Attracting international talent is a cornerstone of Spain’s economic and social strategy. Over the past two decades, the so-called “Beckham Law”—the Spanish impatriate tax regime—has provided an attractive, preferential tax framework for highly skilled professionals and executives relocating to Spain. But as with any special tax regime, its benefits come hand-in-hand with strict eligibility criteria and a growing emphasis on the genuine substance of employment relationships.
A recent decision of the Madrid High Court (March 2025) casts a sharp light on the distinction between formal compliance and genuine substance in the application of the Beckham Law. This case, already generating significant attention among international clients and advisors, is a timely reminder that, in Spain, appearances are not enough. Substance truly matters.
The Case: Contracts on Paper, Reality Under Scrutiny
The facts are deceptively straightforward. An individual relocates to Spain and, shortly before their arrival, signs an indefinite employment contract with a newly-formed Spanish company. On paper, the company is fully compliant: it has a registered address, employees, contracts, and the trappings of a real business. The individual submits all the required forms and is granted access to the impatriate tax regime, enjoying its well-known benefits: limited tax exposure to Spanish-source income and exemption from worldwide income and wealth reporting obligations.
However, upon inspection, the Spanish Tax Authorities uncovered a very different reality. The company, it turned out, did not perform any real business activity. Its only clients were foreign companies closely linked to the individual, and all income and expenses were effectively circular, supporting only the salaries of a handful of employees—most of whom were also benefiting from the Beckham Law. The taxpayer, despite holding the title of Operations Director, failed to provide any evidence of actual work performed for the company; documentation, correspondence, and project materials were notably absent or irrelevant. In essence, the employment contract existed solely to meet the formal requirements for the special regime, but lacked the underlying economic substance.
The Judgment: Substance Over Form
In its judgment, the Madrid High Court adopted a clear stance: tax benefits under the Beckham Law cannot be claimed on the basis of mere formalities. The Court found that the taxpayer’s employment contract was, in reality, a sham—a vehicle designed exclusively to enable access to the impatriate regime. The company itself was deemed a shell, created ad hoc to facilitate the arrangement, with no actual business purpose or economic activity.
Critically, the Court affirmed the Spanish Tax Authority’s power to “look through” the formal structures and assess the underlying reality. In the absence of genuine employment and demonstrable economic activity, the application of the impatriate regime was denied. The taxpayer was instead taxed on their worldwide income and faced significant penalties for both underpayment and concealment.
Lessons for International Clients and Advisors
This decision underscores the growing vigilance of the Spanish Tax Administration and courts in scrutinising arrangements that, while formally compliant, lack true substance. For international executives, entrepreneurs, and the multinational groups that seek to benefit from the Beckham Law, this case is a timely warning. The requirements for the special regime are not a mere checklist. Substantive employment, genuine business operations, and transparent reporting are essential.
Simply put, substance must always prevail over form. Employment contracts must reflect actual, ongoing work for a bona fide Spanish employer, and companies must operate as real businesses, not as conduits for fiscal optimisation.
At Lullius Partners, our team of top-ranked tax lawyers in Spain is uniquely positioned to advise international clients on every aspect of the Beckham Law and Spanish impatriate tax regime. We combine rigorous legal expertise with a commercial, pragmatic approach to ensure our clients not only comply with the law but also enjoy peace of mind in an increasingly complex environment. Whether you are considering relocating to Spain, structuring your international assets, or optimising your tax position, our Private Wealth Group provides tailored solutions grounded in both substance and legal excellence.
If you are seeking advice from experienced Beckham Law lawyers in Spain or require sophisticated support with international tax planning, contact Lullius Partners—the leading tax lawyers in Mallorca and Spain for private wealth and cross-border tax matters.
