The new tax incentive, named after the French football player Kylian Mbappé (one of the many taxpayers who may potentially benefit from it), will entitle non-resident taxpayers (HNWI, investors…) relocating to the Community of Madrid to apply very significant deductions on Personal Income Tax (PIT).
With the final approval of the “Mbappé Law”, the Community of Madrid has introduced, with effect from 2024 and subsequent fiscal years, a deduction in the regional tax section of the PIT for non-residents who decide to establish their tax domicile in Madrid and invest in:
(i) securities representing the transfer of own capital to third parties, whether or not traded on organised markets – e.g. bonds, debentures, fixed-income securities, etc. – or
(ii) securities representing a participation in the equity of any type of entity, whether or not traded on organised markets – e.g. shares, CIIs, ETFs, etc. The amount of the deduction will be 20% of the investment made in the aforementioned assets.
With regard to the second type of assets, the entity in which the investment is made must not be incorporated or domiciled in a tax haven, and the direct or indirect participation of the taxpayer, including also the participation of his spouse or of any person related to him up to the second degree, must not exceed 40% on any day during the calendar years in which the participation is maintained.
There is no obligation to invest in assets located in Madrid and the possibility of investing in real estate, which was included in the original draft of the rule, has been excluded.
As a general rule, the investments must be made in the same fiscal year in which the taxpayer acquires tax residence in Madrid or in the following year. In the case of investments in securities representing the transfer of own capital to third parties issued by Spanish entities and in securities representing the participation in the equity of Spanish entities, the investment may also be made in the fiscal year preceding the year in which the tax residence is acquired.
Once made, they must be maintained for a minimum of 6 years, although transfers for valuable consideration of the acquired assets are permitted, provided that the total amount obtained from the transfer is reinvested in one of the aforementioned assets within one month of the transfer. The deduction may be applied in the fiscal year in which the investment is made; if the quota is insufficient, in the following 5 years.
The taxpayer must fulfil two additional requirements:
(i) not to have resided in Spain during the five years prior to the change of residence and
(ii) to remain tax resident in the Community of Madrid during the mandatory maintenance period of the investment.
Loss of residence in Madrid during the mandatory period or failure to comply with any of the above requirements will result in the loss of the right to the deduction applied.
This deduction for investments made by new foreign taxpayers represents an opportunity for people who are not eligible for the Beckham Law and who wish to obtain tax residence in Madrid.
