The Community of Madrid has approved Law 4/2024, popularly known as the “Mbappé Law”, designed to attract investors and international talent.
This tax regime allows for a deduction equivalent to 20% on the Personal Income Tax liability for new residents in the Madrid region who invest in certain financial assets, provided they are not located in tax havens. This includes associated expenses and taxes, but excludes interest.
Eligible investments:
– Spanish government bonds, debentures and public debt.
– Structured deposits.
– Shares and securities listed on the Stock Exchange.
– Investments in mutual funds.
Non-eligible investments:
– Real estate.
– Investments in companies where the taxpayer holds more than 40% of the capital or voting rights.
– Investments in companies where the investor performs executive or managerial functions, or maintains an employment relationship.
To benefit from this deduction, the investor must:
– Not have been a tax resident anywhere in Spain during the five previous years.
– Transfer their tax residence to the Community of Madrid.
– Maintain the investments for at least six years.
It is important to note that this deduction is not compatible with the so-called “Beckham Law” for inbound taxpayers to Spain. Therefore, those who opt for the “Mbappé Law” will be taxed in Spain on their worldwide income and assets, including Personal Income Tax, Wealth Tax and/or the Solidarity Tax on Large Fortunes.
If the portion of the Personal Income Tax quota corresponding to Madrid is insufficient, the remaining deduction may be carried forward for up to 5 subsequent tax years — meaning the deduction is not lost. This means that if the Madrid quota is reduced to “zero” after applying the deduction, only the state quota will be taxed, with the maximum state rate (for income exceeding €300,000) being 24.50%.
Written by: Carmen Herrero Hidalgo, Herrero & Hidalgo Asesores, Madrid – Member of Lexunion Spain
