New personal income tax deduction for new taxpayers in Madrid.
On 19 June 2024, the Governing Council of the Community of Madrid gave the green light to a Bill regulating a new deduction in the regional personal income tax (“IRPF“) for investments by new taxpayers from abroad, which may take effect for the IRPF 2024 tax year, given that it is expected to enter into force as from 1 January 2024.
Specifically, the aforementioned Bill provides for the establishment of a new deduction in the regional personal income tax liability equal to 20% of the acquisition value of investments made in certain securities by non-residents in Spain who acquire the status of personal income taxpayers in the Community of Madrid.
Colloquially this Bill has been called the ‘Mbappé Law’ and is nothing more than a regulatory change aimed at attracting foreign investment.
The investments that could benefit from this new deduction would be the following:
–Securities representing the transfer to third parties of own capital, issued by Spanish or foreign entities, whether or not traded on organised markets. These securities include: Spanish public debt securities (bonds or Treasury bills), foreign public debt securities or private debt securities listed on the AIAF fixed income market or on the Alternative Fixed Income Market (MARF).
–Securities representing holdings in the equity of Spanish or foreign entities, listed or unlisted on organised markets. These securities would include, for example, listed and unlisted shares, shares in SOCIMIS, shares and units in collective investment undertakings, etc.
It should be noted that, if the investment is made in securities not listed on representative organised markets, a number of requirements and/or demands must be met:
1. It must be an entity not domiciled or incorporated in a tax haven.
2.The direct or indirect shareholding of the taxpayer, together with that held in the same entity by the spouse and relatives up to the second degree, in a straight or collateral line, by consanguinity or affinity, must not exceed 40% of the capital or voting rights of the entity on any day during the period in which the investment is held.
3.The taxpayer may not maintain an employment relationship with the entity or exercise executive or managerial functions.
The basis for the deduction will be the acquisition value, including expenses and taxes inherent to the acquisition and paid by the taxpayer, excluding interest.
The requirements to be met by the taxpayer wishing to qualify for the deduction in question are as follows:
1. Status as a taxpayer for personal income tax purposes in the Community of Madrid as from 1 January 2024.
2. Not having been resident in Spain during the 5 years prior to the change of residence to the territory of the Community of Madrid.
3. Maintain the status of IRPF taxpayer in the Community of Madrid until the last year of the 6-year period of maintenance of the investment.
In addition, the investment eligible for the deduction must be made by the taxpayer concerned in the same tax period in which the taxpayer acquires the status of personal income taxpayer in the Region of Madrid or in the following tax period. This is because the objective is to attract foreign capital and investment to the Madrid region.
Finally, it should be noted that this personal income tax deduction would be incompatible, for the same investment, with the regional deductions for the acquisition of shares or holdings in newly or recently created entities and for investments in entities listed on the Alternative Stock Market. To these incompatibilities must be added the impossibility of access to the same by a worker under the umbrella of the ‘impatriate regime’.
In short, in addition to attracting investment, everything seems to indicate that the aim is also to capture and attract talent, as well as professionals to cover the needs in certain sectors and to facilitate the return of those who emigrated in the past.
