Spain's tax system: an overview


Author: Luca Marchesi

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Date of publication: 02/05/2022






Spain has a semi-federal tax system with three levels of government. In fact, the Spanish tax system guarantees, a lot of autonomy to the various regions into which the country is divided. However, the main consequence of regional autonomy is a deferral of the level of taxes between the various areas. In particular, some of the differences, often minimal, can be very advantageous for specific circumstances. For example, the Canary Islands are characterized by special tax regimes and represent a favorite destination for business creation, thanks to the reduced taxation on pensions.

In Spain, part of the personal income tax is transferred to the regional autonomous communities. So, the tax settlement process is consequently composed of two phases:

  • State phase;

  • Complementary phase.

Moreover, regional governments receive a share of the total tax revenue:

  • 33% of the income of individuals;

  • 35% VAT;

  • 40% of excise duties on hydrocarbons, tobacco, beer and alcohol;

  • 100% excise duty on electricity and vehicle registration.

On the other hand, indirect tax revenues are sold on the basis of a territorial consumption index. Specifically, the rates relating to personal income tax can be changed by regional governments even if the structure retains the progression and division into tax brackets. This means that he proceeds from inheritance and donation taxes, registration tax and taxes on lotteries and gambling are entirely assigned to territorial governments. So, in the event that the estimated expenditure exceeds the potential revenues, the regional government receives a compensatory transfer from the central government.


Income categories in Spain

In Spain, the following income categories exist:

  • From work;

  • Of capital;

  • Exercise of economic activities;

  • Financial gains and losses;

  • Imputations of income established by law.


Personal income tax (Irpf)

The income tax for individuals in Spain (Irpf) is applied to resident individuals, according to the worldwide income principle. However, non-resident income tax (Impuesto sobre la Renta de los No Residentes, called Irnr) is imposed on people not fiscally resident in Spain, which applies only to income produced in the territory of the State.

Income subject to be taxed includes:

  • wages and salaries;

  • Business or professional income;

  • Income which is passive such as profit share, interest and capital gains.

In addition, from 1 January 2016, the general rates of individuals vary from 19% to 45% and the percentage of the rate varies depending on the region of residence. In particular, the total tax rate is the sum of the one established at the state level and the regional one that varies between the different regions of Spain (autonomous communities).


Summary table, income brackets in Spain for individuals


Tax on personal income

Income bands (€) Rate

Da 0 a 12.450 19%

Da 12.450,01 a 20.200 24%

Da 20.200,01 a 35.200 30%

Da 35.200,01 a 60.000 37%

A partire da 60.000,00 45%



Opening a company in Spain: Corporate income tax (Is)

Is it convenient to open a company in Spain?

Spain is one of the most interesting European countries for an entrepreneur. This is because companies resident in Spain are subject to corporate income tax (Impuesto sobre Sociedades, called IS), which is applied according to the worldwide income principle. The Spanish territory consists of mainland Spain, the Balearic Islands, the Canary Islands and the enclaves of Ceuta and Melilla in Morocco. On the other hand, non-resident companies are companies that are not registered under Spanish law and that do not have their registered office or main office of management located in Spain. Therefore, these companies bear the income tax of non-residents (Irnr) and they are taxed on commercial profits and capital gains, but only in relation to Spanish source income. So, for resident companies, the tax base of the IS consists of income and capital gains.


Rates applied to resident companies

From 1 January 2016, the tax rate on resident companies (IS) is equal to 25% to which a surcharge linked to registration with the Chamber of Commerce is applied. The taxable companies are:

  • Joint-stock companies;

  • Limited liability company;

  • Holding;

  • Economic interest groups;

  • Foundations, associations, cooperatives and partnerships;

  • The temporary grouping of companies;

  • Venture capital companies;

  • Investment funds;

  • Pension funds, for the regulation or conversion of mortgage loans, for the conversion of assets into securities;

  • Finally, guaranteed investment funds.


Value added tax in Spain

Value added tax is applied to the supply of goods and services. From 1 September 2012 the ordinary VAT rate was set at 21%. Also, there are two reduced rates of 10% and 4%. Specifically, the 10% rate applies to certain goods and services, such as the purchase of a new property, hotels and restaurants, health products, entertainment and sports. However, the 4% rate applies to goods considered essential, such as certain foods, medicines and even reading products (newspapers, magazines, books). Then there are special schemes with VAT rules, such as those for travel agencies, antiques and agricultural and livestock production. Therefore, some professional activities are exempt from VAT, such as those carried out by financial and insurance institutions and commissions earned by agents, medical and dental expenses.


Other types of taxes


Tax on productive activities


In Spain, there is also a tax on productive activities, which is applied to all economic activities managed by natural and legal persons. In particular, the tax on productive activities consists of the application of a lump sum amount established by the competent territorial body. This depends on the territory in which the activity is carried out and to which corrective coefficients are added or subtracted.


Property tax


Property tax is payable by natural and legal persons owning properties. The rate varies depending on the municipality concerned.


Other indirect taxes

Special manufacturing taxes on alcohol and alcoholic beverages, hydrocarbons, tobacco products, electricity are the main ones. Among the indirect taxes, we can also find the tax on property transfers (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados).

It provides for three rates:

  • 7% for real estate and real property rights;

  • 4% for movable or semi-movable assets;

  • 1% for collateral rights, loans and credit assignments.


 

Reference List:


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