The Community of Madrid has approved a new tax incentive, known as the Mbappé Law, which aims to attract investment and new high-net-worth residents. This benefit allows for a 20% deduction on personal income tax (IRPF) on certain investments made by new residents of Madrid.
What does the Mbappé Law consist of?
Law 4/2024, approved on 20 November 2024, establishes that taxpayers who transfer their tax residence to Madrid may apply this deduction to their personal income tax on specific investments. This measure aims to strengthen Madrid’s competitiveness vis-à-vis other jurisdictions and encourage the attraction of foreign capital.
Who can benefit from the Mbappé law?
The main beneficiaries of the Mbappé Law are individuals who transfer their tax residence to the Community of Madrid and make eligible investments within the framework of the law. Specifically, the following may benefit:
New residents in Madrid
The first fundamental requirement is to acquire tax residence in the Community of Madrid. It is not enough to reside in Spain; taxpayers must specifically pay taxes in this autonomous community.
The following may benefit:
- Foreigners who establish their tax residence in Madrid.
- Spanish nationals who have resided outside Spain for at least five years and decide to return to settle in the community.
The aim is to attract high-net-worth individuals and high-level professionals who have resided and paid taxes in other countries until now.
High net worth investors
Given that the 20% deduction applies to certain investments, this incentive is designed for investors with sufficient capital to allocate to financial and business assets.
The most common beneficiaries will be:
- International investors seeking a favourable tax structure in Europe.
- Entrepreneurs and professionals with high incomes who can make significant investments.
- High-worth individuals who wish to optimise their tax burden through investment strategies.
Madrid thus becomes an attractive tax alternative to other European jurisdictions.
International professionals and entrepreneurs
The law encourages professionals who wish to move their centre of operations to Madrid, provided they make investments in the sectors covered by the regulations.
This profile includes:
- Entrepreneurs and businesspeople who wish to establish a headquarters in Madrid.
- High-level professionals, such as executives, managers and financial advisors.
- People with international business activities seeking an advantageous tax residence.
Unlike the Beckham Law, which initially mainly benefited foreign workers with contracts in Spain (although the application of this regime has recently been extended to, among others, international teleworkers and self-employed persons if they carry out an entrepreneurial activity), the Mbappé Law focuses on attracting capital and wealth through strategic investments.
Spaniards returning after living abroad
Spanish citizens who have resided outside the country for at least five years are eligible for this tax deduction if they settle in Madrid.
This point is key for:
- Expatriate businesspeople or professionals who wish to return to Spain without losing tax competitiveness.
- Spanish investors who have developed their business abroad and now want to pay tax in Madrid.
- High-income individuals seeking a more attractive tax environment within Spain.
Madrid thus reinforces its appeal as a destination for the return of national capital.
People willing to invest in financial assets
Not all investments are eligible for the deduction. The Mbappé Law excludes real estate and other sectors with low capital mobility.
Eligible investments include:
- Shares or units in investment funds.
- Bonds, public debt, promissory notes and other financial assets.
- Securities representing participation in companies (excluding the real estate sector and tax havens).
Whether or not they are traded on organised markets.
The investment must be made in the financial year in which tax residence is acquired in the Community of Madrid, or in the following financial year (or the previous financial year, in some cases).
It is important to note that investments must be held for at least six years in order not to lose the deduction applied, unless the amount obtained from the sale is reinvested in another asset of this nature.
Who is excluded?
Despite its advantages, the Mbappé Law does not apply to all taxpayers. Some profiles that are excluded from the benefit are:
- Residents of other autonomous communities in Spain. The law only benefits those who transfer their tax residence from abroad to Madrid.
- People who invest in properties or sectors not covered by the law.
- Investors who do not maintain their tax residence in Madrid for at least 6 years.
- People who hold executive or management positions in the company in which they invest.
- Those who exceed a 40% stake in the share capital of the company in which they invest.
Practical example
If an investor who moves to Madrid invests 5 million euros in government bonds, they could benefit from a deduction in regional income tax of 20% on that investment. In practice, this represents a saving of 1 million euros in taxes.
Difference between the Mbappé Law and the Beckham Law
While the Beckham Law establishes a reduced flat rate of 24% on income tax up to 600, 000 euros, and also allows them not to pay tax in Spain on dividends, interest, capital gains and income from real estate, if they are from foreign sources), the Mbappé Law offers a direct deduction of 20% on personal income tax, but only on specific investments.
In short, the Mbappé Law is designed to attract foreign capital, high net worth investors and qualified professionals to the Community of Madrid. Its main attraction lies in the 20% deduction on personal income tax on specific investments, which is a strong incentive for those seeking to optimise their tax burden in Spain.
However, access to this benefit requires compliance with strict requirements and the maintenance of long-term tax and investment commitments. Although this is an ambitious strategy, it will be key to observe its impact on Madrid’s tax competitiveness and on attracting large fortunes in the coming years.
