How relocation allowances and expat packages are taxed in Spain

Terms used

• Beckham — The Beckham law is Spain's special tax regime for some newcomers who move to Spain for work.
• IRPF — IRPF is Spain's personal income tax on employment pay and other income.
• Retribución en especie — Retribución en especie is pay given as a benefit, such as housing or school fees, instead of cash.
• Ingreso a cuenta — The ingreso a cuenta is a payment on account of tax that the employer makes on a benefit in kind.
• Beckham regime — The Beckham regime is a special Spanish tax regime for some workers who move to Spain.

Key rules

• Moving costs: Justified moving and travel costs for a transfer are exempt, but a lump sum is taxable unless it matches those costs.
• Housing: Employer-paid housing is taxed on a formula based on cadastral value, capped at 10% of your other pay.
• Schooling: School fees paid by your employer are taxable at the employer's cost, with exemptions such as nursery for ages 0 to 3.
• Employer-paid tax: Tax your employer pays for you counts as more taxable pay, which is why packages are grossed up.

The short answer

Moving costs have limited exemptions. Housing, schooling and tax paid for you by your employer are generally taxable. That last point is what drives "grossing-up", where the taxable amount ends up higher than the benefit you see.

Moving costs

If your employer transfers you to a new workplace in Spain, the moving and travel costs it pays are exempt from IRPF when they are justified. Keep invoices and travel records.

A lump sum "for the move" is different. It is taxable unless it matches the justified expenses. The exemption also depends on the nature of the move, so a voluntary move you arranged yourself may not qualify. Ask payroll to confirm before you sign.

Housing

Housing paid by your employer is a taxable benefit in kind (retribución en especie). It is valued by a formula, not by the rent paid:

• 10% of the cadastral value if that value was revised after 1994.
• 5% if it was not revised.
• The result cannot exceed 10% of your other pay.

Your employer must also make an ingreso a cuenta, a payment on account of your tax, on top of the benefit.

Schooling

Your children's school fees paid by your employer are a taxable benefit in kind, valued at the employer's cost. Some items are exempt, such as nursery for ages 0 to 3 or training. An ingreso a cuenta applies here too.

Tax paid by your employer

If your employer pays your tax (tax equalisation or "gross-up"), that payment is itself extra taxable pay. The employer adds an ingreso a cuenta on top. The benefit is then increased by that amount, and withholding applies to the larger total.

The calculation repeats until the tax paid equals the tax due on the full grossed-up amount. This is why a package that covers your tax can cost your employer much more than the tax itself. Ask for the calculation in writing.

Special regimes

A special regime such as the Beckham regime may change how housing or schooling is treated. If you are considering it, check with a tax adviser before accepting a package.

The questions below cover common cases.

Frequently asked questions

Is a lump sum for my move taxable in Spain?

Yes, a lump sum for the move is taxable unless it matches justified moving and travel costs. Keep the invoices and proof that the employer transferred you to the new workplace. Costs paid against receipts for a transfer are the part that can be exempt.

How is employer-paid housing valued for tax?

Employer-paid housing is valued at 10% of the property's cadastral value (the official tax value) if that value was revised after 1994, or 5% if not. The amount is capped at 10% of your other pay.

Can a special regime change how my housing or schooling is taxed?

Yes, a special regime such as the Beckham regime (a special tax regime for some newcomers) may change the treatment of housing and schooling. Ask your employer's payroll team and a tax adviser which rules apply to you before you agree the package.

Why does my employer's tax payment raise my taxable pay?

The tax your employer pays for you is itself extra pay in kind, so it is taxed too. The value is grossed up: the benefit is increased by the payment on account, and withholding applies to the larger total.