Taxes in Spain – Rates, Types, and Taxation Principles

Taxes in Spain attract the interest of residents and entrepreneurs planning to live or do business in the country. The Spanish tax system is extensive and varies from region to region. However, it offers many opportunities for optimisation and tax reliefs. Below you will find a comprehensive guide to the tax system in Spain.

Table of Contents

Taxes in Spain – Personal Income Tax (IRPF)

Personal income tax in Spain is progressive and applies to the earnings of individuals. It covers both residents and non-residents with income in Spanish territory.

Tax rates in 2024:

income up to 12 450 euros: 19%;
from 12 451 to 20 200 euros: 24%;
from 20 201 to 35 200 euros: 30%;
from 35 201 to 60 000 euros: 37%;
from 60 001 to 300 000 euros: 45%;
over 300 000 euros: 47%.

The Spanish tax system provides for various reliefs and deductions. They depend on the personal and family situation of the taxpayer, including:

Child deductions: For parents raising children.
Housing tax relief: Related to the acquisition of a first apartment.
Charitable activities relief: Deductions for donations to charitable causes.

Taxes in Spain – Corporate Income Tax (IS)

The corporate income tax in Spain is a direct tax imposed on the earnings of companies and other legal entities established in Spain. It concerns both commercial enterprises and some non-corporate entities engaged in business activities.

Corporate Income Tax Rates:

Standard rate: 25% on the tax base.
Reduced rate for new companies: 15% for the first profitable tax period and the following one. It applies under the condition that the business has not been previously conducted by related entities.
Preferential rate for small entities: Small businesses with turnover under 1 million EUR can use a reduced rate of 23%. This applies from 1 January 2023.

Spanish tax law offers reliefs and deductions for specific economic activities, including:

Investments in research and development (R+D). There is a possibility of deducting part of the expenses incurred for research and development activities.
Job creation. There are tax reliefs available for companies increasing employment;
Investments in audiovisual productions. Deductions are possible for companies investing in film and music productions.

Certain public sector entities are completely exempt from paying corporate income tax. This applies to the state, autonomous regions or certain local units.

Taxes in Spain – VAT (IVA)

VAT is one of the primary indirect taxes in Spain, applied to the sale of goods and services as well as imports. It is a significant source of public revenue, regulated nationally under EU directives.

There are several VAT rates in Spain:

Standard 21 % rate. It applies to most goods and services, such as electronics, clothing, household appliances, and legal services.
Reduced 10 % rate. It covers basic goods and services. For example food (excluding alcohol), hotel services, passenger transport, and housing purchases.
Super-reduced 4% rate. It applies to essential items like bread, milk, prescription medicines, and printed books.

Some goods and services are exempt from VAT. This includes educational, medical or insurance services. Moreover, regions like the Canary Islands follow different regulations, applying a local tax. For example IGIC instead of VAT.

You can learn more about VAT in Spain here.

Taxes in Spain – Local Taxes (Impuestos Locales)

In Spain, local taxes are a key source of revenue for municipalities. This enables the financing of public services and infrastructure. They include both mandatory taxes, enforced by all local governments, and optional taxes. Their implementation depends on the decision of local authorities.

Main Local Taxes in Spain:

Impuesto sobre Bienes Inmuebles (IBI). It is a property tax, levied on owners of land and buildings. The rates are set by the local authorities and depend on the cadastral value of the property.
Impuesto sobre Actividades Económicas (IAE). It is applied to businesses and professionals operating within a municipality.
Impuesto sobre Vehículos de Tracción Mecánica (IVTM). It is imposed on owners of vehicles registered in the municipality.

Optional Local Taxes in Spain:

Impuesto sobre Construcciones, Instalaciones y Obras (ICIO). It is a tax on construction, installations, and other works. It applies to construction projects requiring a permit.
Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana (IIVTNU). It is also known as “plusvalía municipal,” it is a tax on the increase in value of urban land, paid upon the sale of property.

It is worth noting that the amount and structure of these taxes can vary among municipalities. This leads to significant differences in the tax burden between regions. For example, residents of Madrid and Barcelona pay an average of 1000 EUR per year in local taxes. This doubles the amount paid by residents of cities such as Pamplona or Jaén.

In addition, new fees are being introduced in some regions. For example, the waste management tax will be widely applied from 2025. The planned increase in garbage collection fees is 150%.

Taxes in Spain – Capital Gains Tax (IRNR)

Impuesto sobre la Renta de No Residentes is a Spanish income tax on non-residents. It covers, among other things, capital gains earned in Spanish territory. It applies to natural and legal persons who are not tax residents in Spain, but earn income from Spanish sources. For example from the sale of real estate or capital investments.

Tax rates for non-residents:

EU/EEA citizens, including Norway: 19% of the capital gain.
Non-EU/EEA citizens: 24% of the capital gain.

Tax obligations of non-residents:

Tax return. Non-residents earning income in Spain must file a tax return (Modelo 210 form). They have to do it within one month from the date of earning the income.
Property Sales Tax. When a property is sold by a non-resident, the buyer is required to deduct 3% of the sale price. The value must be transferred to the Spanish Tax Office as an advance payment of capital gains tax.

Non-residents earning capital gains in Spain are taxed at rates depending on their country of origin. It is important to follow local tax regulations and settle obligations on time. This helps to avoid potential penalties.

Taxes in Spain – How Does the Tax System Work in Spain?

Taxes in Spain are administered by:

central government (CIT, PIT, VAT, excise duty, tax on civil law transactions);
regional authorities (property tax, vehicle tax).

Individual regions can set their own rates for certain taxes, such as the IRPF. In practice, this means that a person earning money in Madrid may pay different taxes than someone living in Catalonia.

Comparison of Taxes in Spain (2024)

Type of tax	Rates	Notes
Personal Income Tax (IRPF)	19%-47%	It depends on the amount of income and the region of residence.
Corporate Income Tax (IS)	25%	Discounts for startups and companies employing <50 people.
VAT (IVA)	4%, 10%, 21%	Depending on the category of products/services.
Local tax	Variable	The amount depends on local regulations and region.

Tax Residence in Spain – When Do You Become a Resident?

Taxes in Spain are closely related to tax residency.

You are a tax resident in Spain if:

you stay in the territory of the country for 183 days in a calendar year;
you have the main centre of economic interests in Spain (e.g. company, investments);
your immediate family circle (spouse/children) lives in Spain.

Non-residents pay tax only on income earned in Spain. Determining residency status accurately is essential for business owners in Spain.

Taxes in Spain – Tax Reliefs and Incentives for Entrepreneurs

Spain offers several tax reliefs to reduce fiscal obligations:

Family tax relief. Parents of children under 25 can use deductions, depending on the number and age of children.
Real estate investments. Purchasing property in specific regions may qualify for exemptions from capital gains tax.
Startup incentives. Entrepreneurs can benefit from tax reliefs and simplified reporting during their first 2 years of business.

Taxes in Spain – Summary

Understanding Spain’s taxes is crucial for effective financial management in that country. The tax system is progressive, but it offers numerous reliefs and incentives. Especially for entrepreneurs and investors. It is worth consulting experts to optimize your liabilities and avoid errors in filings.

Do you want to know more about the tax system in Spain? Are you wondering how to open a company in Spain? Contact our experts for full support in the field of tax and corporate law.

Frequently Asked Questions About Taxes in Spain

What taxes do I have to pay in Spain as a resident?

Residents pay tax on worldwide income, including IRPF, VAT, and potential local taxes.

Do I have to pay tax if I stay in Spain for less than 183 days?

In this case, you are treated as a non-resident. You only pay tax on income earned in Spain.

What are the VAT rates in Spain?

The standard rate is 21%, and the reduced rates are 10% and 4%.

Can I benefit from tax relief as an entrepreneur?

Yes, especially if you run an innovative business or have employees.

How to register a business in Spain?

The process requires obtaining an NIF number. Then you register the business with the relevant office and for social security.

What tax benefits are families entitled to in Spain?

Families can use child tax reliefs. There are also deductions related to education and real estate investments.

Do I have to pay inheritance and gift tax in Spain?

Yes, but its amount varies depending on the region and kinship.

What documents are necessary for tax returns?

You need an NIF/NIE number, proof of income, VAT invoices and expenditure declarations.

Does Spain sign double taxation avoidance agreements?

Yes, e.g. with Poland. This allows you to avoid double taxation of income.

What is the risk of not paying taxes in Spain?

Fines, penal interest, and in extreme cases, confiscation of property.