Crypto taxation in Spain under the Beckham Law

Crypto taxation in Spain under the Beckham Law

In today’s world, where various nations are reevaluating tax benefits designed to attract affluent and skilled individuals (such as the UK, Portugal, and even Italy), Spain remains a compelling destination for foreigners seeking a warmer climate, whether for work or to provide services in the new economy.

Spain implemented a special tax regime in 2005, famously utilized by footballer David Beckham when he transferred from Manchester United to Real Madrid in 2003, hence it’s known as the Beckham Law Regime. Initially, this regime targeted highly skilled employees, offering reduced tax rates on Spanish-sourced income while exempting non-Spanish income and gains from taxation.

Recently, the Beckham Law’s scope has expanded for tax periods starting January 1, 2023, due to the enactment of Law 28/2022, aimed at fostering a supportive environment for emerging companies (the Start-up Law).

Under the new Beckham Law, effective from January 1, 2023, individuals who become Spanish tax residents through relocation to Spain can opt for the Beckham Law Regime (BLR) if they meet certain criteria, including:

  • being employed by a Spanish company or working remotely (digital nomads) without a Spanish employer, or being assigned to a Spanish entity by a non-resident employer;
  • directors of active Spanish companies (regardless of ownership level);
  • professionals engaged with Spanish start-ups; and
  • highly skilled professionals conducting qualified business activities like:
    • providing services to start-ups; or
    • engaging in training and R&D activities.

Those eligible for the BLR benefit from a reduced flat rate of 24% on income up to €600,000, with any excess taxed at 47%, and non-taxation on non-Spanish sourced passive income and gains.

However, individuals under the BLR must still consider Wealth Tax (including the new High Net-Worth individuals’ Tax) on assets located in Spain.

Given the above, it’s crucial to identify the source of income, gains, and assets of BLR beneficiaries to ascertain potential taxation in Spain. While pinpointing the location or source of certain assets and income is straightforward, it becomes complex for digital assets like cryptocurrencies and tokens.

Currently, Spanish tax legislation lacks specific guidelines on taxing cryptocurrency or token ownership, income, and gains. Hence, guidance must be derived from binding tax rulings issued by the Spanish General Directorate of Taxes (GDT).

Since 2015, the GDT has issued several rulings on personal taxation related to cryptocurrencies and tokens. These rulings, though not comprehensive, provide some insight, mostly concerning Personal Income Tax (PIT) for taxpayers under the general regime rather than the BLR. However, they might offer useful guidelines for BLR taxpayers.

A primary tax issue is determining when a cryptocurrency or token is deemed located in Spain for tax purposes. According to a binding GDT ruling (V1069-19) for Non-Resident Income Tax, a cryptocurrency is considered located in Spain if the entity providing storage services (i.e., the Exchange) is based in Spain, as accessing the cryptocurrency involves the entity’s website.

This interpretation was upheld in a 2023 ruling, which stated that cryptocurrencies are not located in Spain if held by non-Spanish entities, even for the Foreign Crypto Assets Informative Return. A recent ruling (V1662-23) extended this to BLR taxpayers, emphasizing where the cryptocurrency key is held.

If the taxpayer holds the private cryptographic key, cryptocurrencies are deemed located in Spain. If a Spanish entity or establishment holds the key, the same applies. If neither condition is met, cryptocurrencies are not considered located in Spain, and capital gains from transactions are not deemed obtained in Spain.

Thus, to determine cryptocurrency transaction taxation, one must establish if the exchange platform or key safekeeping service operates in Spain. However, no rulings address location rules for Spanish tax residents with unguarded keys (hot or cold wallets) or multi-signature systems.

Moreover, it’s arguable that if cold wallet keys are stored physically outside Spain (e.g., in a foreign bank safe deposit box), cryptocurrencies could be considered non-Spanish. Though this view has strong support, it’s not explicitly backed by law or rulings, requiring careful case-by-case analysis.

Therefore, individuals with cryptocurrencies considering relocating to Spain and using the BLR should seek specialized tax advice before moving.