Taxes in Spain: All You Need to Know

If you’ve ever struggled to understand Spain’s tax system, you’re not alone. It can feel confusing, but knowing how it works is essential, whether you live there permanently or are planning to move. From income tax to VAT, each tax comes with its own rules, and knowing how they work can help you manage your finances more effectively.

To help you navigate your taxes stress-free and fully enjoy everything Spain has to offer, we’ve put together this guide. We’ll walk you through the country’s key taxes, breaking them down with updated 2024 rates and practical examples. You’ll learn which taxes matter most, how they work, and what you might need to pay depending on your situation.

Taxes for individuals in Spain

If you choose to live or earn income in Spain, you’ll need to understand how taxes apply to your situation. Residents must declare and pay taxes on their global income, including earnings from both Spain and abroad. Non-residents, on the other hand, are only taxed on income generated within Spain.

In this section, we’ll go over the key taxes that individuals need to be aware of in Spain. We’ll start with the Personal Income Tax (IRPF), which applies to residents, and the Non-Resident Income Tax (IRNR), designed for those who don’t live in the country. We’ll also cover key taxes like VAT and the Wealth Tax, giving you a clear overview of your tax obligations in Spain. Let’s dive in.

Personal Income Tax (IRPF)

The Personal Income Tax (IRPF) is a key tax for those living or earning in Spain. It follows a progressive system, meaning the higher your income, the higher the tax rate you’ll pay.

IRPF percentage varies according to the income bracket:

• Up to 12,450 euros ($13,423): 19%.
• Between 12,450 and 20,200 euros ($21,779): 24%.
• Between 20,200 and 35,200 euros ($37,952): 30%.
• Between 35,200 and 60,000 euros ($64,691): 37%.
• More than 60,000 euros ($64,691): 45%.

Here is a practical example, which always helps to understand everything better: 

If an individual earns 40,000 euros ($43,127) a year, the calculation would look like this:

• The first 12,450 euros ($13,423) are taxed at 19%, which is equivalent to 2,365.50 euros ($2,467.30).
• The bracket from 12,450 euros to 20,200 euros ($21,779) is taxed at 24%, which adds 1,860 euros ($1,940).
• The bracket from 20,200 euros to 35,200 euros ($37,952) is taxed at 30 %, which adds 4,500 euros ($4,693).
• Finally, the bracket from 35,200 to 40,000 euros ($43,127) is taxed at 37%, totaling 1,776 euros ($1,914).

The total income tax payable would be 10,501.50 euros ($11,322.56).

IRPF offers several deductions and allowances that can help lower your tax bill. Common ones include deductions for your primary residence, charitable donations, and pension plans. On top of that, specific groups—such as large families or people with disabilities—can take advantage of additional tax breaks.

Value added tax (VAT)

VAT is an indirect tax that applies to most goods and services in Spain. Whenever you make a purchase, you’re essentially paying this tax. However, the rate can vary significantly depending on the type of product or service you’re buying.

There are three VAT rates, which vary according to the type of product or service:

• General rate: 21% (applied to most products and services).
• Reduced rate: 10% (for food, hotels, passenger transportation, etc.).
• Super reduced rate: 4% (for essential products such as basic food items, medicines and books).

Example:

If you buy a phone that costs 500 euros ($539), the 21% VAT translates into 105 euros ($113), so the total price will be 605 euros ($652).

Excise taxes

In Spain, excise taxes are applied to specific products like tobacco, alcohol, and fuel. These taxes serve two main purposes: to discourage the consumption of harmful goods and to promote the responsible use of resources.

Products affected:

• Tobacco: The tax rate depends on the quantity and type of tobacco. For instance, a pack of cigarettes may have both a fixed tax based on quantity and a variable tax based on its price.
• Alcohol: This tax applies to alcoholic beverages, such as beer, wine and spirits.
• Fuel: Each liter of gasoline or diesel consumed is taxed.

Fuel prices can vary across Spain due to regional taxes. Some autonomous communities apply an extra surcharge, leading to higher prices for gasoline or diesel in certain areas compared to others.

Inheritance and Gift Tax

The Inheritance and Donations Tax differs widely across Spain’s autonomous communities. Each region can set its own reductions, exemptions, or bonuses, depending on things like family relationships and the value of the inheritance or donation. As a result, the tax burden on beneficiaries can vary a lot, depending on where they live.

The general tax rate ranges from 7.65% to 34%, but with the available allowances, this cost can be significantly reduced.

Here’s an example: If you inherit a property worth 200,000 euros ($215,605) in Madrid, you could face a tax rate of 9.2%, resulting in a liability of 18,400 euros ($19,835), unless you’re eligible for regional allowances.

Property Transfer Tax (ITP)

The Property Transfer Tax (ITP) is applied when purchasing real estate or certain second-hand goods. It’s a regional tax, meaning the rate varies depending on the community where the transaction takes place. Generally, this tax ranges from 6% to 10% of the property’s or asset’s value.

Unlike VAT, which is only applied to new products and services, the Property Transfer Tax (ITP) focuses on transactions involving second-hand goods, such as used homes.

Example: If you buy a second-hand property in Valencia for 300,000 euros ($323,408), you could pay a 10% ITP tax, which is equivalent to an additional 30,000 euros ($32,340).

Wealth Tax

The Wealth Tax applies to individuals with a net worth above a certain threshold, which differs depending on the autonomous community. It’s a progressive tax, meaning the higher the wealth, the higher the rate that applies.

Tax rates range from 0.2% to 3.5% and are applied to the net value of assets after subtracting any debts or other liabilities.

Non-Resident Income Tax (IRNR)

The Non-Resident Income Tax (IRNR) applies to income earned in Spain by individuals who are not tax residents in the country. This tax primarily affects those who own property in Spain and rent it out, or those who earn income from Spanish-based interest or dividends.

Tax rates differ based on your country of residence. EU residents are subject to a 19% rate, while non-EU residents face a 24% rate.

Taxes for legal entities or companies in Spain

If you’re running a business in Spain or planning to start one, you’ll encounter a different set of taxes than those that apply to individuals. The government requires businesses to file and pay a variety of taxes at both the national and regional levels. The most significant taxes include direct taxes, like Corporate Tax, which is levied on company profits, and indirect taxes like VAT, which is applied to the consumption of goods and services. In addition to these, companies with a certain level of revenue must pay other taxes, such as the Business Activity Tax (IAE). Let’s take a closer look at the most important taxes.

Corporate Income Tax

The Corporate Tax is a direct tax applied to a company’s profits. The standard rate is 25%, but there’s a special incentive for new businesses. During their first two years of profit, they pay a reduced rate of just 15%.

Rates:

• General rate: 25% on profits.
• New companies: 15% during the first two years of profit.

Value added tax (VAT)

Just like consumers, businesses are also subject to VAT. While it’s the end consumer who ultimately bears the cost, businesses are responsible for managing and reporting it to the tax authorities.

Rates:

• General rate: 21%.
• Reduced rate: 10% (hotels, transport, food products).
• Super reduced rate: 4% (medicines, books and essential products).

Example: Assume that a catering company sells a service for 1,000 euros ($1,043). In this case, a VAT of 10% will be applied, which adds an additional 100 euros ($104) to the price, resulting in a total of 1,100 euros ($1,147).

Tax on Economic Activities (IAE)

The Economic Activities Tax (IAE) applies to businesses with an annual turnover of over one million euros. The amount varies based on the business activity and its location, with larger cities typically having higher rates than smaller towns. There are three main categories of activities:

1. Group 1: Business activities (industrial, commercial and service activities).
2. Group 2: Professional activities (liberal and service activities).
3. Group 3: Artistic activities.

IAE rates can vary widely depending on the location and type of business activity. In major cities like Madrid or Barcelona, the tax rates typically range from 0.5% to 2% of the business turnover. In smaller municipalities, however, the rates tend to be lower, generally between 0.3% and 1.5%.

Additionally, businesses may be eligible for reductions and exemptions based on their size and the nature of their operations. It’s crucial for companies to stay informed about local regulations to ensure they meet their tax obligations regarding the IAE.

For instance, a graphic design company based in Barcelona with an annual turnover of over 1 million euros might face a yearly fee of 600 euros ($646), whereas a similar company in a smaller town could pay a lower amount due to location.

Property Tax (IBI)

The Property Tax (IBI) is a local tax on property ownership, which businesses must pay annually if they own offices, warehouses, or commercial premises. The rates vary by municipality since local governments manage this tax.

Percentage varies between 0.4% and 1.3% of the cadastral value of the property, depending on location.

Practical example:

If a company owns premises in Madrid with a cadastral value of 600,000 euros ($646,863), the annual IBI could range from 2,400 to 7,800 euros ($2,587-8,409), depending on the exact location of the property.

Tax benefits in Spain

If you’re considering paying taxes in Spain, you’ll be pleased to know that the system offers various tax benefits for both businesses and individuals. Here are some of the most popular ones.

Special Regime for Displaced Workers (Beckham Law)

One of the key tax benefits for foreigners in Spain is the Special Regime for Displaced Workers, often referred to as the Beckham Law. This program was introduced to attract international talent, offering workers the advantage of being taxed at a reduced rate of 24% on their income earned in Spain, rather than being taxed on their global income.

Benefits:

• You only pay taxes on income you earn in Spain.
• Reduced rate of 24% for income up to 600,000 euros ($646,863).
• If you exceed 600,000 euros, the applicable rate is 47%.

The regime is valid for six years.

Example: 

A foreign professional with an annual salary of 150,000 euros ($161,715) would be taxed 36,000 euros ($38,811) under this regime. This is significantly lower than the standard rates of the personal income tax (IRPF).

Tax incentives for business start-ups

Spain offers various tax incentives to boost the creation of new businesses and promote entrepreneurship. These measures specifically support startups and innovative projects by reducing their tax burden in the early years and promoting business growth. Some of the key tax incentives for starting a business in Spain include:

• Reduced Corporate Income tax rate: Newly established businesses enjoy the benefit of a reduced tax rate of 15% for the first two years in which they make a profit, compared to the standard 25%. This reduction helps ease the financial burden, giving businesses more room to reinvest and grow.
• R&D deductions: Companies investing in research and development enjoy substantial tax deductions, typically ranging from 25% to 42% of their investment. This benefit is particularly advantageous for tech startups and innovative projects, helping to significantly lower the costs involved in research.
• Incentives for startups: In addition to R&D tax deductions, startups can defer tax payments during their early years. This gives them more time to stabilize financially and allocate more resources toward growth.

Tax regime of the Canary Islands Special Zone (ZEC)

The Canary Islands Special Zone (ZEC) is one of the most advantageous tax regimes in Spain. It aims to attract foreign investment and foster economic growth in the Canary Islands. Companies that establish themselves in this region enjoy a reduced corporate tax rate, making it a highly appealing choice for new businesses. Let’s take a closer look at the key benefits and requirements of this regime.

• Benefits: Companies operating in the ZEC can benefit from a significantly reduced corporate tax rate of just 4%, one of the lowest in Europe. This advantage applies to both existing businesses and new ventures, as long as they meet the required criteria.
• Requirements: To qualify for these benefits, businesses must create at least five jobs and make an initial investment of at least 100,000 euros ($104,303) in fixed assets within the first two years.

Now that you’ve got a better understanding of Spain’s tax system, it’s easier to navigate. Keep in mind that there are additional taxes, and if you’re unsure or need more details about your obligations, you can always check the Tax Agency website or visit one of their offices. They offer updated guides and forms. If the tax process feels complicated, it might be a good idea to seek advice from a tax advisor who can help you manage your filings and avoid any costly errors. And, if you’re already in Spain, consider getting a Holafly eSIM to stay connected and informed about your inquiries.

Frequently asked questions about taxes in Spain 

Plans that may interest you

China

From

$6.90

USD

Greece

From

$6.90

USD

Paula Henderson

Read full bio

Related reading