The 'Mbappé Law' could have benefited the signings of Conor Gallagher or Julián Álvarez

The signing of Kylian Mbappé by Real Madrid after several snubs from the Frenchman to the club has revolutionised Madrid. As if that were not enough, Atlético de Madrid has brought in several top players , including Julián Álvarez, who is considered a world elite. And of course, the public authorities have done their bit, perhaps not directly, but indirectly to facilitate such signings.

What is the 'Mbappé Law'?

The Mbappé Law is, roughly speaking, a deduction in the Personal Income Tax (IRPF). This reduction will be applied whenever the person establishes his or her residence in the Community of Madrid and invests in certain assets in the region. This law comes into force with the aim of attracting non-residents in Spain with large incomes and assets to the region who acquire their tax residence in Madrid.

There are two levels of personal income tax: on the one hand, there is the common nationallevel for all Spaniards, which, for incomes above 300,000 euros, amounts to 24.5%. And on the other hand, there is the regionallevel , which, for incomes above 57,000 euros, in the Community of Madrid amounts to 20.5%. In total, a high-income earner in Madrid must pay 45% of his or her income.

This law focuses on the autonomous region - it makes sense since it is the Community of Madrid that is promoting it - in which 20% of the same will be deducted . Since it is 20.5%, for practical purposes what it does is practically eliminate it. Former residents who have been outside Spain for 5 years and become residents in Madrid will also be able to benefit.

Requirements of the 'Mbappé Law'

For a taxpayer to be entitled to a reduction in personal income tax, he or she must meet a series of requirements:

1. The investments made by the beneficiary of the deduction must not be made in the real estate sector or in entities established or domiciled in tax havens. The investments may be public debt, shares...
2. If the investment is made in shares/stocks of any type of unlisted entity, several things must be taken into account.
   • Participation at an individual level or together with first or second degree relatives may not exceed 40% of the share capital in any year of investment maintenance.
   • It must be done in the year in which tax residence in the Community of Madrid is acquired or the following year. As a result, the deduction would be applied to the year in which it is done or, if there is a surplus, in the following years.
   • The beneficiary of the deduction may not perform executive or management functions in this company, nor maintain any employment relationship with it.
3. The beneficiary must maintain tax residency in Madrid for 6 years .
4. In turn, the investment must last for at least six years .

Controversy over the name of the law

The name of this new regulation promoted by the Community of Madrid comes from the fact that it coincided in time with the signing of the Frenchman, however it has generated some discrepancies. They do not want it to seem that a signing of their team conditions the tax system of the Community of Madrid. To do so, they support their arguments under these four premises:

• It does not apply to you immediately , only if you meet the requirements and invest accordingly.
• It does not only apply to footballers , but to anyone with high incomes in the Community of Madrid.
• The law was approved on 19/06/2024 and has been in the works for the past year, long before the Frenchman's signing for Real Madrid.
• Kylian Mbappé has signed a 5-year contract (until 2029) , so he would not be eligible for the law.

And yes, they are right. All those who support these arguments are right, but if you go a little further you will realize more things.

Regarding the first two, although it is not obligatory, it is already an important attraction that the Community of Madrid offers to those with a very high purchasing power. I am not saying this as something negative, but it would be blind to deny that this has no influence at all on attracting foreign capital, whether it is from a footballer or a businessman.

Regarding the third and fourth points, they are perhaps the easiest to refute. The PP wanted to approve this law in 2023, however VOX shot it down and it was not until it obtained an absolute majority that it was able to push it through. Although, as much as this has happened this way, the signing of Kylian Mbappé has been in the works for many years.

In fact, Real Madrid wanted to sign Mbappé for the first time in 2017 and had practically done so in the summer of 2022, but everything ended up falling through. All this, coincidentally, before any first proposal from the PP. Therefore, it cannot be 100% affirmed or denied that this law was passed as a consequence of the signing of the Frenchman.

Finally, if there are people who think that the Frenchman cannot benefit from this law, I encourage them to go to the Bernabéu and ask how long they expect Mbappé to stay. In football, anything can happen, but I doubt anyone will tell you less than 8-10 years.

Julian Alvarez at the Welcome Night | Google Imagenes

Why does it affect Conor Gallagher or Julián Álvarez?

The reality is that all foreign footballers benefit from this law, as long as they comply with it. When a footballer changes teams, there are many more factors, apart from salary, that influence his decision. And this, without a doubt, could have been one of those that helped Atlético de Madrid to sign such important players as those mentioned above.

However, it is important to note that Ignacio Chinarro, Economic-Financial Director of AFE, said in an interview with Relevo : "it is designed for other possible residents from abroad, not so much footballers." He says this because of the ease with which they can change teams and that a one-year loan would be a waste. It would be rare for this to happen in cases like Conor Gallagher, Julián Álvarez or Kylian Mbappé, but anything could happen.

It is important to note that all of this is beneficial for the Madrid region and for the country. The more capital Spain attracts, the better it will be for Spain. Let no one interpret this as a criticism , but rather as a clarification of an issue that I have seen somewhat diffused in other places.