Romà Bosch
BACKGROUND
Final Provision number 13 of the Spanish Act 23/2009 has modified the previous tax treatment of high-income foreign employees working in Spain. The modification has been effective since 1st January 2010. With the new law, the period where foreign players recruited by Spanish football clubs could choose a tax treatment better than the one applying to Spanish players, is over.
Just before the new law was launched, the President of the “Liga de Fútbol Profesional” threatened to suspend the competition as a reaction against the new tax rule. He said that the new treatment would damage Spanish clubs’ effort to compete against clubs in other major leagues. However, the new act is in force and the Liga has so far not been suspended.
LEGAL FRAMEWORK UNTIL 31ST DECEMBER 2009
On 30 December 2003, through the Act 62/2003, the Spanish Parliament passed a law that had the aim to make Spain a more attractive place, from a tax point of view, for top skilled workers with high salaries. Actually, the act was initially aimed to catch top company managers and scientists. Nevertheless, some sportsmen took advantage of that rule.
In summary, within the period 2004-2009 any foreign employee was entitled to opt between two different rates on his income tax accrued in Spain: a) the ordinary Spanish rate, which could go up to 45% of the income (then it was caped to 43%); or b) a fix rate of 25% (then it was 24%) of the income.
Some legal and formal requirements had to be fulfilled in order to be able to opt for option b). Those were:
1) The employee not having been tax resident in Spain within the previous 10 years before the option.
2) The move to Spain arising from an employment contract.
3) The job had to be carried on in Spain.
4) The work had to be performed or delivered to a Spanish entity.
5) The employee income arising from the job could not be exempt as per the Non Resident Income Tax.
The employee opting for b) was also subject to the Spanish Tax on personal wealth (Impuesto sobre el Patrimonio).
In every case, this special treatment had a maximum length of 5 years counting from the calendar year beginning after the taxpayer had moved to Spain. In fact, the maximum extension of the legal term caused some troubles to football players and clubs that intended to sign contracts longer than such period.
Such rule proved beneficial for football clubs because in Spain it is quite usual that the compensation for the player is agreed on the net amount, this is after taxes. Therefore, if the wage earned by the player was taxed at a rate of 24% instead of 43%, the club was saving 19 points.
When the law was launched, some points were questioned by several law experts. Some of them argued that the act was providing an unjustified advantage to several people who were doing the same work as Spanish residents. Furthermore, other authors even pointed out that a Spanish citizen having lived out of Spain less than 10 years (i.e. a football player who had been playing in Greece for 3 years), if returning to Spain, he would be in a worse position than a foreigner who had just moved to Spain.
LEGAL FRAMEWORK AFTER 1ST JANUARY 2010
By means of Act 23/2009, a new requirement has been added for those who intend to opt for the lowest tax rate: the maximum salary for each year shall be 600.000 euro. (The figure applies to the employment salary, not to eventual image rights held by the player). With this limit, the Spanish government wants to avoid that top foreign sportsmen playing in Spain have the advantage of a reduced tax rate on their income. As a matter of fact, the Spanish Tax authorities have disclosed that in 2008, 1.960 people opted for a fixed and reduced tax rate. Just 60 of them had an income over than 600.000 euro/year; 48 of those 60 were football players.
Albeit the new act is in force since 1 January 2010, the foreign players who signed the contracts before that date, and had opted for it before the new law was approved, will still be able to take advantage of the old rule.
Romà Bosch
Lawyer, BCD-Iurisport
Barcelona