Taxation and incentives

Learn about the tax system for residents in Spain and the exemptions in Madrid Region

Madrid is the Autonomous Community with the lowest tax burden of all Spanish regions. All taxes that are the responsibility of the Autonomous Communities, such as the wealth tax, are fully subsidized. Others are partially subsidized.

There is a series of state taxes that must be complied with by both individuals and legal entities residing in Spain.

State taxes

In Spain, there are two types of state taxes: direct and indirect.

DIRECT TAXES

Corporate income tax

It applies to legal entities residing in Spain, understood as companies incorporated under Spanish law or having their registered office and headquarters in Spanish territory.

The general tax rate is 25%, although there are various tax incentives, including those related to R&D and technological innovation.

In addition, there are certain tax benefits of this tax that make investment in our country very attractive:

  • Holding company. Exemption regime on dividends, profit participations and capital gains derived from the transfer of participations, with an exemption of up to 95%.
  • Deductibility of financial expenses, with a limit of 30% of the operating profit for the year.
  • Special restructuring regime applied to certain corporate restructuring operations (mergers, spin-offs, etc.) within the European Union.
  • Special tax consolidation regime, whereby groups of companies are taxed as a single taxpayer, eliminating the individual taxation of each of the companies comprising the group.
  • Special regime for entities holding foreign securities, which allows for an exemption of up to 95% for income from non-resident entities.

Personal income tax

This applies to all individuals residing in Spain, i.e., all those who spend 183 days or more in the country.

This tax is levied on income from work, real estate capital or other economic activities, as well as income derived from savings.

In Madrid, the maximum personal income tax rate is 45%, unlike other Autonomous Communities such as Catalonia, Valencia or the Basque Country, where it is around, and even exceeds, 50%.

IRPF 2022
Autonomous Community Minimum amount Maximum amount
Madrid 18% 45%
Cataluña 20% 50%
Valencia 19,50% 54%
País Vasco 23% 49%

Non-resident income tax

This tax is levied on individuals and entities not residing in Spanish territory on income earned in Spain. It progressively taxes the income obtained from economic activities, whether there is a permanent establishment or not.

At the same time, any individual who begins to reside in Spain for work purposes may opt to be taxed at a fixed tax rate of 24% for the first 600,000 euros received during the tax period in which the change of residence takes place and during the following five tax periods. This is known as the Beckham Law.

INDIRECT TAXES

VAT - Value Added Tax

  • General rate 21%
  • Reduced rate 10%
  • Super-reduced rate 4%

Property transfer tax and stamp duty

It has a tax rate of 1%, and comprises three different taxes:

  • Onerous property transfer tax, with a rate of 6%.
  • Corporate transactions: taxed on operations of incorporation of companies, capital increases or decreases, etc.
  • Documented legal acts, which is levied on notarial, commercial and administrative documents.

Taxes in Madrid

Madrid is the Autonomous Community with the lowest tax burden of all Spanish regions.

Tax exemption

There are several direct taxes on which Madrid applies an almost total rebate:

  • Wealth tax, subsidized up to 100% by Madrid Region
  • Inheritance and gift tax, subsidized up to 99% in Madrid for cases between spouses, ascendants and descendants
  • 25% rebate on inheritance and gift tax between siblings, uncles, aunts and nephews.

Incentives and grants

Companies based in Spain, both domestic and foreign, are eligible for a wide range of incentives and financial aid aimed at promoting investment, competitiveness and economic growth. These incentives are mainly aimed at productive investments, research, development and innovation (R+D+i).

In addition, companies can access different aid programs within the European Union.

There are many types of aid depending on the objective and type of aid, the economic sector targeted, the type of beneficiary company, the amount of aid or the official body that grants it.

Broadly speaking, four types of aid can be distinguished:

  • Incentives aimed at promoting material investment and assisting in the creation or growth of the company, as well as promoting the modernization of its facilities or processes or adapting them to achieve greater energy savings and efficiency (environment).
  • Incentives aimed at promoting Research, Development and Innovation (R+D+i), reducing the difficulties that many companies of this nature have in obtaining financing, given their inherent higher risk.
  • Incentives aimed at facilitating the obtaining of working capital in times of liquidity needs.
  • Incentives to enhance the company’s training and recruitment of human resources aimed at improving the company’s HR and training.

Most of the aid that can be obtained from the different agencies depends to a large extent on the specific characteristics of each investment project.

On its website, Invest In Spain provides an aid search engine so that companies can find out what type of incentives they are eligible for according to their specific characteristics

In addition, the General Directorate of Industry and Small and Medium-Sized Enterprises periodically publishes the “Dynamic Guides to Grants and Incentives”, which include all the grants and incentives awarded and announced by the public administrations in Spain. The guides are permanently updated and contain information only on the grants and incentives for which the application period is open.

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