Taxes

Taxes in Spain vs. in the USA: Where are taxes lower?

We compare taxes in Spain vs. the USA. Do you want to know in which of the two countries you would pay less taxes?

Trying to figure out whether it’s better to pay taxes in Spain vs. the USA? The choice can make a big difference in both business profits and individual earnings. These two countries have notable differences in their tax rates and the kinds of taxes they impose. While they share some common taxes, like income, consumption, and wealth taxes, their structures and percentages vary quite a bit. In this article, we’ll break down the key differences between the tax systems in Spain and the USA.

By the end of this article, you should have a clear idea of which country has a lower tax burden and what tax benefits you might be able to take advantage of based on your situation. Curious to find out where you’d pay less taxes?

In this article

Taxes for companies or legal entities

Both the USA and Spain have tax obligations that can significantly affect a company’s profits. Businesses are subject to corporate taxes on their earnings, along with additional levies depending on their industry or revenue. However, to encourage investment and support new business growth, both countries offer tax benefits and incentives.

In the USA, tax burdens vary widely depending on the state. In addition to federal taxes, each state has its own tax policies, which can impact companies differently. Spain, meanwhile, has a more consistent approach, with a set corporate tax rate across the country and special incentives for startups and specific industries.

To make sure you have all the facts before deciding, we’ll take a closer look at the main taxes that apply to businesses in both the USA and Spain. We’ll also highlight tax benefits and exemptions that could help entrepreneurs and companies boost their profitability in each country. Let’s get started!

corporate taxes — Corporate Taxes USA vs. Spain @Unsplash

Corporate income tax in the USA vs. Spain

Corporate tax applies to business profits in both the USA and Spain. But rates and specific rules differ significantly between the two countries.

USA: Businesses are subject to a flat 21% federal corporate tax on their profits. However, the total tax burden varies by state. Some states, like California, impose additional taxes (8.84%), while others, like Texas, don’t have extra state-level corporate taxes at all.
Spain: The general corporate income tax rate is 25%, although there are significant benefits for some companies:
- Newly created companies have a reduced rate of 15% during the first two years of profits.
- Tax deductions for research, development, and technological innovation (R&D&i) are a major advantage for startups and companies in innovative industries.

To sum up, although the federal tax rate in the USA is lower than in Spain, state taxes can raise the overall tax burden. For entrepreneurs, Spain offers more appealing incentives and deductions for startups, making it a better option for innovative businesses.

Dividend taxation in the USA vs. Spain

Another important tax for businesses is the one applied to dividends, or the profits distributed to shareholders. This tax can impact shareholder returns and adds an extra burden on companies.

USA: How dividends are taxed depends on the type of dividend and the recipient’s income level. Federal tax rates on dividends range from 0% to 20%, and some states add their own taxes on top, which can cause the total tax to vary quite a bit depending on the state.
Spain: Dividends are considered part of savings income and are taxed at a progressive rate ranging from 19% to 28%. Unlike the U.S., this tax rate is consistent across the entire country, with no regional variations.

The USA generally offers lower dividend tax rates for certain income levels, though the final rate can vary by state. In Spain, while the rates might be higher, the uniformity across the country simplifies tax planning for investors.

Value added tax (VAT) in the USA vs. Spain

Unlike Spain, the USA doesn’t have a national value-added tax (VAT). Instead, each state can impose its own sales tax, with rates that vary depending on the state’s tax policies.

USA: Sales tax is a state-level consumption tax, and the rates differ across states. They range from 2.9% to 7.25% in states that have it, while some states, like Oregon and New Hampshire, don’t charge any sales tax. This allows consumers in certain states to enjoy a lighter tax burden on purchases.
Spain: VAT is a single, indirect tax that applies to most goods and services at a general rate of 21%. However, there are reduced rates of 10% and 4% for specific items, such as food and essential services. This tax rate is the same across the whole country.

Overall, VAT in Spain is higher and applied nationwide, whereas in the USA, the variation in sales tax rates can make consumer goods more affordable in certain states.

Other specific taxes for companies in the USA vs. Spain

In addition to taxes on profits and dividends, both the USA and Spain impose other specific taxes on businesses, which can vary depending on the company’s activities and location.

USA: U.S. businesses may also face other specific taxes, such as the Business Activity Tax, which some states apply based on revenue rather than net profit. Additionally, there are extra taxes for certain industries like energy, telecommunications, and healthcare.
Spain: A common specific tax is the Economic Activities Tax (IAE), which varies depending on the business type and the location of the company. It’s handled at the local level and primarily impacts businesses with higher revenues. Additionally, certain regions apply extra taxes to specific industries, like tourism or environmental sectors.

In the USA, businesses can take advantage of tax exemptions in certain states, while in Spain, the IAE is required for companies with higher revenues. However, in the USA, additional taxes based on the industry can lead to more variation in the overall tax burden.

Taxes for individuals or natural persons

Just like when setting up a business, the tax burden for individuals can also play a crucial role in deciding where to live. Both the USA and Spain impose personal income and consumption taxes, which directly affect the cost of living and purchasing power. While both countries have progressive income taxes and consumption taxes, the specifics and rates differ.

In the USA, income tax is progressive but varies by state. Some states have their own tax rates, while others don’t charge state income tax at all. On the other hand, Spain has a consistent system nationwide, with only slight differences between regions. Regarding consumption taxes, each state in the USA sets its own sales tax rate, while Spain applies a single VAT rate across the country. Now, let’s explore the main taxes that impact individuals in both countries.

taxes for individuals — USA vs. Spain taxes to individuals @Unsplash

Taxes in Spain vs. the USA: VAT

With regard to value added tax (VAT), the difference between the USA and Spain is remarkable. Both countries apply this tax in very different ways.

USA: The USA doesn’t have a national value-added tax (VAT). Instead, each state sets its own sales tax, which can vary widely. For example, in states like California or New York, the tax rate can range from 7.25% to 8.87%. However, some states, such as Oregon and New Hampshire, have no sales tax. Residents don’t pay taxes on goods and services. This system means that the cost of living can vary significantly depending on the state.
Spain: VAT in Spain is a nationwide, standardized tax with a general rate of 21%. There are also reduced rates of 10% and 4% for essential goods like food, medicine, and basic products. This tax is applied across all regions, ensuring a consistent rate throughout the country.

Unlike Spain’s VAT system, the sales tax in the USA allows some states to have lower or even no consumption tax. However, Spain generally has a higher VAT, which is applied uniformly across the country. This means that for residents in U.S. states with no sales tax, consumption is clearly more affordable than in Spain.

USA vs. Spain, where do you pay less personal income tax?

Another key factor in the tax analysis is the personal income tax, which taxes the earnings of citizens and residents in both countries. While both the USA and Spain use progressive income tax systems, the structure and rates differ in important ways.

USA: The USA has a progressive federal income tax system, with rates ranging from 10% to 37% based on income. On top of the federal tax, some states also levy income taxes, while others, such as Texas and Florida, don’t have a state income tax. This means that in certain states, residents only pay the federal tax, which can lead to a lighter overall tax burden.
Spain: The personal income tax (IRPF) is progressive, with rates ranging from 19% to 47% depending on income levels. While there may be some regional differences in the final rate, these variations are generally smaller compared to the USA. Notably, Spain’s top tax rate is higher than in the USA, which could be an important consideration for individuals with higher earnings.

While both countries use a progressive tax system, in the USA, individuals can reduce their tax burden by living in states without a state income tax. In Spain, however, regional differences are less significant, and the top tax rate is typically higher, which affects higher earners the most.

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Wealth tax in the USA vs. Spain

Spain imposes a wealth tax on the value of assets and property, whereas the USA does not have a federal wealth tax.

USA: There is no specific wealth tax in the USA. However, some states do impose inheritance and gift taxes on certain transfers of assets. These taxes mainly affect individuals who inherit large estates, but they don’t generally impact the wealth of residents.
Spain: The wealth tax applies to individuals whose net worth exceeds a certain threshold (starting at 700,000 euros, with a 300,000 euros ($760,00-325,000) exemption for the primary residence). The tax rate is progressive, ranging from 0.2% to 3.5%. This tax also varies by region, as each autonomous community can offer additional exemptions or adjust the rate within certain limits.

The wealth tax in Spain is an additional cost, especially for individuals with significant assets or investments. In contrast, the USA doesn’t have this tax, which can be a benefit for those aiming to protect their wealth in the long run.

Comparison of Spanish and American taxes

Determining which country offers a more favorable tax burden can be tricky. Since there are differences for both individuals and businesses, it’s best to make a structured comparison. This will allow us to clearly outline the tax benefits and drawbacks in each country.

Taxes in Spain vs. the USA for individuals

Both the USA and Spain have significant taxes on income, consumption, and wealth for individuals. While the USA offers state-specific variations that can lower taxes in some regions, Spain’s unified system makes it easier to plan and predict taxes. Let’s take a closer look at the main taxes for individuals in each country.

Tax	USA	Spain
VAT	2.9% – 8.87% (variable by state)	21% (general rate); 10% and 4% for essential products
Personal income tax	10% – 37% (federal, with possible additional state taxes)	19% – 47% (progressive, with small regional variations)
Wealth tax	0% (does not exist at the federal level)	0.2% – 3.5% (for high net worth, with regional exemptions)
Inheritance and gift tax	Variable, depending on the state	7.65% – 34% (with regional exemptions and reductions)

Comparative table of taxes in Spain vs. the USA for individuals

Taxes in Spain vs. the USA for legal entities or companies

When it comes to businesses, the tax systems in the USA and Spain provide different benefits and challenges. The USA offers companies the advantage of no state taxes in certain areas, while Spain has a unified corporate tax rate nationwide, along with incentives for startups and specific industries. Here’s a look at the most important taxes for businesses in each country.

Tax	USA	Spain
Corporate income tax	21% (federal), with additional state taxes in some states	25% (15% for new companies for the first two years)
Dividend tax	0% – 20% (federal, with possible additional state taxes)	19% – 28% (flat across the country)
Tax on economic activities	Variable, depending on the state and activity	Mandatory (IAE) for large companies, with possible local variations.
Sector-specific taxes	Variable (in sectors such as energy, telecommunications)	Applicable in sectors such as tourism and environment in some regions

Comparative table of taxes in Spain vs. the USA for companies

Ultimately, if taxes are a key factor in choosing where to live or start a business, it’s important to consider your financial goals and tax profile. For businesses in certain sectors, the U.S. tax system may offer more flexibility. On the other hand, Spain provides a more consistent and predictable tax framework, which can also be advantageous. If you find taxes overwhelming, it’s a good idea to consult with a tax advisor to help navigate your situation. And remember, grab your Holafly eSIM to stay connected when you arrive!