European Commission’s Position
The Commission considers this distinction to be potentially discriminatory and incompatible with EU law, particularly with the principles of:
- Free movement of workers (Article 45 TFEU),
- Free movement of capital (Article 63 TFEU),
- Equal treatment and non-discrimination.
According to the Commission, two individuals residing in Spain and using their property as a primary residence should not be subject to different tax treatment solely due to the tax regime to which they are subject.
As a result, in 2024, the Commission sent Spain a letter of formal notice under Article 258 of the Treaty on the Functioning of the European Union (TFEU), marking the first formal step in infringement proceedings.
4. Position of Spanish Courts
Spanish courts have begun to rule in a similar direction. In particular, the Administrative Chamber of the High Court of Justice of Madrid (TSJM), in its judgment of 6 May 2024 (case no. 685/2022), held that it is not legally justified to impute real estate income to a taxpayer under the Beckham Law when the property in question serves as their primary residence.
Although this position has not yet been confirmed by the Spanish Supreme Court, it signals a growing judicial willingness to adopt a more purposive interpretation of the special tax regime.
5. Implications and Scenarios
Current Situation | General IRPF Regime | Beckham Regime |
Imputed income on primary residence | Not applicable | Applicable |
Tax benefit for use as main home | Available | Not available |
European Commission’s position | Compliant | Challenged |
If Spain does not amend its legislation or provide a satisfactory justification, the Commission may issue a reasoned opinion and ultimately refer the case to the Court of Justice of the European Union (CJEU).
A judgment against Spain would likely lead to a legal amendment requiring the extension of the exemption for primary residences to expatriates under the Beckham regime.
6. Conclusion
The European Commission considers that Spain’s current tax treatment of primary residences under the special expatriate tax regime does not ensure equal treatment when compared to the general IRPF regime and may infringe on key principles of EU law.
Given the growing number of legal challenges and judicial support for a change in interpretation, it is increasingly likely that Spain will have to revise its legislation to align with European law and ensure equal treatment for taxpayers.
