IFICI or the Beckham Law? Two tax regimes to consider in the EU

Sun, sea and breathtaking landscapes. Portugal and Spain are two prime destinations for those seeking to improve their quality of life.

Aware of their outstanding natural features, both Portugal and Spain have created highly attractive tax regimes for new residents over the past two decades.

But are Portugal and Spain really that similar when it comes to taxation? The answer is no. Find out why.

Portugal - IFICI, the successor to the Non-Habitual Resident Tax Regime

Portugal’s Non-Habitual Resident (NHR) Tax Regime was introduced in 2009 and repealed in 2024, having been replaced by the Tax Incentive for Scientific Research and Innovation (IFICI), also known as NHR 2.0.

Like its predecessor, IFICI aims to attract highly qualified talent and encourage foreign investment in Portugal by providing special conditions and tax exemptions for individuals wishing to live in Portugal for part or all of their time.

For an IFICI beneficiary, employment and self-employment income obtained in Portugal from eligible activities, such as teaching, scientific research, innovation, or certain qualified professions in companies operating in sectors deemed relevant, is taxed at a flat rate of 20%. This represents a substantial reduction compared with the progressive rates applicable to other Portuguese residents, which may reach 53%.

Employment, self-employment and rental income from sources outside Portugal are exempt from taxation, without any quantitative limit. Such income, however, is taken into account when determining the rate applicable to other income. Unlike under the NHR regime, pensions are excluded from this benefit.

Dividends, capital gains and other investment income are also exempt from taxation in Portugal, provided that they arise from foreign sources. Unlike under the NHR regime, it is no longer necessary for a double taxation agreement (DTA) to exist or for such income to have been taxed at source, provided that it does not arise from a country included on Portugal’s blacklist (tax havens).

If obtained in Portugal, such income will be taxed at the standard rate of 28%.

Pensions, in turn, are taxed at the general Personal Income Tax (PIT) rates, as is the case for any other resident.

Who can benefit from IFICI?

IFICI may be available to individuals who become tax resident in Portugal, have not been tax resident in Portugal in any of the five years preceding their relocation, and carry out one of the eligible activities provided for by law.

As a general rule, an individual becomes tax resident in Portugal by spending more than 183 days of the year in the country or, even if spending less time, by having a dwelling available throughout the year in circumstances indicating an intention to maintain and occupy it as a habitual residence.

The deadline to register under this regime is 15 January of the year following the year in which the individual became resident in Portugal. Following approval by the Portuguese Tax Authority, the regime applies for 10 consecutive years.

Mandatory requirements to access IFICI in Portugal

• Become tax resident in Portugal
• Not have been a tax resident in Portugal in any of the preceding five years
• Carry out one of the eligible activities (for example, teaching and research, qualified professions in companies operating in relevant sectors, or roles in certified startups)
• Not have benefited from the Non-Habitual Resident regime or the Programa Regressar
• Submit the registration application by 15 January of the year following the change of residence

Spain - Tax regime for foreign workers (Beckham Law)

The Special Tax Regime for Inbound Expatriates, commonly known as the Beckham Law, was approved in Spain in 2004. This policy aimed at attracting foreign talent became an ideal tax framework for football transfers, and David Beckham was the first to benefit from the regime, hence its name. In 2015, the rules were amended to exclude elite athletes from the regime, without retroactive effect. In 2023, the Startups Law (Law 28/2022) significantly broadened its scope, as explained below.

In Spain, employment income is generally taxed at a rate of 24% up to 600,000 EUR (above this amount, the rate increases to 47%). In addition, employment income is taxed on a worldwide basis, irrespective of where it is paid, provided that it relates to activities carried out after the relocation to Spain.

Dividends, capital gains and other investment income are not taxed in Spain provided that they arise from foreign sources, irrespective of whether a double taxation agreement (DTA) exists, since the beneficiary is treated as a non-resident in respect of such income. If obtained in Spain, they are taxed at rates ranging from 19% to 30%, depending on the amount.

It should be noted that there is a legal obligation to file a Wealth Tax return if assets are held in Spain. In the Autonomous Communities of Madrid and Andalusia, this tax is fully relieved, although net wealth exceeding 3,000,000 EUR may still be subject to the Temporary Solidarity Tax on Large Fortunes, which applies throughout Spain.

Who can benefit from the Beckham Law?

The Spanish regime applicable to foreign workers is established in Article 93 of Law 35/2006 on Spanish Personal Income Tax. Under this provision, the following conditions must be met in order to opt for the regime:

• Not have been resident in Spain during the five years preceding the relocation.
• Relocate to Spain in order to enter into an employment contract, including where work is performed remotely, as in the case of digital nomads. Professional athletes can no longer benefit from this regime.
• Relocate to Spain as a result of becoming a director of a company. If the company is a passive asset-holding entity, the director may not hold an interest of 25% or more.
• Relocate to Spain to carry out an entrepreneurial activity classified as innovative.
• Relocate to Spain as a highly qualified professional providing services to startups or carrying out training, research, development and innovation activities, provided that such activities represent more than 40% of their income.
• Not obtain income through a permanent establishment located in Spain, except in the case of entrepreneurs and highly qualified professionals.

Since 2023, the regime may also be extended to the spouse and children under the age of 25 (or, without age limit, children with disabilities), subject to certain conditions.

The six-month deadline from the date on which the activity begins in Spain (as a rule, the date of registration with the Spanish Social Security system, rather than the date on which tax residence is established) to elect for this regime by filing Form 149 is mandatory, since neither the Tax Administration nor the courts allow the regime to be granted after that period. The regime applies for six years (the year in which tax residence is acquired and the following five years).

Should you choose Portugal or Spain? – a comparison

Having presented both regimes, the question remains: which one should you choose? Both have their strengths and weaknesses.

Since 2023, both regimes have required the same period of prior non-residence for tax purposes: five years. In terms of taxation, income from activities eligible for IFICI in Portugal is subject to a 20% rate, which is more favourable than Spain’s 24% rate on taxable income up to 600,000 EUR and 47% rate on taxable income above 600,000 EUR. By contrast, the Spanish regime applies to employment income regardless of the profession, whereas IFICI is limited to eligible activities. Foreign-source employment income is exempt in Portugal but taxed in Spain.

It should also be noted that the special regime in Spain applies for six years (the year in which residence is acquired and the following five years), whereas in Portugal it applies for ten years.

See our comparison tables below.

Employment income (PIT) in Portugal vs Spain

*except where arising from countries included on Portugal’s list of tax havens; such income is, however, taken into account in determining the rate applicable to other income
**unless they relate to activities carried out before the relocation to Spain

Dividends, capital gains and capital income in Portugal vs Spain

*except where arising from countries included on Portugal’s blacklist
**irrespective of whether a DTA exists

Pensions in Portugal vs Spain

*pensions do not benefit from IFICI; individuals already registered under the NHR regime retain that regime until the end of their ten-year period
**provided that they relate to activities carried out before the relocation. The Beckham Law only applies to individuals who relocate to Spain to work or carry out an activity and is therefore not, as a rule, a solution for retirees.

Taxes on inheritance and gifts

Portugal abolished inheritance tax on 1 January 2004, with only certain transfers becoming subject to Stamp Duty.

Accordingly, in Portugal, transfers of assets upon death to a spouse, descendants and direct ascendants are exempt from taxation. Lifetime gifts are subject to Stamp Duty at a rate of 10%, except for gifts made to a spouse, descendant or ascendant, which are exempt from this tax.

Furthermore, Portuguese Stamp Duty only applies to assets located in Portugal. Accordingly, an inheritance of assets located abroad is not taxed in Portugal, irrespective of the family relationship.

In Spain, by contrast, Inheritance and Gift Tax applies. The special regime does not extend to this tax: beneficiaries of the Beckham Law are treated as residents and taxed on inheritances and gifts received, irrespective of where the assets are located. Nevertheless, individuals resident in Madrid or Andalusia may benefit from the relief schemes available in those Autonomous Communities.

Spain also has a Wealth Tax. Beneficiaries of the special regime are required to report and pay Wealth Tax exclusively on assets located in Spain.

Portugal does not have a general wealth tax, although the Additional Municipal Property Tax (AIMI) applies to real estate located in Portugal with a high taxable value.

In light of the above, the most common conclusion is that Portugal is the more attractive jurisdiction where assets are transferred by inheritance or gift. This conclusion is based primarily on the consensus and stability surrounding the taxation of such transfers and on the fact that the relevant exemptions and subjective and objective criteria are clearly defined.

Advantages for IFICI beneficiaries in Madeira, Portugal

Madeira is an autonomous region of Portugal combining a unique quality of life, a highly competitive cost of living and a very favourable tax regime.

Individuals who choose to live and work on the island of Madeira may establish a company within the International Business Centre of Madeira (IBCM) and benefit from various tax advantages:

• Reduced Corporate Income Tax rate of 5% on income obtained outside Portugal
• Reduced flat IFICI rate of 20% for individuals carrying out eligible activities (see above)
• Lower PIT rates than in Mainland Portugal for income not covered by IFICI;
• Worldwide participation exemption regime applicable to dividends, reserves, capital gains and capital losses;
• Tax credit for international juridical and economic double taxation;
• Significant reductions in Stamp Duty, Property Transfer Tax (IMT), Municipal Property Tax (IMI), surtaxes, autonomous taxation, and other fees and costs.

The IBCM is a tax regime approved by the European Union (EU) in full compliance with all EU treaties and legislation.

Madeira companies may be used for a wide range of activities, including trading, consultancy, shipping activities, technical and professional services, holding activities, telecommunications, e-commerce and any other services of an international nature.