On November 20, the Madrid Assembly approved the modification of the Consolidated Text that establishes a deduction in the full regional quota of 20% for investments in securities made by foreigners who acquire residence in the Community of Madrid, the so-called Mbappé Law. This law takes effect from January 1, 2025, and may even affect investments already made in 2023.
This measure establishes tax benefits for natural persons not resident in Spain who transfer their residence to the Community of Madrid, as long as they have not been tax residents in Spain during the five years prior to the year in which the change of residence occurs. In addition, it is required that the investments made be maintained for a period of 6 years. This initiative seeks to reinforce Madrid’s fiscal competitiveness and attract talent and foreign investmentaligning with similar practices adopted in other European countries.
The types of investments that will give the right to the deduction include securities representing the transfer to third parties of own capital, negotiated or not, such as bills, bonds or public debt. Also included are securities representing participation in the equity of Spanish or foreign entities, whether traded or not traded on organized markets (shares and participations in entities). The possibility of applying this deduction to real estate investments is eliminateda measure aligned with current policies aimed at avoiding greater pressure on real estate market prices. This reflects a similar trend to the suppression of incentives related to the possibility of obtaining the Golden Visa, which granted tax benefits and residence permits when making real estate investments.
Despite what was mentioned above, the Law establishes additional requirements for the case of investments in unlisted shares or participations. Among these, it is required that the investee entity do not reside in a tax haventhat the percentage of participation does not exceed 40% direct or indirect together with the spouse and family members up to the second degree and, that the taxpayer does not exercise executive or management functions, nor maintain an employment relationship with the entity. These provisions seek to guarantee a framework of transparency and operational decoupling in permitted investments.
Furthermore, the period to make the investment and be able to apply the deduction varies depending on the type of entity in which it is invested. If the investment is made in Spanish entities, it is allowed for it to be carried out in the previous year, the same year or the year after the moment of obtaining tax residence in the Community of Madrid. However, if the investment is not allocated to Spanish entities, the period is limited only to the year in which residency in Madrid is obtained and the following year.
The standard establishes a period of six-year investment maintenancebeing able to dispose of and reinvest in its entirety so as not to lose the right to the deduction generated. However, the loss of tax residence in Madrid will be an obstacle to losing the right to the deduction, becoming an essential requirement.
The Mbappé law It represents an attractive incentive designed to attract foreign capital and could stimulate foreign investments in our economy. However, it presents certain incompatibilities with other tax regimes such as the impatriate regime, the regional deduction for investment in shares or participations in newly or recently created entities, and investments in entities listed on the MAB. With the introduction of this standard, the Community of Madrid seeks to position itself and consolidate itself within the national market as a competitive destination for global investors. It will be interesting to see how investors react to this new regulatory framework and whether the regional government’s expectations are met.
In conclusion, it is very important, therefore, that those people who are considering establishing themselves in Spain and, specifically, in the Community of Madrid, carefully analyze their tax situation and obtain correct advice. Tax regulations have undergone changes in recent years that have reduced the tax benefits associated with certain investments, and the current panorama does not offer the same range of incentives that existed in previous years. A personalized analysis is key to determining which regime is most appropriate for each case, since the available options can be significantly different depending on the type of investment or the individual’s tax residence.
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