Madrid approves an investment deduction for non-residents who become IRPF taxpayers in this autonomous community

On 28 November 2024, Law 4/2024, of 20 November, amending Legislative Decree 1/2010, of 21 October, was published to establish a deduction for investments by new taxpayers from abroad in the field of personal income tax. The main features of the deduction are as follows:

1. Individuals not resident in Spain who become personal income taxpayers in the Community of Madrid (from 1 January 2024), who have not been resident in Spain during the five years prior to the change of residence to the Community of Madrid, may benefit from the deduction.
2. The deduction will amount to 20% of the acquisition value (including the expenses and taxes inherent to the acquisition, excluding interest) of (i) securities representing the transfer to third parties of own capital, whether or not traded on organized markets; and (ii) securities representing the participation in the equity of any type of entity, whether or not traded on organized markets.
3. The following requirements must be met:
   
   1. In the case of investment in securities representing participation in own funds of entities, the entity may not be incorporated or domiciled in a tax haven and the direct or indirect participation of the taxpayer (together with that of his spouse or relatives in a straight or collateral line, by blood or affinity, up to and including the second degree), may not be (during any day of the calendar years of maintenance of the participation), greater than 40% of the capital or its voting rights. In addition, the taxpayer may not perform executive or management functions or maintain an employment relationship in the entity.
   2. The investment must be made in the year of acquisition of tax residence in the Community of Madrid or in the following year. If the investment is made in securities issued by or representing Spanish entities, it may also be made in the year prior to the year of acquisition of the aforementioned residence (in this case, for those who acquired tax residence in the Community of Madrid in 2024, the investments of the previous year will be valid).
   3. The investment must be maintained for six years, although the deduction will not be lost if it is transferred for valuable consideration, but the amount obtained is reinvested in full within one month in the same type of assets. If the initial investment was made in the year prior to the acquisition of the tax residence, it must be maintained until the acquisition of the residence, the reinvestment being valid from the year of acquisition of the residence.
4. The deduction may be applied in the year in which the investment is made and in the following five years in the event of insufficient gross tax liability; however, if the investment was made in the year prior to the year in which the taxpayer becomes a taxpayer, it may be applied in the year in which the residence is acquired or in the following five years. If it coincides with other regional deductions, it will be applied after the rest of the deductions.
5. Residence in the Community of Madrid must be maintained until the last year of the period in which the investment is maintained. The loss of residence in that period or failure to comply with the obligation to maintain the investment (including in the event of transfer without total reinvestment) will result in the loss of the deduction applied.
6. The deduction is incompatible, for the same investments, with the deductions for investment in shares and holdings in new or recently created entities and for investments in listed entities already regulated previously in the regulation (Articles 15 and 17).