Taxation of individuals

The Spanish system for direct taxation of individuals is mainly comprised of two personal income taxes: Spanish personal income tax (PIT), for individuals who are resident in Spain for tax purposes, and Spanish non-residents' income tax (NRIT), for individuals who are not resident in Spain for tax purposes who obtain income in Spain. Therefore, persons who obtain income in Spain are either liable to pay Spanish PIT or Spanish NRIT.

Residents in Spain are generally subject to PIT on their worldwide income, regardless of where it is generated, which is taxed, following statutory reductions, at progressive rates.

Non-residents are subject to NRIT only on their Spanish-source income.

There are two types of taxable income for Spanish PIT purposes: general taxable income and savings taxable income.

Savings taxable income is basically composed of the following:

• Dividends and other income generated from holding interests in companies.

• Interest and other income generated from transferring the taxpayer’s own capital to third parties. As an exception, when capital transferred to a related company exceeds three times the latter’s equity, the interest corresponding to the excess is taxed as general taxable income.

• Income generated from capitalisation transactions and life and disability income insurance.

• Capital gains generated from transfers of assets.

General taxable income includes:

• All income that is not savings taxable income.

• Capital gains not generated from transfers of assets (such as lottery prizes).

• Income allocations, attributions, or imputations, as established by law.

• Interest and other income generated from transferring the taxpayer’s own capital to a related company when the capital exceeds three times the latter’s equity and for the part corresponding to the excess.

Regarding NRIT, income not obtained through a permanent establishment (PE) is taxed on each individual total or partial accrual of income subject to tax. This means that losses cannot be offset against gains.

Taxable income for non-residents without a PE is generally the gross income stipulated in Spanish PIT law, and no reductions are applicable. As a special rule, in the case of provisions of services, technical assistance, installation and assembly work resulting from engineering contracts and, in general, economic activities or operations carried out in Spain without a PE, taxable income is the difference between gross income and the expenses generated by staff, or for the procurement of materials incorporated in the works and supplies, in accordance with the requirements established in the regulations implemented under Spanish NRIT law.

When calculating the net income of taxpayers without a PE that are resident in other EU member states, a distinction is made between individuals and companies. In each case, the tax deductible expenses are established in accordance with the PIT and CIT legislation, respectively. In both cases, the taxpayer will need to prove that taxable expenses are directly related to the income obtained in Spain and that they have a direct and indisputable economic link to the activity carried out in Spain.

Exemption for work performed abroad

PIT is not levied on employment income obtained by persons who are tax resident in Spain for work effectively carried out outside Spain, up to the limit of EUR 60,100, if the following requirements are met:

• The employee is resident in Spain for tax purposes.

• The work is effectively carried out outside Spain.

• The work is carried out for a company, entity, or PE that is not resident in Spain for tax purposes.

• A tax which is identical or similar to Spanish PIT is levied in the country where the employee carries out the work.

This tax exemption is incompatible with the tax regime for non-taxable excess amounts, in accordance with which the amounts paid to employees of companies who are assigned abroad above the total compensation that they would have obtained had they stayed in Spain are not subject to Spanish PIT.

In this case, the taxpayer may choose to apply the tax regime for non-taxable excess amounts instead of this tax exemption.

Personal income tax (PIT) rates

Savings taxable income is taxed at the following rates:

• 19% for the first EUR 6,000 of taxable income.

• 21% for the following EUR 6,000 to EUR 50,000 of taxable income.

• 23% for the following EUR 50,000 to EUR 200,000 of taxable income.

• 27% for the following EUR 200,000 to EUR 300,000 of taxable income.

• 28% for any amounts over EUR 300,000.

For general taxable income, progressive tax rates are applied (which are the sum of the applicable rate approved by the state and the applicable rate approved by each autonomous community of Spain in their progressive tax rate scales). Tax liability may therefore differ from one autonomous community to another.

Non-resident income tax (NRIT) rates

For non-residents, income obtained without a PE is taxed at the following rates:

• General rate: 24%. For residents in other EU member states or European Economic Area (EEA) countries with which there is an effective exchange of tax information, the rate is 19%.

• Capital gains generated from transfers of assets: 19%.

• Interest: 19%. Interest is tax exempt for EU residents. Double taxation treaties (DTTs) normally establish lower rates.

• Dividends: 19% (DTTs normally establish lower rates).

• Royalties: 24% (DTTs normally establish lower rates).

• Pensions are taxed at progressive rates (between 8% and 40%).

​

Social Contribution  

Under the general regime, social security contributions are paid on wages and salaries. In Spain, the minimum monthly base is EUR 1,260 and the maximum is EUR 4,495.50 in 2023. 

The general contribution rates are 6.45% for employees, depending on the type of contract, and 30.40% for employers, plus a variable rate for occupational accidents (e.g. 1.50% office work).

Certain persons may be exempt from paying social security contributions, provided that the following requirements are met:

• There is a social security agreement in force between Spain and the person's home country that allows for this possibility.

• The employment relationship with the home country employer is maintained and the person continues to pay social security contributions to their home country social security system.

• The person's stay in Spain is limited to a few years (usually between one to five years, depending on the social security agreement in force between Spain and the home country).

To qualify for the exemption, nationals of EU countries must obtain a document certifying continuing liability in their home country and nationals from other countries must obtain a document certifying coverage by the social security authorities in their home country.

On the other hand, the contribution system for the self-employed is modified for 2023, 2024, and 2025, establishing a system whereby the self-employed will have to pay contributions according to the income they obtain. This system is made up of 15 economic brackets, and inclusion will vary depending on the income obtained by the self-employed. Within the bracket in which they are included, they will be able to choose the level of contributions they wish to pay. The minimum contribution for the lower bracket is set at EUR 751.63, while the maximum contribution in the upper bracket is set at EUR 4,495.50. Social security benefits would depend on the contributions paid by the self-employed, the general rate being 31.20%, which is applied on a monthly social security contribution base chosen by the self-employed.

From 1 January 2023, the intergenerational equity mechanism applies through which a 0.6% point contribution will be made, applicable to the contribution base for common contingencies in all situations of registration or assimilated to registration in the social security system in which there is an obligation to contribute for the retirement pension coverage. In 2024, the Intergenerational Equity Mechanism will be 0.70 percentage points, with 0.58 attributed to the company and 0.12 to the employee.

Taxation of legal persons

The general CIT rate in Spain is 25%. Other tax rates may apply, depending on the type of company that is taxed and its type of business.

Resident companies are taxed on their worldwide income.

For PEs in Spain of foreign companies, non-resident income tax (NRIT) is chargeable on income that may be allocated to the PE at a 25% tax rate.

NRIT is also chargeable on non-established foreign companies/individuals that obtain income in Spain.

Newly created companies

Newly created companies are taxed at a 15% tax rate for both the first tax period in which they obtain a profit and the following tax period. This tax rate is not applicable to equity companies (i.e. companies that do not carry on business activity) or to newly created companies that are part of a national or international group.

The reduced rate may also be inapplicable if the company's business activity was previously carried on by a related company or individual.

Start-up companies

Companies that meet the requirements set forth by the law to qualify as start-ups may apply a 15% tax rate in the first tax period in which the company obtains positive taxable income and in the following three periods, contingent upon maintaining the conditions to qualify as a start-up.

For these purposes, a company will be considered a start-up if the following requirements are met:

• It must be newly created or the public deed of incorporation must have been filed in the pertinent Commercial or Cooperative Registry no more than five years previously (seven years previously for companies in the biotechnology, energy, industrial, and other strategic sectors, or companies that have developed their own technology, designed entirely in Spain).

• It must not have arisen from a merger, spin-off, or transformation of companies that are not considered emerging companies. The terms 'concentration' or 'segregation' are included in the previous operations.

• It must not distribute or have distributed dividends or returns.

• It must not be listed on a regulated stock market.

• Its registered office, company domicile, or PE must be in Spain.

• 60% of its workforce must have an employment contract in Spain. For cooperatives, for the sole purpose of this percentage, working members and partners with whom there is a corporate relationship count as part of the workforce.

• It must be developing an innovative entrepreneurial project with a scalable business model.

When the company belongs to a business group, the group or each member company of the group must meet the above requirements.

Companies that meet the requirements to qualify as start-ups are not entitled to the application of the reduced tax rate when:

• The company ceases to qualify as a start-up or the five-year period or seven-year period from its incorporation has elapsed.

• The company is extinguished.

• The company is acquired by another company that does not qualify as a start-up.

• The company’s net turnover exceeds EUR 10 million.

• The company carries out an activity that causes significant environmental damage in accordance with Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 regarding the establishment of a framework to facilitate sustainable investments and whereby Regulation (EU) 2019/2088 is modified.

• Holders of a direct or indirect interest participation of at least 5% of the share capital or the directors of the emerging company have been convicted via a final judgment of the types of offences envisaged by the Start-up Law.

Minimum CIT rule

A minimum taxation rule will apply to those CIT payers whose net turnover in the 12 months prior to the date in which the tax period begins has been of at least EUR 20 million and for taxpayers who are taxed under the special tax consolidation regime for CIT purposes, regardless of its net turnover amount.

According to this rule, the above-mentioned taxpayers’ CIT net tax due (defined as tax due after applying tax reliefs and deductions) may not be less than the result of applying 15% to the taxable income reduced or increased due to the additions/decreases related to the reserve for the levelling-off tax losses (eligible by small-size entities) and reduced by the special investment reserve of the special economic and tax regime of the Canary Islands.

This measure will have effects for tax periods starting as of 1 January 2022.

The minimum taxation rule will not be applicable to taxpayers taxed under 10%, 1%, or 0% CIT rates nor to listed companies that make investments in the real estate market (called SOCIMIs in Spain).

The following entities have a special minimum tax rate:

• For newly created entities taxed at the special 15% tax rate, the minimum net tax due will be 10% of the taxable income.

• For those entities that qualify as credit institutions and those engaged in exploration, research, and exploration of hydrocarbons, the percentage indicated will be an 18% instead of the standard 15%.

• For cooperatives, the minimum net tax due may not be less than 60% of gross tax due.

• For entities in the Canary Islands Special Zone, the positive taxable income used to calculate the minimum net tax due will not include the part of the taxable income corresponding to operations materially and effectively carried out in the Canary Islands Special Zone that is taxed at the special reduced tax rate.

The following rules must be taken into account while calculating the minimum tax rate:

• Firstly, the gross tax due will be reduced by the amount of the applicable tax reliefs (including tax relief of the special economic and tax regime of the Canary Islands) and tax credit for investments made by port authorities. After that, tax credits for the avoidance of double taxation will be applied, within the limits set forth for all these incentives.

• If after the incentives above have been applied the resulting tax due is under the minimum net tax due calculated according to the above-mentioned rules, then the resulting tax due will be exceptionally considered as the net tax due.

• If after the incentives above have been applied, the resulting tax due is over the minimum net tax due, then any other applicable tax credits will be applied (within the limits set forth for each of them) up to the amount of the minimum net tax due.

• Tax credits under the special economic tax regime of the Canary Islands may be applied within their own limits even if the amount resulting from its application is under the minimum net tax due.

• Incentives not applied due to the application of the minimum net tax due may be applied in the following tax years according to the relevant regulations.

The minimum CIT rule will also apply to NRIT payers that act through a PE in Spain.

Business and professional activities tax

The business and professional activities tax is a local direct tax levied annually on the performance in Spain of business, professional, or artistic activities, whether or not they are carried out on particular premises. The tax payable depends on different factors, such as the type of activity carried on and the location and size of the premises where the activity is carried on. As regards limits, the tax may not exceed 15% of the presumed average profits of the business/professional activity.

CIT payers and non-resident companies carrying on an activity in Spain through a PE are exempt from this tax if their net turnover for the tax year of the last CIT/NRIT return filed prior to the date of accrual of the local tax (1 January) was less than EUR 1 million.

 
Value Added Tax - VAT

Spanish VAT is payable on supplies of goods and services carried out in Spanish VAT territory and on imports/intra-EU acquisitions of goods and services. There are three rates for the different types of goods and services, which are as follows:

• Ordinary rate of 21%, applied on regular supplies of goods and services.

• Reduced rate of 10%, applied on basic necessities (e.g. food and agricultural products not included in the ‘super reduced’ 4% rate, dwellings, other qualifying services). Live cultural events and cinema tickets are taxed at the reduced rate of 10% too. 

• Super reduced rate of 4%, applied on basic necessities other than those classified under the reduced rate (e.g. bread, milk, books, medicine).

In the Canary Islands, a specific tax is applied instead of VAT, called the Canary Island General Indirect Tax (IGIC). The ordinary IGIC rate is 7%, and the other IGIC rates are 0%, 3%, 9.5%, and 15% (20% for tobacco). IGIC is similar to VAT, with some significant differences. Imports of tangible goods into the Canary Islands are subject to this tax.

In Ceuta and Melilla, sales tax is applied instead of VAT.