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Crypto taxation under the Beckham Law

| Publications | Tax / Tax Litigation

Tax and Tax Procedure Team analyses the taxation of cryptocurrencies under the Beckham Act

In the current times in which several countries are reconsidering the tax beneficial regimes aimed at attracting wealthy and talented people to their shores (as it could be the case of the U.K. Portugal and even Italy), Spain still remains as an attractive jurisdiction for foreign individuals planning to move to warmer latitudes as a result of an employment contract or to render services linked to the new economy.

Back in 2005, Spain approved a special tax regime which was granted, among others, to the famous football player David Beckham when he moved from Manchester Utd to Real Madrid in 2003 (since then the tax regime is also known as the Beckham Law Regime). Originally, the regime was aimed at highly skilled employees and provided for reduced tax rates on Spanish sourced income with no taxation on non-Spanish sourced income and gains.

The scope of the Beckham Law has been extended recently, for tax periods starting from 1 January 2023 onwards, as a result of the entry into force of the Law 28/2022 for the Promotion of the Environment for Emerging Companies (the so-called Start-up Law).

According to the new scope of the Beckham Law in force from 1 January 2023 onwards, those individuals who become Spanish tax residents as a result of their relocation to Spain, may opt for the so-called Beckham Law Regime (“BLR”) provided they fulfil one of the following conditions, amongst others requirements:

●      been hired by an Spanish Company or remote workers who provide their services online (the so-called “digital nomads”) and do not have a Spanish employer or are assigned to a Spanish entity by their non-resident employer;

●        directors of Spanish active companies (irrespective of their level of ownership);

●        professionals involved in Spanish start-ups; and

●        highly-skilled professionals developing a qualified business activity as:

○        rendering services to start-up entities; or

○        training and R&D activities.

Broadly speaking, those individuals availed with the BLR may benefit from a reduced flat rate of 24% up to €600,000 and 47% on the excess for employment income and certain business activities income, and non-taxation on non-Spanish sourced passive income and gains.

Also, individuals benefiting from the BLR still need to consider Wealth Tax (including the new High Net-Worth individuals’ Tax) which still applies to assets located in Spain.

In light of the above, it is key to determine the source of income, gains and assets held by the taxpayer benefiting from the BLR in order to determine the potential taxation that may arise in Spain.

Although the location or place of exercise of assets and rights or the source of income or gains could be an easy task for some income, gains or assets, this task becomes a tricky question when we deal with digital assets as cryptocurrencies and tokens.

At this point in time, the Spanish tax legislation does not contain specific wording on the taxation of ownership, income and/or gains linked to cryptocurrencies or tokens. Therefore, further guidance must be sought in the binding tax rulings issued by the Spanish General Directorate of Taxes (“GDT”).

Since 2015, the GDT has issued several binding rulings in connection with different matters regarding the personal taxation of cryptocurrencies or tokens.

It should be noted that these binding rulings do not provide a full regulation and overview of the taxation linked to these assets or the income and gains arising from those

Furthermore, most of these binding rulings have been issued for Personal Income Tax (“PIT”) purposes and regarding taxpayers under the PIT general regime and not under the BLR, but there are strong grounds to argue that these rulings could provide some guidelines applicable to taxpayers covered by the BLR. 

As the BLR applicant would be liable in Spain if the asset or income source is located or could be executed in the Spanish territory, the main tax issue is to determine when a cryptocurrency or token is located in the Spanish territory for tax purposes.

A binding tax ruling issued by the GDT (ruling V1069-19) for Non-Resident Income Tax purposes, expressly states that a cryptocurrency would be located in Spanish territory when the entity providing the storage service (i.e., the “Exchange”) seats in Spain, since access to the cryptocurrency will require access to the entity's website and, therefore, the necessary participation of the latter.

This line of interpretation seems to be followed by the GDT in a recent binding tax ruling issued in fiscal year 2023 where it considered, for Foreign Crypto Assets Informative Return purposes, that the cryptocurrencies will not be deemed to be located in Spain if the cryptocurrencies are held by persons or entities not located in Spain i.e., exchange platforms not located in Spanish Territory.

This same criterion has been followed in the recent binding tax ruling V1662-23 in connection with a taxpayer benefiting from the BLR owning cryptocurrencies in a foreign exchange. Although in this latter case, the GDT has also raised a new nexus criterion in connection with the place where the cryptocurrency key is held.

In this respect, it is worth noting that according to the GDT criterion, in case that the cryptocurrency key is held by the taxpayer itself the cryptocurrencies are deemed to be located in Spain for these purposes.

In essence, according to the GDT, on the one hand, in the event that the private cryptographic key safekeeping service is not provided by a third party, and, therefore, the taxpayer maintains custody of them, the cryptocurrencies would be deemed to be located in Spanish territory.  Besides, if the aforementioned safeguarding service is provided by a person or entity resident in Spain or by a permanent establishment in Spain of non-resident persons or entities, the cryptocurrencies would also be deemed to be located in Spain.

On the other hand, in the event that the service of safeguarding private cryptographic keys is not provided by a person or entity resident in Spain or by a permanent establishment in Spain of non-resident persons or entities, the cryptocurrencies would not be deemed to be located in Spain and, therefore, the capital gains derived from the transactions carried out with would not be deemed to have been obtained in Spanish territory.

Therefore, in order to determine the potential taxation of transaction with cryptocurrencies it is key to determine: i) if the exchange platform is located in Spain or operates in Spain through a permanent establishment and ii) if the private cryptographic key safekeeping service is  provided by a third party and, if so, iii) if the entity providing this service is located in Spain or operates in Spain through a permanent establishment.

Having said that, we must point out that none of those rulings provide a criterion regarding the location rules to be followed in connection with those cryptocurrencies held by Spanish tax residents who have their cryptocurrencies wallets keys not guarded by third entities, (i.e., “hot or cold wallets”), and the taxpayer does not have the control of the cryptographic keys (i.e., multi signature systems).

Further, although it is not said in any ruling, law or developing regulation, there could be grounds to argue that in case of a “cold wallet”, if those keys are in a physical drive (e.g., pen drive) located outside Spain (e.g., bank safe deposit box located abroad), the cryptocurrencies could be considered as non-located in Spain.

Although there could be strong grounds to defend this line of interpretation, this criterion is not supported by the express wording of the law or by a specific binding tax ruling and, therefore, a careful analysis on a case-by-case basis must be carried out.

In light of the above, for those individuals owning cryptocurrencies who are considering relocating to Spain and taking advantage of the BLR, we highly recommend that they seek specialized tax advice prior to their move.

You can download the full document here.

For further information, please contact:

Juan Roda | Partner at Andersen
Tax Law and Tax Procedure
juan.roda@es.Andersen.com

Ramón Carrillo de Albornoz | Associate at Andersen
Tax Law and Tax Procedure
ramon.carrillo@es.Andersen.com

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