Tax incentives for expats in Spain under the Mbappé Law

1. Introduction

On 28 November 2024, the Madrid regional Parliament enacted Law No. 4/2024, introducing a significant tax incentive for individuals relocating from outside Spain to Madrid.

Since its announcement coincided with Real Madrid Football Club’s signing of renowned player Kylian Mbappé, this law has been popularly dubbed the “Mbappé Law.”

This article outlines the key aspects of the Mbappé Law and how eligible individuals may benefit from it.

2. What is the tax incentive?

The Mbappé Law introduces a personal income tax (“PIT”) deduction.

Individuals who meet the eligibility criteria, relocate to Madrid, and invest in qualifying investments can receive a tax credit equal to 20% of the amount invested. This credit may be offset against PIT liability in the same year of the investment or within the following five years.

In essence, the Mbappé Law provides an immediate, after-tax 20% return on an investment. Instead of receiving actual monetary gains, investors benefit from reduced tax liability. Given that the investment may also yield positive returns and there is no obligation to sell the asset to realize capital gains, this tax incentive is highly attractive.

The deduction applies only to the portion of PIT liability attributable to Madrid. Across most of Spain, including Madrid, PIT liability is split equally between the Central State and regional governments (Comunidades Autónomas).

A numerical example clarifies this: A qualifying investment of EUR 100 generates a EUR 20 tax credit, which can only be offset against the EUR 20 tax quota attributable to Madrid. Typically, a Madrid tax quota of EUR 20 suggests a total PIT liability of EUR 40, split between the Central State and the Madrid region.

The tax credit can be used in the investment year and the subsequent five years.

3. What are the requirements?

To qualify, individuals must meet the following criteria:

They must not have been tax residents in Spain for the past five years.
They must relocate their tax residence to Madrid.
They must invest in equity or debt securities in any entity, regardless of location (i.e., investments are not required to be in Spain or Spanish assets, and may be listed or unlisted).
For equity investments:
- They must not hold more than 40% of the capital or voting rights in the invested entity (including holdings by second-degree relatives, such as siblings).
- The invested entity must not be domiciled in a tax haven.
- The investor must not perform executive, management, or employment roles within the invested entity.
The investment must be made in the year of becoming a tax resident in Madrid or the following year. If investing in Spanish securities, the investment may also be made the year before becoming a tax resident.
The investment must be held for six years, though reinvestment into other qualifying assets is allowed within one month of selling.
The individual must remain a tax resident in Madrid for six years.

The Mbappé Law applies to all nationalities, including non-EU citizens. However, non-EU nationals must first secure a visa or residence permit to lawfully stay in Spain.

If an individual ceases to meet the requirements (e.g., relocating before six years), they must repay any utilized tax credit.

4. Is it compatible with the Beckham Law?

No, the Mbappé Law is not compatible with the impatriate tax regime under the Beckham Law.

5. Which is better: the Mbappé Law or the Beckham Law?

It depends on individual circumstances.

The Beckham Law provides significant PIT and wealth tax advantages when properly planned. As noted in our previous analysis, it also offers benefits concerning Spain’s tax on large fortunes, as confirmed by the General Directorate of Taxation in tax ruling V0420-23.

In most cases, the Beckham Law is preferable. However, it has stricter eligibility criteria, which some individuals may not meet.

Prospective residents should conduct a detailed tax simulation, considering PIT, wealth tax, tax on large fortunes, and international tax implications, including foreign withholding taxes and double taxation treaty relief. Professional tax advice is strongly recommended.

6. Who benefits most from the Mbappé Law?

The Mbappé Law primarily targets individuals who:

Have been non-tax residents in Spain for at least five years.
Do not qualify for the Beckham Law (e.g., professional athletes who are explicitly excluded).
Possess significant liquid assets suitable for investment.
Earn sufficient income to utilize the tax credit.
Plan to remain tax residents in Madrid for six years.

It is ideal for individuals relocating for long-term professional or personal projects. However, it may not suit highly mobile individuals who might leave Spain before fulfilling the six-year requirement.

7. Common pitfalls and mistakes to avoid

Individuals seeking to benefit from the Mbappé Law should obtain professional tax advice. Common pitfalls include:

Failing to meet eligibility requirements.
Inadequate documentation to prove compliance.
Overlooking wealth tax or tax on large fortunes.
Selling the investment or leaving Madrid before six years.

8. Example case study

John, a UK national, has lived in Dubai for eight years, earning USD 150,000 annually as a self-employed business consultant. He has USD 500,000 in stocks and ETFs within an Irish brokerage account.

John wants to move to Spain but does not qualify for the Beckham Law due to his self-employed status.

He could liquidate his investments and, upon relocating to Madrid, reinvest in qualifying shares or bonds. Since the Mbappé Law does not require investments to be in Spain, John could reinvest through his existing Irish brokerage while maintaining detailed records.

If he invests USD 500,000 in qualifying securities, he would generate a tax credit of USD 100,000 (20% of USD 500,000). Assuming an annual PIT liability of USD 50,000, with half (USD 25,000) attributable to Madrid, he could offset this amount for four years. His effective PIT rate would be:

16.67% (USD 25,000 / USD 150,000) for four years.
33% (USD 50,000 / USD 150,000) for the final two years.

After six years, John could remain in Spain or relocate. Spain’s exit tax applies only if he has been a tax resident for 10 of the last 15 years and meets specific value thresholds.