Headquarters of Spanish Tax Agency.
Ana Linares. Madrid
The Spanish fiscal map has a particularly complicated topography. Not only is it difficult to explain that there are direct, indirect and special taxes, it also has an important differential: you are not the same to the tax man if you live in one autonomous community or another. Nor will you be depending in which municipality you live or where the headquarters of your business is.
The fiscal reform which has been proposed by the government profoundly attacks the greater part of taxes levied on people resident in Spain. They affect the personal income tax (IRPF in Spanish) with a reduction in rates, or others such as corporate tax, which is reduced in all cases to 25%. However, after this reform, the differences between the Communities will remain completely unaltered. You will pay more depending on the place where you live.
It has to be pointed out that tax legislation demands that tax is paid in Spain by all those that spend more than 183 days a year in the country, counted from 1 January to 31 December. The legislation also states that the majority of your economic interests (the greater part of your income) must be held within the country. It is also understood that you must pay taxes in this country if your spouse or underage children continue to live here.
In this case, you should know that the Community that pays fewer taxes is Madrid, according to a recent report from the Register of Economists and Tax Advisors (REAF, in Spanish). On the other hand, the territories where you’ll pay most as a resident in Spain are Cataluña and Extremadura.
That said, for higher incomes (over 110,000 Euros) the Community which will make you pay the most tax is Andalucía.
Specifically, when we speak of personal Income Tax (IRPF, in Spanish), this study has used as an example a 65 year old person, single, no children, with no deductions. In this case, with an income of 110,000 Euros in Madrid and La Rioja the average rate will be around 36%, whereas in Asturias or Andalucía it could be as much as 37%. For an income of 300,000 Euros, the average rate in Madrid and La Rioja is approximately 45% where as in Cataluña, Cantabria and Extremadura it would be around 47%, 48% in Asturias and Andalucía.
For an income of 600.000 euros, the average rate in Madrid and La Rioja is 48.5%, where as in Cataluña it is 51.5% and 52% if you are in Asturias or Andalucía.
You can consult the document with the different tax rated in the different autonomous communities here; http://s01.s3c.es/imag/doc/2014-02-27/16.Fiscal.pdf
These differences have already had some effect. Only a few months ago, the autonomous Community of Madrid stated that in the last three years more than one thousand businesses had changed their fiscal domicile from Cataluña to Madrid. In total, from the rest of the country, approximately 5,000 companies have made the move since 2010 due to this difference in the tax rates.
This is also the case if we discuss employees and not businesses. The information of the latest report from the Tax Agency about geographic mobility in 2012 shows that nearly 100,000 workers changed their residency from one region to another for work and tax reasons. The region that attracted the greatest number of people was Madrid, which gained approximately 8,000 contributors. According to some studies, Madrid has the lowest tax effort of the entire country; a 4.72% compared to the national average of 6% or Andalucía’s 7.79%.
However, the REAF’s study does not take into account Navarra or the País Vasco because both Communities are registered with special privileges that make it impossible to apply the same criteria to them as to the rest of the country.
As the Treasury Ministers argues “Under the regime of regional laws, the financial system is characterised by the fact that the historical territories of the País Vasco and the Regional Community of Navarra, have legal authority to maintain, establish and regulate their own taxes”.
Finally, this would be an outline of Spanish Taxation:
Income Tax (IRPF, in Spanish)
Tax on non-residents
Tax on inheritance and gifts
Value added tax (IVA, in Spanish)
Property Transfer and Certified Legal Documents Tax (IPAJD, in Spanish)
Of all these taxes, those which affect businesses are the IRPF, Corporation tax and the IVA.
There are also a series of Municipal Taxes (Property Tax, for example) and other Special Taxes which the central Government sets (alcohol and tobacco).