Taxes in Spain: Everything You Need to Know About the Country’s Tax System

Spain is not only a country with a rich culture, unique architecture and a mild Mediterranean climate, but also a state with a developed tax system. Deductions to its budget are an important part of financial stability. They ensure the development of infrastructure, the implementation of social programs and the provision of public services. Understanding the nuances of taxation in Spain is important for both residents of this country and non-residents, especially if you are considering the country for relocation. Therefore, we suggest understanding the features of the tax system of this Mediterranean state and the responsibilities of taxpayers, which will help to avoid common mistakes, fines and other troubles.

Tax system of Spain

The tax legislation of Spain in 2024 is regulated by 46 normative acts. They are fixed in the Tax Code. According to it, all deductions received by the treasury can be divided into several categories. The main ones are:

• fees related to administrative procedures;
• targeted contributions, such as those that go towards improving infrastructure;
• Mandatory deductions – they are a general part of the tax system.

All taxpayers in Spain, whether residents or not, have an identification number. It is necessary to open a bank account and carry out financial transactions in the country.

Mandatory taxes in Spain for individuals

Mandatory taxes for individuals under Spanish law can be divided into several groups. They depend on income, property and other factors. The main ones are:

• income tax, which provides for a progressive or fixed scale;
• VAT;
• Tax on the purchase , ownership and sale of real estate in Spain .

Tax rates for each type of deduction may vary from region to region, as different autonomous regions have the right to influence their amounts. The main tax is income tax. For residents, it includes progressive rates. Their size can vary from 19% for income up to EUR 12,450 to 47% if the amount exceeds EUR 300,000. Fixed rates are provided for non-residents – from 19% for citizens living in the EU, and 24% for others. Also, Spanish tax legislation exempts certain categories of citizens from paying contributions. These include scientists or participants in peacekeeping missions. Value Added Tax (VAT) in the country depends on the type of goods or services. For example, basic products have a rate of 4%, some services – 10%, and other goods and services – 21%. Non-residents have the right to return part of the VAT when leaving the country. The rate varies from 0.4% to 1.1% depending on the cadastral value of the property and the region. There are also mandatory payments for property, capital gains, inheritance and insurance premiums. For example, for large assets (over 10 million EUR), the rate can increase to 3.5%. When selling property, the seller pays capital gains deductions. It includes a certain %, which is calculated in accordance with the difference in the value of the assets when they are purchased and sold. Transport taxes are also provided. They depend on the engine power of the car.

Features of taxes in Spain on real estate : differences for residents and non-residents

The state tax system for residents and non-residents has its own nuances related to income and property. Residents are those who:

• resides in the country for more than 183 days a year;
• works or is engaged in business activities in Spain;
• has immediate relatives in the country whom he fully supports.

To obtain resident status, you must obtain a certificate. You can apply for it on the website of the country’s tax service or at one of the offices at your place of residence.

Taxes in Spain for Non-Residents

If you are not a resident of Spain, the taxes will be as follows:

• fixed personal income tax or personal income tax, which we wrote about above – from 19 (for EU citizens to 24% (other countries);
• wealth deductions. Their rate ranges from 0.2% to 3.5%. Amounts up to 700 thousand EUR are not subject to taxation;
• real estate tax. Its amount is determined by the value of the property and municipal rates of a particular region;
• tax on dividends and royalties. Its size is similar to personal income tax – 19% for citizens of EU countries up to 24% for residents of other countries;
• VAT. Its rate is included in the price of goods and services. Non-residents can get back part of the VAT when leaving Spain, using the Tax Free system;
• transport tax. Its amount is determined by municipal authorities and depends on the autonomy, as well as the power of the car.

Non-residents must make contributions quarterly based on income earned within the country and assets that are also located in Spain.

Taxes in Spain on business and entrepreneurship

Spanish taxation for businessmen and companies provides for several rates. The main one is the income tax for associations and joint-stock companies. It is 25%. However, some categories of enterprises can expect a reduction or increase in taxes. Their amount is:

• 1% for investment funds;
• 15% for new businesses in the first years of operation;
• 23% for companies with a turnover of less than EUR 1 million;
• 30% for banks;
• 20% for cooperatives.

The tax base for business representatives is determined based on the income for the reporting period, taking into account previous losses and adjustments. In addition, Spain has implemented the Startup Law. It provides special conditions for deductions for foreign specialists and investors. Among the advantages are benefits for capital obtained in the country and a simplified tax system. Also, residents and non-residents of the country, including entrepreneurs, are required to make contributions to the social security fund. Employers pay taxes for their employees, and self-employed individuals are required to pay them themselves. These deductions provide access to social benefits, including pensions and health care.

Tax evasion in Spain: what are the consequences?

Failure to pay taxes in Spain can have serious consequences, including fines, penalties and even criminal prosecution. In the case of tax evasion or concealment of offshore capital, fines can amount to 100% of the amount owed, and in some cases up to 150%. Failure to pay property taxes can result in confiscation of property and loss of the right to a residence permit in Spain. In addition, a penalty is charged for late payment of taxes. In the first months, it can amount to 15% of the amount owed, but if the delay is more than 1 year, the penalty increases to 20%. This also limits the owner’s right to dispose of their property, including blocking bank accounts and possible confiscation of property. In addition, non-payment of taxes can lead to litigation, which seriously complicates the life of the debtor.

Advantages of the country’s tax system

The Spanish tax system attracts businessmen and investors for several reasons. For example, new businesses can take advantage of incentives or temporary exemptions from paying taxes. Reduced rates are provided for start-ups and investors: for example, 50% of investment profits are tax-exempt if the amount does not exceed 100 thousand EUR. Companies with a small turnover make deductions at reduced rates, and in some cases can count on a VAT reduction of up to 10% or, in exceptional situations, even up to 0%. In addition, young people receive tax advantages when purchasing various real estate in the country. For example, in Andalusia, citizens under 35 pay only 3.5% tax on the purchase of housing worth up to 150 thousand EUR. While the general rate at the national level reaches 6%, unless otherwise provided by local authorities.