What are taxes like in Spain?

The tax system in Spain is one of the most complex in the European Union, as it is made up of a wide variety of taxes. Each one of them has specific regulations that require in-depth knowledge for their correct application and optimisation for both individuals and legal entities. 
 

We will now take a look at the main taxes in Spain and the importance of understanding these taxes. We will cover the profile of the tax advisor, their job prospects and the knowledge required.
 

The importance of understanding taxes in Spain

For anyone living in Spain or carrying out economic activities in the country, understanding how the Spanish tax system works is essential.

This system includes both state, autonomous community and local taxes, which vary depending on the autonomous community. For example, personal income tax (IRPF) has differences in its application in autonomous communities such as the Basque Country or Navarre, where a special tax regime applies.

The correct management of these taxes can make a big difference to the tax burden of each taxpayer, as it involves optimising the tax base, calculating the tax liability correctly, and taking advantage of established deductions.
 

To start with: What are taxes?

Taxes are taxes that citizens and companies must pay in order to contribute to the maintenance of public services.

This money is used to finance infrastructures, education, health, security and other collective needs that allow society to live in dignity.

In general terms, the tax burden in Spain is distributed into three main types of taxes: direct, indirect and special.

Direct taxes

Direct taxes are those that directly tax the income obtained or the net worth of taxpayers. Within this category, the following stand out:

1. Personal Income Tax (IRPF):

This tax is levied on the income obtained by each individual resident in Spain during the calendar year. There are deductions and allowances such as the deduction for maternity, which allows working mothers to subtract a fixed amount from their tax. Also worth mentioning is the special regime of the Beckham Law, aimed at workers posted to Spain.

2. Corporate income tax:

Taxes the profits of legal entities (companies) operating in Spain. A flat rate of 25% is applied to the tax base, although there are reduced rates for new companies and specific sectors. It also includes deductions for investment in technological innovation and other activities that promote economic development.

3. Wealth Tax:

This tax is levied on the holding of assets and rights by individuals. This tax is devolved to the autonomous communities, so the maximum exempt base and the applicable rates may vary from region to region. In general, it is applied to those assets exceeding 700,000 euros, excluding the main residence up to a limit.

4. Inheritance and Gift Tax:

This tax is levied on the transfer inter vivos or mortis causa of goods and rights. It is important to note that the regulations vary from one autonomous community to another, as some apply significant reductions or allowances. People who inherit or receive a donation must take this tax into account in their tax obligations.

Indirect taxes

Indirect taxes are those that do not depend directly on the income or wealth of taxpayers, but on the consumption of goods and services. The main indirect taxes in Spain are:

1. Value Added Tax (VAT).

VAT is a tax levied on the consumption of goods and services in Spain. It is applied in three rates:
 

• General VAT (21%): this is the rate applicable to most goods and services.
   
• Reduced VAT (10%): applies to essential products and services such as food, transport and housing.
• Super-reduced VAT (4%): reserved for essential goods such as medicines, books and basic foodstuffs.

VAT is an indirect tax, i.e. the taxpayer is the end consumer, although it is companies that must pay the tax to the tax office.
 

2. Transfer Tax and Stamp Duty (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados)

This tax is levied on the transfer of real estate and on certain documented legal acts, such as notarial deeds. It also applies to the sale and purchase of used homes and other movable property. As with inheritance tax, it is administered by the autonomous communities, which establish the tax rates applicable in each case.

Excise duties

In addition to direct and indirect taxes, there are a number of special taxes levied on the production and consumption of certain products. These include

• Tax on petroleum products.
   
• Tax on tobacco.
   
• Tax on alcohol and alcoholic beverages.

These taxes usually have revenue-raising purposes, but they also pursue objectives related to public health and environmental protection, discouraging the consumption of harmful products.
 

To continue: Tax management in Spanish companies

The Spanish tax system has a decentralised structure that directly influences the management of taxes by companies. In Spain, the autonomous communities have the capacity to manage and collect certain taxes, while others remain under the direct administration of the State. This distribution of competences affects the tax burden faced by companies depending on the region in which they operate.

For example, taxes such as inheritance and gift tax, wealth tax and part of personal income tax (IRPF) are administered by the autonomous communities. This means that companies may encounter variations in taxes and tax benefits depending on the autonomous community in which they carry out their activity, which may be a factor to consider for business tax planning.

In the case of Autonomous Communities such as Navarre, there is a particular tax system known as the ‘economic agreement’. This system gives them greater autonomy in the collection and management of their taxes, which may offer a different tax environment for companies operating in these regions. While some regions such as the Canary Islands, Ceuta and Melilla have a special tax regime due to their geographical location.

Given the complexity and diversity of the Spanish tax system, having a tax advisor can be of great benefit to companies. A specialised professional can help companies understand the differences between the different tax regimes in each autonomous community, optimise the tax burden and make the most of the deductions and benefits available in each region.

Likewise, the tax advisor can be valuable in adapting to the legislative changes that frequently occur in the tax field, and in designing strategies that allow the company to be more efficient from a tax point of view.

In this way, companies can focus on their core business while relying on an expert to manage and optimise their tax obligations. This not only saves time and resources, but can also translate into significant financial savings by reducing the overall tax burden in a legal and efficient manner.
 

To conclude: key skills and knowledge for a tax advisor

A tax advisor needs a solid knowledge base to provide a comprehensive and quality service to his or her clients, ensuring compliance with tax obligations and optimisation of the tax burden. Specialised training, such as that obtained through a master's degree in tax consultancy, is essential to acquire the necessary skills in this field. The following are some of the key skills and knowledge that every tax advisor must master:

1. Mastery of Spanish Tax Legislation:

Tax legislation in Spain is complex and constantly evolving. A tax advisor must have an in-depth knowledge of the regulations applicable to each type of tax, from Personal Income Tax (IRPF) to Corporate Income Tax (Impuesto sobre la Renta de las Personas Físicas). This knowledge is essential to correctly calculate the tax base, ensure compliance with tax obligations and optimise the tax situation of taxpayers.

2. Continuous updating on new legislation:

Must be up to date with royal decrees updating tax regulations and emerging regulations at both national and EU level. The ability to adapt to regulatory changes and apply them effectively to clients' tax planning is a significant competitive advantage.

3. Knowledge of the General Tax Law and practical application:

Master the General Tax Law to identify tax obligations of taxpayers in various situations and use specific tax incentives offered by the autonomous communities to encourage investment and regional development.

4. Strategic Tax Planning:

Design strategies to optimise the tax burden to reduce the impact of taxes such as wealth tax, manage property tax correctly and take advantage of the most favourable tax rates depending on the characteristics of the taxpayer.