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February 11, 2022

Spain proposes improvements to tax treatment of carried interest and inpatriates regime

The Spanish Council of Ministers approved the submission of the Startup Draft Bill (the Draft Bill) to the Parliament in December 2021.

Among other measures aimed at promoting innovative entrepreneurship and providing a specific regulatory framework for startups, the Draft Bill also introduces certain tax measures which provide a favorable tax regime for investors and employees. This Alert summarizes the most relevant proposed measures for multinational groups.

Key highlights

Carried Interest

The Draft Bill clarifies the tax treatment of the consideration obtained by investment fund managers in the form of “carried interest” or “preferred dividends,” which is expressly qualified as labor income. Subject to compliance with the following requirements, a 50% reduction would apply on the income if the following conditions are met:

  • The grantor must be a specific type of entity (venture capital and analogous entities).

  • A minimum return must be guaranteed to the remaining investors.

  • The shares or rights must be held for five years (with exceptions).

The reduction cannot be applied if the entity that grants this “carried interest” is tax resident in a tax haven or in another territory without a tax exchange of information agreement with Spain.

Improvement of the special regime applicable to workers relocated to Spanish territory

This special regime for relocated workers provides tax incentives to promote the national economy by attracting managers and qualified personnel from abroad. Under this regime, workers and directors (or members of the board of directors) can opt to be taxed under the Nonresidents’ Income Tax (generally applicable to non-Spanish residents) instead of under the Personal Income Tax (applicable to Spanish resident individuals).

Among other advantages, the regime allows the relocated worker to be taxed on their labor income at the standard 24% rate applicable to non-Spanish residents, rather than under the progressive scale applicable to Spanish tax residents, whose maximum rate can reach up to 47%. The regime also ringfences the taxable income mostly to Spanish-source income.

The Draft Bill modifies some of the requirements to provide a more favorable regime:

  • Currently, nonresident workers relocated to Spain may only qualify for the special regime if they have not resided in Spain for tax purposes in the 10 previous tax years. The Draft Bill reduces this requirement to five tax years.

  • The application of the regime is extended to workers who work remotely (teleworkers) and persons who become members of the board of directors of companies that qualify as startups within the terms of the Spanish Law, which is yet to be developed, regardless of their percentage of ownership.

  • Additionally, subject to certain requirements, the regime may be extended to family members of the relocated worker, limited to the spouse, children under 25 years of age, and disabled children regardless of their age.

As a complement to the tax measures included in the Draft Bill, the legislator has also provided a set of immigration measures among which is included the creation of a new category of visa and residence authorization for international teleworking.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid

Ernst & Young LLP (United States), Spanish Tax Desk, New York


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