France or Spain: Where is it better to pay taxes?

In this guide on taxes, we’ll compare the tax systems of France vs Spain for companies and individuals. Therefore, you’ll understand each destination’s advantages and disadvantages before settling as a worker or entrepreneur.

We’ll clarify your doubts by explaining current taxes in both European countries in a simple way. Then, follow us as we review income impact and social charges, as well as special benefits for foreigners and real business costs.

Taxes for businesses or legal entities

Starting a business in France or Spain requires a careful review of direct and indirect tax burdens. For example, in Spain, the government offers programmes that encourage young people to start businesses.

Meanwhile, France maintains a tiered system for SMEs that protects cash flow for lower-profit companies. Therefore, Spain promotes entrepreneurship, while France extends benefits over time for small and medium businesses.

To give you a clearer overview of taxes for companies in both countries, we’ll now explain them in more detail.

Corporate tax in France vs Spain

This tax represents the main yearly payment companies make on net profit, contributing to each country’s budget. In both countries, businesses pay 25% on annual income.

However, each government offers specific advantages. In Spain, start-ups pay only 15% during their first two years, which reduces financial pressure for new businesses.

In contrast, France applies a 15% rate to small companies earning up to €42,500 ($45,900) yearly. This benefit continues over time unless profits exceed that threshold.

Social Security contributions

This represents one of the highest company expenses after salaries. In France, charges reach 45% of gross salary, while Spain ranges between 30% and 31%.

Social Security contributions support employees during long-term illness or incapacity. Therefore, the system ensures workers still receive income during recovery periods.

Business activity taxes

Companies must pay this tax simply for operating within a city. This tax helps to fund the services provided by the local council in the area where your offices are located.

In France, the CET (Territorial Economic Contribution) includes two components:

1. CFE (Business Property Contribution): Applies to premises use, with local rates. Fees range from €200 ($216) to €7,000 ($7,560) yearly.
2. CVAE (Value Added Contribution): Applies to companies earning over €500,000 ($540,000), with a maximum rate of 0.09%. France plans to remove it by 2027.

In Spain, the IAE (Business Activity Tax) exempts freelancers and small businesses if revenue stays below €1,000,000 ($1,080,000).

VAT (Value Added Tax)

VAT is an indirect tax collected by businesses on behalf of the government from goods and services consumption.

France applies a 20% standard VAT. However, reduced rates include 5.5% for food and energy, and 2.1% for certain medicines and newspapers.

Meanwhile, Spain applies a 21% standard VAT, with reduced rates of 10% for hospitality and transport, and 4% for foodstuffs such as milk, bread, fruit, vegetables and eggs, as well as other items such as books and newspapers.

Taxes for individuals or natural persons

As an individual, you must pay taxes that directly affect your income, savings, and purchases. Although they operate in a similar way in France and Spain, there are differences that are worth clarifying.

Spain has a monthly withholding system that France has sought to emulate. However, the French model offers certain benefits depending on each citizen’s income level.

VAT in France vs Spain

Whenever a person buys a product or uses a service, they must pay Value Added Tax (VAT), which, as mentioned above, is set at 21% in Spain and 20% in France.

However, although both countries apply a reduced rate of VAT to certain essential goods, France leads the way with lower rates on books, cultural goods, feminine hygiene products, energy and water, ranging from 2.1% to 5.5%.

France vs Spain: Where is personal income tax lower?

This is known as IR in France and IRPF in Spain. In both cases it refers to the tax deducted by the state from individuals’ annual income. There are also some important differences here that you should be aware of.

The way the tax-free allowance is handled varies from country to country: Spain applies a withholding tax from the very first euro earned, with adjustments made for family allowances. While France applies a 0% tax bracket for income not exceeding €11,294.

Therefore, low-income earners in France pay no direct income tax, while Spain starts at 19%.

This changes when income in France exceeds the threshold of €182,277 ($197,000) per year, as an additional tax known as the CEHR (Exceptional Contribution on High Incomes) is triggered, adding 4% to the existing 45% rate.

Furthermore, the French system includes a concept known as the ‘family allowance’, whereby tax is not calculated based on a single person’s income, but on the number of people in the family, resulting in a significant reduction in the amount of tax payable.

Meanwhile, Spain reaches 47% for income above €300,000 ($324,000) per year, which works to the advantage of those on middle and high incomes, as their gross tax rate may be lower.

Savings tax

Savings tax in France operates on a flat-rate basis (Prélèvement Forfaitaire Unique), also known locally as the Flat Tax, which applies a fixed rate of 30% to savings income, i.e. interest, dividends and capital gains.

This 30% is broken down into 12.8% income tax and 17.2% social security contributions. This differs from the Spanish progressive model, which applies a specific tax rate for each bracket:

• 19% on the first €6,000 ($6,480)
• 21% from €6,000 ($6,480) to €50,000 ($54,000)
• 23% from €50,000 ($6,480) to €200,000 ($54,000)
• 27% from €200,000 ($6,480) to €300,000 ($54,000)
• 30% on any amount exceeding €300,000 ($324,000)

Social security contributions

Social security contributions are handled differently in the two countries. Under the system used in Spain, social security contributions are paid in a single instalment to the Social Security, which is deducted monthly from the employee’s pay.

The applicable rates for this tax are: 4.80% for general contingencies, 1.55% for unemployment and 0.10% for vocational training, making a total of 6.45%. If an employee’s monthly earnings exceed €4,720, they are no longer liable for this tax.

In France, it is divided into two main groups: Social Security contributions covering pensions, healthcare and unemployment benefits, with between 20% and 23% of an employee’s gross salary being deducted.

And social security contributions or solidarity levies, which apply to all income and employees, comprising the CSG (General Social Contribution) at a rate of approximately 9.2% and the CRDS (Contribution for the Repayment of the Social Debt) at 0.5%.

Wealth Tax

Wealth tax is one of the areas where the two countries’ tax policies differ most significantly. Let us explain it in more detail:

France has simplified its system for attracting investment, focusing solely on property assets through the Property Wealth Tax (IFI), thereby abolishing the general wealth tax.

This means that tax is levied solely on the net value of real estate assets such as houses, flats or land, and on shares in companies that own property.

France taxes only real estate wealth above €1.3 million ($1,404,000). If the threshold is exceeded, this tax is calculated on amounts above €800,000 at rates ranging from 0.5% to 1.5%.

Spain combines the Wealth Tax, with rates of up to 3.5% and a tax-free allowance of €700,000, with the Solidarity Tax on Large Fortunes for wealth exceeding €3 million.

To avoid double taxation, the amount paid in respect of the first tax is deducted from the second, with the latter acting as a state top-up, particularly in regions where property is tax-exempt.

The second is the Solidarity Tax on Large Fortunes, which applies to individuals with a net worth exceeding 3 million euros. The thresholds for this tax are as follows:

• 1.7% from 3M to 5M
• 2.1% from 5M to 10M
• 3.5% for amounts over 10 million euros.

Foreigners regime

These special regimes in both countries aim to attract talent and professionals, both foreign nationals and nationals who have emigrated, by offering a significantly lower tax rate for the first few years.

Spain’s Beckham Law allows impatriates to live in the country as tax residents but to be taxed as non-residents for a period of up to six years from their arrival, paying a flat rate of 24% on the first €600,000 ($648,000) of annual income.

If you exceed that amount, the excess is taxed at 47%, which is the standard rate in Spain. Furthermore, foreign income is exempt; only income generated within the country is subject to tax, as is wealth declared in Spain.

France does not apply a fixed rate, but instead grants a percentage-based exemption on salary, which particularly benefits high earners for up to eight years. the French tax regime for expatriates exempts up to 30% of your total net salary from tax.

At the same time, any work done outside earned outside France and 50% of interest income received from abroad are exempt from tax.

Tax comparison: France vs Spain

Below, you’ll find a clear summary of taxes for individuals in France and Spain.

Next, you’ll see how taxes work for companies in both European countries.

Plans that may interest you

eSIM United Kingdom

eSIM Colombia

Belén Grima

Read full bio

Related reading