Mbappe Law: new tax incentive from the Community of Madrid

The Tax Rule Key Aspects

The mechanism is that 20% tax deduction will be taken on the total mount of investments in certain financial assets, such as equity securities (stocks, bonds, etc.) or participation in investment funds.

New tax residents must make these investments within the fiscal year of their arrival in Madrid or the following year. Additionally, they cannot acquire more than 40% of the capital or voting rights in a company. While direct real estate investment is prohibited, indirect investment through entities operating in the real estate sector, such as REITs (SOCIMIs) or real estate developers, is allowed.

One of the most notable aspects of the law is that it does not impose a maximum deduction limit. For example, an investment of half a million euros could translate into a deduction of up to 100,000 euros. Any unused deduction can be applied over the next five years.

Who Can Benefit from This Measure?

A wide range of individuals can benefit from this measure, including digital nomads, startup entrepreneurs, company directors, or executives relocating to Madrid. Wealthy retirees or Spanish citizens returning after working abroad could also take advantage of this tax deduction. Investors from family offices and fund managers, along with other players in venture capital, may find this law an opportunity to relocate to Madrid.

Another group that could benefit from the law is athletes. For years, sportsmen and women were excluded from the favorable tax regime known as the "Beckham Law," which only applied to highly qualified workers. Now, the "Mbappé Law" extends these benefits to athletes, allowing them to reside in Madrid and enjoy tax deductions even if they play for teams outside the city. This could impact various sports such as tennis players, GP riders, AC and Volvo Ocean Race sailors or Formula 1 drivers and related crew, where sportsmen do not need to reside permanently in the location where the club or the race is taking place.

Important Considerations

Although the "Mbappé Law" offers attractive opportunities but also certain risks and complexities must be considered. New tax residents should seek international tax advice to understand the implications in their home countries, including the treatment of income earned outside Spain or the possible application of an "exit tax." Additionally, they should assess how the relocation will affect their professional activities, social security treatment, and tax withholdings.

Since the law does not impose limits on the deduction base, it could lead to tax competition among Spain’s autonomous communities to attract high-net-worth individuals. This may reshape the distribution of investments and human capital within the country.

The Mbappé Law is an ambitious tax measure that could position Madrid as a key destination for investors, entrepreneurs, and high-level professionals. While it offers attractive tax deductions and greater investment flexibility, interested individuals should carefully analyze the long-term tax effects and seek expert advice to maximize the benefits. Please look for comprehensive advice as our team will check the tax effects but other related issues to be consistent with like: social security contribution, payroll issues, legal aspects as board director of foreign companies, wealth tax and solidarity tax attached to it. 

By the way, why good news for Swedish?

Sweden and some other country had (or introduced) some restrictions for the application of tax treaties when the individual moves to other countries like Spain where limited liability tax regime are applicable (Spanish Beckham tax regime, among others, but also others in Europe not worldwide tax based). This is why, many individual moving from Sweden to Spain under Beckham may continue being double tax residents due to this as no tax resident certificate may be granted for treaty protection an tie break rule application.

Under Mbappe, the individual will be full tax resident despite the tax credits will reduce the overall taxation to similar rates as the Beckham while granting tax treaty entitlement/protection. Moreover, some other nearly zero tax aspects while beckham can be achieved if the clients have a family office in Spain or abroad and other business based and active corporate holdings abroad.