BackThe Community of Madrid is about to finalize the so-called “Mbappé Law,” a reform of the IRPF, as the region manages 50% of this tax. This law will allow new taxpayers who relocate to the Community and make investments within it to save up to 60 million euros annually on the tax. The Madrid Assembly will soon approve this law, coinciding with the possible addition of French footballer Kylian Mbappé to Real Madrid. Thus, the future regional law will provide tax benefits to new fiscal residents who establish themselves in Madrid to invest.
Who benefits
Anyone moving from abroad to the Community of Madrid, who has not been a fiscal resident in the last five years and makes investments in shares, company participations, or other types of movable capital such as fixed-income securities or bonds, can apply this new deduction in the IRPF. The Community of Madrid estimates that around 30,000 new taxpayers annually will benefit from this measure, saving up to 60 million euros in IRPF.
What deduction applies
New residents in Madrid and taxpayers can apply a 20% deduction in the IRPF on the value of the investment made, including the costs and taxes of the operation, but not the interests.
Requirements
Several requirements must be met to benefit from this tax advantage. If investing in shares or company participations, the company cannot be constituted or domiciled in a tax haven. Additionally, the new resident cannot directly or indirectly control more than 40% of the company, nor can they have executive or managerial functions in it. Furthermore, the expatriate who establishes themselves in Madrid must maintain the residence and the investment for a period of six consecutive years.
When the rule applies
The Madrid Assembly will approve this rule in the coming weeks so that it takes effect from the fiscal period starting January 1, 2024. Thus, all those relocating from abroad to Madrid in 2024 and making the investment that same year can apply the deduction in their 2024 Income Tax return, to be filed in the spring of 2025. The tax deduction will be integrated into that fiscal year’s return, and if the taxpayer does not have enough total tax to apply it, they can do so over the next five years.
Objectives of the rule
The Community of Madrid explains in the draft bill that this measure aims to increase the region’s competitiveness to attract investments that generate employment, establish new companies, or grow existing ones.
Revenue impact
The region will lose 60 million euros annually in revenue, although the impact on public finances will be nil because it involves new individuals settling in the Community who currently do not pay taxes there.
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