At Bradford Jacobs, our Employer of Records (EOR) platforms provide reliable solutions for companies wishing to establish their presence in the Spanish economy. From the first steps of setting up operations to ensuring compliance with the local payroll laws and regulations, we offer dedicated Spain Payroll solutions that can be personalized to your requirements.
We aim to make business expansion easy. At Bradford Jacobs, we navigate the administration of the Spain payroll system for you, and we also make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.
We appreciate that all companies have their own challenges, and that’s what we do best! We provide dedicated Spanish payroll solutions customized to your specific needs. Let us help you speed up the process and keep you ahead of the game. We are just a click away.
When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for Spain.
What Spain Payroll Options are available for Companies?
- Remote payroll - This option allows businesses to operate under a single payroll system, by adding employees in Spain to your parent company’s payroll. However, these employees must operate under different regulations, which is likely to cause problems.
- Internal payroll - You may operate payroll from your subsidiary, especially if you are committed to growing your company’s presence in Spain. However, this does require hiring dedicated HR staff who understand Spanish employment and compliance laws.
- Spanish payroll processing company - If you are considering outsourcing, then working with a Spanish payroll company will help in processing your payroll – but not when it comes to compliance.
- Spanish payroll outsourcing - However, there is another option available which solves both concerns – by working with Bradford Jacobs. We can handle both your payroll and compliance for all your employees in Spain. We take the administrative stress off your shoulders so you can focus on what you do best.
Spain Payroll Services
There is no simple solution when it comes to operating payroll in Spain. In dealing with most bureaucracy, you need expertise to unravel the red tape. The smart move is to find the right people to be your experts while you concentrate on driving your business forward.
Running payroll in Spain requires an understanding of employment and tax laws and how it affects personal and corporate taxation, social security contributions, pension deductions and so forth. In fact, most aspects of ‘working’ shapes payroll and what we all want to know is ‘the bottom line’ – what’s in your pay-packet, business costs and getting it wrong can lead to fines and an unhappy workforce. Here are some of the outsourced payroll services that need to be dealt with:
- Applying for a trading name
- Applying for a foreigner’s tax registration number
- Registering with the national trade registry (Registro Mercantil Central, RMC)
- Deciding on a type of company
- Recording the daily working hours of all employees, following implementation of a law in May 2019
- Registering employees’ contracts with the social security authorities before employment starts
- Registering employees’ contracts with the Public Employment Service
- Complying with national minimum wage as laid down by the Ministry of Employment and Social Security
- Withholding national and regional tax from employees’ salaries
- Making monthly contributions to Spain’s National Social Security Institute
- Opening a company bank account after producing the correct documentation
- Creating employment contracts
- Applying special expatriation status (if applicable)
- Calculating monthly salary and creating pay slips and completing tax returns
- Researching available tax-free allowances
Don’t panic… leave it to us. It’s what we do!
Bradford Jacobs, with our Professional Employer Organization (PEO) and Employer of Record (EOR) solutions, is always here to explain how we get you through from A to Z and the benefits this can bring to your business. Think of us as an extension of your business – your new ‘right arm’ with the knowledge that is needed to navigate paying staff in Spain.
What is required to set up Payroll in Spain?
Before a company can operate payroll in Spain it must follow strict procedures to set up a subsidiary. These include:
- Obtaining a company Tax Identification Number (Certificado de ldentificacion Fiscal, CIF)
- Applying for certificate of denomination for the subsidiary from the Commercial Registry (valid for six months)
- Opening Spanish bank account to deposit share capital and receive disbursement certificate
- Presenting public deeds of incorporation before a notary, including bank certificate, certificate of denomination, company bylaws and identity of managers
- Presenting the D1-A form for declaring foreign investments to the Registry of the Directorate General for Trade and Investment at the Ministry of Economy
- Applying for final registration of public deed of incorporation in the Commercial Registry (usually within 15 days)
- Receiving the final CIF from the Commercial Registry
- Completing census registration for tax, VAT, social security etc.
What Entitlement/Termination Terms are needed to set up Spanish Payroll?
A comprehensive range of laws and regulations protect the status of employees in Spain and can be subject to inspections, and firing staff can be expensive if the proper channels have not been followed. Mandatory guarantees cover vacations, maternity leave, hours worked, overtime etc. and can be complex. These are some of the considerations for Spanish employment:
- National Minimum Wage: The national minimum as set by the Ministry of Employment and Social Security for 2021 in Spain remained fixed at €1,108.30 (US$1,308) per month equating to €13,300 (US$ 15,709) per year, considering 12 equal monthly payments.
- Health Care: There are two systems – the private system and the public healthcare system which provides a basic, free service for contributors to the social security system and their families.
Under the Spanish National Health Service, most services are free except for prescriptions. Employers can pay up to 29.9% of their total employment cost towards Social Security and employees 6.35% of their salary.
- Working Hours: These are regulated by Spanish law. Full-time workers over 18 cannot work more than nine hours a day to a maximum of 40 hours a week, averaged over a year.
Regarding break times, 1.5 days consecutive rest per week is allowed with a 12-hour break between daily shifts. A working day exceeding six hours has a break of 15 mins. Better provision and flexible hours can be agreed under collective bargaining agreements.
- Overtime: Overtime is not obligatory unless stipulated in a collective bargaining agreement or contract. Any work over the maximum allowed normal working hours is considered overtime and cannot exceed 80 hours annually.
Compensation for extra hours can be paid for at a premium or time off given in lieu. Since May 2019 employers must keep records for four years of employees’ daily working hours.
- Paid Vacation: Employees are entitled to a minimum of 30 calendar days (22 working days) per year paid leave with one period a minimum of two weeks. Employers cannot replace holidays with paid compensation. Additionally, there are public, regional, and local paid holidays.
The holiday calendar is set by each company and agreed upon by workers and employers.
- Sick Pay: This depends on length of absence with no payment for the first three days, but 60% of salary for days four to 20. For longer absences, or injuries suffered at work, employers must pay 75% of salary which is reimbursed by the Institute of Social Security. https://www.cloudpay.net/resources/understanding-payroll-in-spain-what-global-companies-need-to-know-about-spain-payroll
- Maternity/Paternity Allowance and Entitlements: Maternity benefit is for a minimum statutory 16 weeks, taken consecutively including weekends and holidays with a minimum six weeks taken after birth.
The mother is entitled to full pay from the Spanish Social Security Institute (Instituto Nacional de Seguridad Social INSS).
Additionally, all pregnant women are entitled to healthcare before, during and following the birth at hospitals belonging to the National Health Service (Sistema Nacional de Salud).
Paternity leave increased to 16 weeks from 2021, the same as for the mother, but the allowance is not transferrable between partners.
- Public Holidays:
- New Year’s Day: January 1
- Epiphany: January 6
- Good Friday: March / April
- Labor Day: May 1
- Assumption of the Virgin: August 15
- Hispanic Day: October 12
- All Saints Day: November 1
- Constitution Day: December 6
- Immaculate Conception Day: December 8
- Christmas Day: December 25
National/Public Holidays are celebrated on the day they fall, and most businesses and schools are closed but there are also quite a few regional holidays which dates can change every year.
- Discrimination: All types of discrimination are prohibited, either directly or indirectly, on grounds of gender, marital status, age within limits established by law, racial or ethnic origin, social status, religious beliefs, political ideas, sexual orientation, affiliation, or non-affiliation to a union or for reasons of language inside the Spanish state.
Employees cannot be discriminated against for reasons of disability, provided they are able to perform the role in question.
- Termination and Severance: Grounds for individual termination include end of contract for a specific job, resignation, and retirement through permanent illness.
Objective dismissals can be based on workers’ incompetence, inability to adapt to technical change, poor attendance and redundancies based on economic, technical, or organizational grounds.
In the event of fair dismissal, Spanish legislation states that employees are to be paid a minimum compensation of 20 days’ pay for each year of service, up to a maximum of 12 months’ pay.
In unfair dismissals, an employee on an open-ended contract is to be paid a minimum legal compensation of 45 days’ pay for each year of service, up to a maximum of 43 months’ equivalent pay.
In enterprises of fewer than 25 employees, the Public Fund of Wage Warranty (Fondo de Garantía Salarial) pays 40% of the legal reimbursement of employees in collective redundancies.
13th/14th Months’ Salary
Employees are paid monthly by the last day of the month. ‘13th and 14th month’ salaries are mandatory in Spain and are usually spread over 12 payments, although this varies depending on the company's collective agreement.
What Taxation Rules apply for Spain Payroll?
Understanding taxation and careful planning is needed in order to optimize your overall taxation bill. The better advice you have, the more money you can save especially if you incur fines for breaking the rules!
The Spanish tax year runs from January 1 to December 31 and tax returns are filed and bills paid by June 30 of the following year. Any Individual, resident in Spain for a minimum 183 days over 12 consecutive months, is considered a tax resident.
- Income Tax: Employers in Spain must deduct income tax from their employees’ salaries, which is divided into equal halves for state tax and regional tax. Rates start at 19% for the first €12,450 (US$14,705) and reach 45% for all earnings above €60,000 (US$70,870).
Overtime pay is taxable and subject to specific social security tax percentages. Most employers are obliged to submit payments to Spain’s Tax Authority, but employers in the Basque and Navarra regions must submit their employees’ income taxes to local authorities.
- Social Security Taxes: Employers withhold and remit contributions to Spain’s National Social Security Institute from their employees’ pay.
Contributions cover pension plans, labor accidents and illness and vary depending on length of employment or type of contract. As of 2021, the total typical rate of social security contribution was 36.25% of an employee’s salary: the employer paying 29.9% and the employee the remaining 6.35%.
Rules on other taxes:
- Corporation Tax: Corporation Tax is 25%, with 15% for newly formed companies in the first two years in which they make a taxable profit. Company tax returns must be filed within six months and 25 days after the accounting period, with instalments in April, October, and December. Each instalment is generally 18% of the previous year’s tax liability.
- Withholding Tax (WHT): Payment made to non-residents in Spain are subject to 24% being withheld by the payer, 19% in the case of European Union or European Economic Area citizens.
- Value Added Tax: A sales tax or VAT (IVA in Spanish) is an indirect tax on goods and services and in 2021 the rate was set at 21% although there are exemptions – reduced and zero rates (VAT-exempt)
- Customs and Excise: Customs duty is paid on goods entering Spain from outside the European Union and differing rates are determined through the EU Common Customs Tariff. Excise Duties are payable on certain goods (e.g., tobacco, alcohol, transport fuels) both imported and produced in Spain.
Capital Gains Taxes
Capital Gains Tax is paid on profit in 2021, as shown below:
- Up to EUR 6,000 - 19%
- EUR 6,000 – 50,000 7,096 – 59,138 21%
- EUR 50,000 + 59,138 23%
Capital Duty: This is paid by shareholders at a rate of 1% on capital reduction or company dissolution
Local taxes: Apart from national taxes, local tax may be charged to companies, such as – a real estate tax levied each year by local government on a company owning properties. Also, a local tax can be levied on an increase in land values when sold. There is also a motor vehicles tax and tax on buildings and installations that require planning permission.
Special Tax Regime for Foreigners: For foreigners who come to work in Spain for a Spanish company on contract, the government revised the tax system from January 2021. Those on assignment will pay 24% on income up to €600,000 (US$ 708,862) and 47% on income over this.
Posted employees also pay 3% on income from dividends, interest, and capital gains over €200,000 (US$ 236,320).
If foreigners spend more than 183 days in Spain, on contract and have not lived or worked in Spain over the previous 10 years, they can opt for this scheme and save money on tax for five years.
If you'd like to learn more about Spanish taxes, you can check out the Spanish Tax Agency or our Spain Tax page.
Go Global, Stress Free
Employer of Record (EOR) solutions take care of every step of the complex processes for international companies expanding into a new territory. Registration, tax laws, social security payments and dealing with the relevant authorities - Bradford Jacobs are on call every step of the way to ensure your company avoid the pitfalls on the way to establishing a successful presence in Spain.
Contact us today to see what we can do for you.