As in any economy, Spain’s taxes are needed to be able to finance its public spending. Health, pensions, public education… these are some of the services supported by tax collection. But what taxes are paid in Spain exactly? In this post we will summarize what are the taxes in Spain for 2023.
All citizens and companies pay taxes
First of all, we must understand that both companies and citizens must pay their taxes compulsorily; as required by law.
Thus, the Spanish tax system is one of the most extensive in Europe, making Spain the fourth country in the entire European Union in the ranking of those that charge the highest percentages.
And in what way is it done?
Today, the general classification of taxes paid in the Spanish State is divided into two types: direct taxes and indirect taxes.
- Direct taxes, (for example, Personal Income Tax) or entities (Corporation Tax, for example); depending on your income or assets.
- Indirect taxes, on the other hand, are levied on economic transactions (e.g. VAT), recording services or consumer goods.
Taxes in Spain according to how you execute your economic activity
However, the tax rates paid by each other are different, and understanding exactly what taxes are paid will be essential, among other things, when deciding between developing our economic activity as a self-employed person or in a corporation. This monetary difference can distort our choice and make us opt for one way rather than another, as it may be more advantageous for our particular case.
Official link to the Tax Agency
Thus, let’s see what are the types of taxes in Spain according to whether we are self-employed or a Company:
Taxes in Spain for freelancers and individuals
Taxation for the self-employed in Spain during 2020 is mainly composed of 6 different taxes, direct and indirect:
Personal income tax or IRPF
The IRPF records the income obtained during a year to both residents and non-residents in Spain. In the first case (people living in the country for more than 183 days per year), it is a progressive tax; that is, whose percentage increases as our income rises.
Saying an exact number is somewhat complicated, since it varies according to the autonomous community (E.g.: Andalucía may be different from Madrid) . However, we find percentages around 19% for the lowest incomes, which can reach up to 48% in the highest.
And in the case of non-residents, how much is paid for Personal Income Tax in 2021? Personal Income Taxis 19% for citizens of Iceland, Norway or any other country of the European Union. For non-resident citizens of any other country, there’s a fixed tax rate of 24%.
We must bear in mind that there are numerous possible deductions on the tax base.
Capital gains tax
The capital gains tax is the percentage that must be paid on the profit obtained when selling a property in Spain. This means that, as long as there is a positive difference between the sale price of the property and the acquisition value, this tax will come into play.
The exact percentage depends on whether you are a resident or not:
- There is a tax rate between 19% and 23% for tax residents in Spain
- A flat rate of 24% for non-residents living outside Europe.
- In the case of being a non-resident living in any European country, then we will move to a fixed rate of 19%.
You must bear in mind that there are certain bonuses and exemptions to this tax, such as the exemption for habitual residence. This means that in many cases you will be able to reduce and even eliminate the payment of this tax.
Wealth tax (Impuesto al Patrimonio or IP)
This tax, paid once a year, is paid based on the assets or wealth under our name. The wealth tax is a progressive percentage ranging from 0.2%to2.5%. This percentage is applied on the value of the property or asset that exceeds the bonus of € 700,000. There is no exemption: both residents and non-residents must pay it. However, in the case of being tax residents, it will apply to all assets we own globally. While for non-residents only for those who have in Spain.
If, for example, you have a place where you carry out your economic activity, you must pay wealth tax. If you use a computer, too. It is important to mention that different the autonomous communities regulate the payment of the Wealth Tax. Inn the community of Madrid, for example, Wealth Tax is not paid.
Inheritance and gift tax (Impuesto sobre sucesiones y donaciones or ISD)
Whenever a business passes into the hands of someone else, either by inheritance or by donation, the new owner must pay inheritance and gift tax. It is a tax ceded to the autonomous communities, and there is a certain territorial inequality: there are communities in which this tax is higher than in others.
VAT (Value Added Tax – IVA)
This indirect tax, the well-known VAT, records consumption and transactions. There are several levels for VAT, being 21% the most common. It is not a subjective tax, because it is paid according to the activity we do as individual entrepreneurs: certain activities have it and certain do not. In this case, VAT is not a differential factor between exercising as a self-employed person or as a company, since it is a tax that is paid regardless of the legal form.
Non-resident income tax (Impuesto sobre la Renta de no Residentes or IRNR)
The Non-Resident Tax records, as its name suggests, the income of those individuals who do not reside in Spanish territory. That is, it applies to those people who generate an income in Spanish territory, but operating outside it. A person who lives less than 183 days per year is considered non-resident.
If you are interested in knowing how to optimize your taxes in Spain as a non-resident… Do not miss our post about the Beckham Law in Spain!
Taxes in Spain for companies
The collection of taxes in Spain during referred to companies includes two extra taxes to those seen above, while maintaining VAT:
Corporate Income Tax (Impuesto de sociedades or IS)
Corporation Tax is a direct tax that records the result of the economic activity of a company. Unlike Personal Income Tax, it is a single tax of 25%, fixed and not progressive. That is, whatever the company earns, it will always pay 25% on the profit.
You can access a complete guide on this tax here. In it you will find how to present it, when and the deductions that will allow you to save money.
Transfer tax (Impuesto sobre transmisiones de patrimoniales or ITP)
The ITP records the different operations that occur throughout the life of a company, for example capital increase or decrease, mergers, divisions, etc.
Thus, we see how the main difference between carrying out an economic activity as a self-employed or as a company lies mainly in the progressivity of Personal Income Tax vs the fixed rate of Corporation Tax.
As a general rule, although in practice there are many more factors to take into account (such as taxes generated by the collection of dividends), we can assume that at low income levels it is more advisable to operate as an individual entrepreneur, while at high income levels, a society supposes a tax saving.
In addition, the property transfer tax is also paid when buying a second-hand home, and the percentages vary according to the autonomous community. E.g.: Madrid has the lowest ITP in Spain with 6%.
Do you want to optimize your taxes in Spain?
Now you know what are the main taxes paid in Spain, both for individuals and companies.
If you are thinking of setting up a company or already have one, it is very likely that you are not optimizing your taxes to the maximum and you are overpaying.
Do you want to know how to pay less taxes in Spain? Well, let us help you. Make an appointment with our recommended tax specialists!
