Under the appealing sun of the Balearic Islands, many foreign professionals and entrepreneurs have found a tax-efficient gateway to live and work in Spain through the so-called Beckham Law. This special regime, introduced in 2005 and reformed in January 2023, allows employees relocating to Spain to be taxed as non-residents for a period of six years: only income earned in Spain is taxed at a fixed rate of 24% up to 600.000€.

However, this model is not a carte blanche. A recent decision by the Central Economic-Administrative Court (TEAC) has clarified that beneficiaries of the Beckham Law must declare imputed income from all urban properties they own in Spain, including their primary residence. The tax authorities had already required this self-assessment, but rulings by the High Court of Justice of Madrid had sided with taxpayers, arguing that a lived-in home does not generate potential income. The TEAC has now endorsed the stricter administrative interpretation and unified the case law.

What is “imputed income”? It is a calculated amount attributed to your dwelling when it is available for use but does not generate actual rental income. It is determined by applying 1.1% or 2% of the cadastral value, depending on whether this value has been recently updated, and is included in your tax return in accordance with the Non-Resident Income Tax Act (IRNR), which governs non-employment income under the Beckham regime. This approach places impatriates in a similar position to non-residents, who already declare such imputed income for their second homes.

Tax professionals and taxpayers view this interpretation as discriminatory between resident and newly arrived citizens and warn that thousands of skilled workers may reconsider their plans to remain in Spain. The debate has already reached the European level, where arguments have been made that taxing the primary residence violates the principle of non-discrimination. It is foreseeable that the issue will reach the Supreme Court or even the Court of Justice of the European Union.

How does this fit into the rest of the system? Let us recall that the Beckham Law aims to attract talent and offers two key benefits: individuals are taxed only on income earned within Spanish territory (with an exception under which worldwide income may be taxed), and employment income is taxed at a flat rate of 24% up to €600,000, after which a higher rate applies. The tax return must be filed within the same deadlines as the general income tax campaign. This system remains advantageous for many professionals, entrepreneurs, and investors, but the new doctrine requires incorporating the cost of the imputed value of the residence into the overall equation.

With this new criterion, the obligation to include the primary residence in the taxable base is consolidated, even though such income is excluded for regular income tax residents. In other words, the special regime does not allow one to “cherry-pick” the favorable aspects of general income taxation while discarding the less favorable ones: by opting into the regime, one accepts all its rules. Therefore, it is essential to review the cadastral value, assess the impact, and determine whether the special regime remains more beneficial than the general income tax in your specific case.

In the Balearic Islands, where many foreign residents purchase property to live either permanently or part-time, this issue is of utmost relevance. While not a cause for alarm, it is crucial to calculate carefully from the outset and file your tax return correctly. If you already fall under the Beckham Law or intend to apply, consult a tax advisor to calculate your imputed income, compare it to your salary and other earnings in Spain, and evaluate different scenarios under the general income tax regime. By doing so correctly, you will avoid future adjustments and enjoy life on the islands with financial clarity.