Dealing with tax, payroll, and employment regulations for your staff from overseas is a tricky process. Spain is no exception, with fines, sanctions and other penalties applying for not complying with the complex and many-layered aspects of taxation.
Global expansion is a great way to grow your business and Spain offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. By using our PEO-service we will take care of the complicated legwork so that you can focus on your business goals in Spain.
With over 20 years’ experience in the front line of international payroll providers, Bradford Jacobs ensure our clients comply with every level of tax and employment law across the globe. Our ‘know-how’ is vital for foreign companies expanding into Spain. Why struggle with understanding the ‘ins and outs’ of new processes when we can do it for you?
We have made it our goal to keep track of the latest changes in tax policies to always ensure complete compliance. To keep you informed and updated too we created this guide which includes the basic facts regarding tax regulations in Spain.
Overview of Taxes in Spain
- Income Tax: Progressive, starts at 19% - 47%
- Value Added Tax: Standard rate 21%; reduced tax rates of 10% and 4%; some goods are tax exempt.
- Corporate Income Tax (CIT): On worldwide income for companies is 25% with a lower rate for new companies in the first two years of 15%.
- Withholding Tax: EU/EEA residents - 19%, Non-EU/EEA - 24%
- Social Security Taxes: Employers withhold employees’ contributions of around 6.35% and remit this along with their 29.9% contribution.
- Capital Gains Tax: Progressive, from 19% - 23%
- Capital Duty: This is paid by shareholders at a rate of 1% on capital reduction or company dissolution.
- Customs and Excise: Customs duty is paid on goods entering Spain from outside of the EU and Excise is collected on certain goods both imported and produced in Spain e.g., tobacco and alcohol and vary widely.
Individual Tax in Spain – Single, Married
The Spanish system for direct personal taxation mainly comprises two levels.
The first level is Personal income tax (PIT), which applies for individuals who are resident for tax purposes.
The second level is the non-residents' income tax (NRIT), which applies for individuals who are not resident for tax purposes but 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, and at progressive rates. Non-residents are subject to NRIT only on their Spanish-sourced income.
The Individual Tax rates for 2021 are as so:
- Up to €12,450: 19%
- €12,451 – €20,200: 24%
- €20,201 – €35,200: 30%
- €35,201 – €60,000: 37%
- €60,001 – €300,000: 45%
- €300,000+: 47%
Special Tax Regime for Foreigners: Foreigners working in Spain on contract for a Spanish company, are subject to a government-revised tax regime 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$ 236,319).
So, 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.
Married couples can choose to be taxed individually or jointly and should compare the options as there can be benefits either way. There is a married couple’s allowance of €3,400 (US$ 4,017) for the second taxpayer in addition to a general allowance of €5,550 (US$ 6,557) to the first taxpayer.
Spain Individual Tax Rules
Spanish tax residents are liable to pay income tax on their worldwide income once personal allowances have been considered. However, a non-resident of Spain is required to pay tax only on any Spanish income.
Under Spanish tax regulations income is split into two main categories, income from work and income from savings. The total is classed as the base from which deductions and allowances are calculated.
Taxable savings includes income from interest on savings, dividends, life insurance, annuities, disposal, or transfer of assets. Tax rates on savings earned in 2021 are:
- Up to €6,000: 19%
- €6,000 – 50,000: 21%
- €50,000 – 200,000: 23%
- Above €200,000: 26%
Be aware regional tax rates also apply.
Spanish taxes for non-residents include:
- Flat rate of 24%, or 19% for EU/EEA states
- Capital gains from transferred assets taxed at 19%+
- Investment interest and dividends taxed at 19%; exempt for EU/EEA citizens
- Royalties taxed at 24%
- Pensions taxed progressively from 8% to 40%
Value Added Tax and Excise Duty
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%. There are exceptions where reduced rates apply of 10% and 4%, plus some items are VAT-exempt e.g., books.
Customs duty is paid on goods entering Spain from outside the European Union and varying rates are determined through the EU Common Customs Tariff depending on the country and types of imported goods. Excise Duties are payable on certain goods (e.g., tobacco, alcohol, transport fuels as well as some luxury items) which are both imported and produced in Spain.
Employers’ Social Security and Statutory Contributions in Spain
All employees working in Spain (regardless of nationality) must be registered with the Spanish social security system, and the employer must make the corresponding contributions for both employer and employee. These contributions depend on the category of each employee and cannot exceed certain limits.
For 2021, they are set at 29.9% from the employer and 6.35% from employees for a total of 36.25%, plus a percentage to cover accidents and illness, usually around a further 1.5%.
Spain Corporate Taxes
Corporation Tax (CIT) is 25%, with a lower rate of 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 paid in April, October, and December.
Each instalment is generally 18% of the previous year’s tax liability.
Capital Gains and Withholding Tax
- Up to €6,000 US$ 7,096: 19%
- €6,000 – 50,000: 21%
- €50,000 +: 23%
Payment made to non-residents in Spain are subject to 24% Withholding Tax being withheld by the payer, 19% in the case of European Union or European Economic Area citizens.
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.
Corporate Deductions and Capital Allowances
Assets allowable for deductions against corporate tax include buildings, transport, furniture, machinery and tools, computers, and software. Land assets are not deductible. Other possible deductions apply to start-up and financial expenses, certain bad debt provision, severance pay under certain specified limits. Charitable donations may attract tax credits.
Avoid risks – make the right move
Tax laws that are applied both by the state and regional authorities in Spain and add up to a complicated burden of rules and regulations – with the extra worry of punitive sanctions and fines. Do not waste time worrying – contact us today.