Background

Firstly, despite the fact that PIT is a state tax, some of the collections are allocated to the governments of the autonomous communities. In other words, in this case, the GCM is entitled to regulate some of these collections to the extent of applying certain allowances and deductions.

In this regard, the explanatory statement of this draft law highlights the GCM's tax policy, which has proven to generate economic development and attract investments, compatible with budgetary stability and the quality of public services.

Specifically, the new deduction aims to incentivize the arrival of new investors, promoting job creation and business growth.

The press has named this measure the "Mbappé Act" because one of the potential beneficiaries could be the new Real Madrid football player, Kylian Mbappé.

New deduction to be introduced in Madrid

The measure proposed by the GCM would introduce a special deduction for nonresidents in Spain that move to Madrid and become Spanish tax residents. Those individuals will be able to apply a 20% deduction of the acquisition value (including expenses and taxes derived from the acquisition, but excluding interests) of the following financial assets:

1. Securities representing the transfer to third parties of own capital, whether or not traded in organized markets
2. Securities representing participation in the equity of any type of entity, whether or not traded in organized markets

Moreover, the following requirements must be considered for the application of this deduction:

1. Investments cannot be made in entities located or domiciled in countries considered tax havens.
2. The investment by the individual and their family group, if any, cannot exceed 40% of the company's share capital, nor can the individual hold executive functions in the company.
3. Investments must be made in the same fiscal year in which the individual acquires tax residency in Madrid. However, under some circumstances, the investment can also be made in the fiscal year prior to acquiring the aforementioned residency.
4. The individual must maintain the investment and the tax residency for six years.
5. The individual must have not been a tax resident in Spain for the previous five fiscal years prior to the move.
6. The deduction will be applied in the first fiscal year but can be extended over the following five years if the tax liability is insufficient. In other words, if the amount to be deducted is greater than the tax to be paid, the excess can be applied in subsequent tax returns to continue deducting that amount.
7. The deductions under this law are incompatible with other kinds of deductions for financial investments of the current regional Madrid regulations. 

Conclusions

• The proposed "Mbappé Act" represents a significant step toward attracting foreign investors and stimulating economic growth in the region.
• By offering a 20% deduction for PIT for new residents in Madrid, the measure is expected to drive job creation and encourage business investment in the region.