On November 15, the Madrid Assembly officially approved a new deduction for investments by new taxpayers coming from abroad, known as the “Mbappé Law.” The goal of this measure is to attract significant international investors to the Community of Madrid. This new deduction is retroactively effective from January 1, 2024, meaning international investors who have established their residence in the Community of Madrid during this tax year and meet the requirements can benefit from the measure in their 2024 Personal Income Tax (IRPF) return (to be filed in 2025).
Essentially, the law allows for a 20% deduction on investments made in financial products (such as bonds, shares, investment funds, and other investment instruments) from the regional portion of the IRPF.
Conditions for Investments
Investments can be made either within the Community of Madrid or in other global territories, except in jurisdictions classified as tax havens.
Requirements for Eligibility
To benefit from this deduction, taxpayers must meet the following conditions:
- Non-residency: The taxpayer must not have been a resident in Spain during the five tax years preceding the acquisition of Spanish tax residency.
- No tax haven investments: Investments cannot be made in companies domiciled in non-cooperative jurisdictions (commonly referred to as tax havens), nor in the real estate sector.
- Family restrictions: Investments cannot be made in companies where the investor or their relatives hold more than a 40% stake. Furthermore, the beneficiary cannot hold managerial positions or have a working relationship with the entity in which their investments are made.
- Minimum residency and investment retention period: The taxpayer must maintain both their residence in the Community of Madrid and the investment for a minimum period of six years.
Timing of Investment
As a general rule, the investment must be made either during the tax year in which the individual becomes a taxpayer in the IRPF system in the Community of Madrid or in the following tax year.
Penalties for Non-Compliance
Failure to meet any of these requirements will result in the loss of the tax benefits obtained.
Ineligibility Under the Special Tax Regime for Expats
It is important to note that this deduction does not apply to taxpayers opting to file taxes under the so-called Special Expat Regime (Beckham Law). Under this regime, regional deductions on the tax base are not permitted.
Expert Advice Recommendation
Investors are encouraged to contact the International Taxation Department at Feliu N&I for a prior study and analysis of the global tax impact of these investments. While the deduction applies to IRPF, it is also necessary to assess its implications for the Wealth Tax and the Temporary Solidarity Tax on Large Fortunes.
