Tax system in Spain

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Tax system in Spain

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The basic system of taxation in Spain includes direct taxes such as income tax physical individuals, corporate tax, and VAT cost.

Also, exist different municipal and regional taxes which can vary depending on the area.

Every region can have its own special rules and tax rates.

Tax system in Spain - realistic spain flag background

Spain, like everyone else in the country, has strong parties in question about tax systems.

  • Spain has a territorial system of taxation, which exempts from taxation of 95 percent foreign dividends and income from capital gains.
  • The tax network agreements of Spain are 95 countries.
  • Property taxes you can deduct from income tax enterprises.

But not without drawbacks:

  • standard VAT of 21 % applies to less than half the potential tax base.

In Spain many distorting property taxes with separate real estate transfer fees, net wealth, estates, and financial operations.

Let’s move on actually for the consideration of tax payments:

  • Personal income tax persons (Impuesto sobre la Renta de las Personas Físicas, or IRPF): This direct personal income tax on income received throughout the country and the world
  • Corporate tax (Impuesto sobre Sociedades): This one tax concerns profit corporations and other legal persons.
  • Added tax cost (Impuesto sobre email Valor Añadido, or IVA): This consumption tax goods and services.
  • Real estate tax (Impuesto sobre Bienes Inmuebles, or IBI): This one tax paid for ownership of real estate.
  • Social contributions (social and pension insurance employees)
  • Income tax of capital (Impuesto sobre las ganancias de Capital): this one tax applied to profit from the sale of assets such as real estate or shares.
  • Inheritance and gift tax (Impuesto sobre sucesiones y Donaciones), the rate is progressive from 7.65 to 34% depending on the decision of local bodies’ power and value object gift
  • Question residency for purposes of taxation

Individuals are considered residents for the purposes of taxation if they spend in Spain more than 183 days during the calendar year or if the center of their vital interests is located in Spain. Presumption places residence occurs if the person’s family lives in Spain. Place residence is defined as a whole year Spain does not recognize a change place residence for the financial year.

Note: term payment tax declarations – July 30!

Personal income tax has a progressive scale of rates from 19 to 45% and is charged only to residents:

  • 19% – income up to 12,450 euros;
  • 24% – income from 12,451 euros to 20,200 euros;
  • 30% – income from  20,201 to  35,200 euros;
  • 37% – income of 35,201 euros to 66,000 euros;
  • 45% – income above 66,000 euros.

Non-residents are paid tax which has the name Impuesto sobre la Renta de no Residentes, or IRNR, from revenues only obtained in Spain.

It works for EU citizens tax in the amount of 19%.

The corporate tax, in contrast to Personal income tax, is fixed – 25%. But if you have a young company, then during two years from the day of creation, the rate is reduced to 15%.

Very interesting situation with VAT: the standard rate is 21%. But there are reduced rates (10%/4%/0%) which are used for products food, medicinal drugs, public transport, and household items of the first necessity.

Important remains the question of double taxation. Double taxation may arise when an individual or company is taxed on the same income in two different countries.

In order to avoid such double taxation, a lot country, including Spain, concluded double tax agreements with other countries. Spain concluded many double tax treaties that defined rules to avoid double taxation.

These agreements usually specify which country has the right to tax a specific type of income. Usually, it is governed by the principles of the definition of residency and the definition of sources of income.

If you find yourself in a situation of double taxation, it is recommended to contact professionals in the area of international taxation to get specific tips and recommendations for your specific situation.

Also importantly agree on your tax obligation according to the respective provisions double tax agreement.

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