Guide to Taxes in Spain: National, Regional, and Local
Taxes in Spain
Spain’s tax system comprises national, regional, and local taxes. This guide provides an overview of each category.
A. National Taxes
Direct Taxes
Personal Income Tax (PIT)
PIT is an annual direct tax on individual income. The tax base includes employment income, income from assets and liabilities, income from economic activities, and capital gains or losses. It’s a personal tax, considering individual circumstances and offering deductions based on them. The tax rate is progressive.
Wealth Tax
This annual direct tax applies to the net worth of individuals. The tax base is the taxpayer’s net assets (assets minus liabilities). The tax rate is progressive.
Inheritance and Gift Tax
This direct tax levies on inheritances and gifts received by individuals. The taxable amount is the actual value of the inherited or gifted property and rights, minus any charges or debts. The tax rate is progressive.
Corporation Tax
This annual direct tax applies to the income of corporations and other legal entities. The taxable amount is the income earned during the tax year. The tax rate is generally fixed for all companies and entities, with reduced rates for specific company types or situations, such as small businesses in their early years.
Indirect Taxes
Transfer Tax and Stamp Duty (ITP and AJD)
This indirect tax applies to:
- Transfer of assets: Onerous transfers of goods and rights.
- Corporate transactions: Changes in companies, such as creation, capital increase or decrease, mergers, divisions, and dissolutions.
- Documented legal acts: Legal, commercial, and administrative documents.
The tax base is the value of the traded property and rights, the amount of corporate transactions, or the securities listed or declared in the documents.
Value Added Tax (VAT)
VAT is an indirect tax on the consumption of goods and services. The taxable event is the supply of goods and services by businesses or professionals and the acquisition or import of goods. The taxable amount is the value of the taxed transactions. While businesses collect VAT, it’s ultimately borne by consumers as it’s passed on in the price of goods and services.
VAT has different rates:
- General tax rate: Applies to most goods and services.
- Reduced tax rates: Apply to essential products and services to avoid excessive burdens on consumption.
Customs Revenue
These indirect taxes apply to goods entering or leaving Spanish territory. They constitute the customs debt, which includes fees for importing or exporting goods subject to payment.
Excise Duties
These indirect, single-phase taxes apply to manufacturing, importing, or selling specific goods within Spain, and to registering certain vehicles.
Taxes on Insurance Premiums
This indirect tax applies to insurance premiums. The taxable event is the execution of insurance operations and capitalization. The tax base is the total amount of insurance premiums. Insurers are liable for this tax and pass it on to policyholders.
B. Regional and Local Taxes
Tax Autonomy
Spain grants regions and municipalities a degree of tax autonomy, allowing them to set rates and implement certain taxes.
Municipal Taxes
Municipalities can levy various taxes, including:
Property Tax (IBI)
This annual direct tax applies to the value of real estate owned within a municipality. The tax base is the property’s rateable value (cadastral value). It doesn’t consider the taxpayer’s personal circumstances. The tax liability is calculated by applying the tax rate set by the municipality to the tax base.
Activities Tax (IAE)
This annual direct tax applies to businesses, professionals, or artists engaged in economic activities. The tax liability is determined by applying specific rates based on the activity’s classification.
Tax on Motor Vehicles
This annual direct tax applies to vehicles driven on public roads, regardless of their class or category. The tax is calculated based on the vehicle type and engine power.
Tax on Increase in Value of Urban Land
This direct tax applies to the increase in urban land value realized upon transfer. The tax base is the actual increase in value. The tax liability is calculated by applying the municipality’s tax rate (within established limits) to the tax base.
Tax on Construction, Installations, and Works
This indirect tax applies to construction, installations, and works. The tax base is the actual increase in value. The tax liability is calculated by applying the municipality’s tax rate (within established limits) to the tax base.
Other Municipal Taxes
Common examples include charges for opening establishments and refuse collection services.