Recognized for its progressive business environment, a testament to the regional government’s commitment to fostering an atmosphere conducive to business growth and foreign investment, Madrid is a guarantee of legal security and institutional stability for investment fundamental pillars for investing with confidence.
The Regional Government is committed to facilitating the business operational process by reducing paperwork and administrative obstacles. The flexibility in business hours has turned the streets of Madrid’s towns and cities into a global showcase; the region boasts the highest commercial density in Spain.
Differential incentives to optimize business taxation
Madrid is the only region without its own taxes and has the lowest and most competitive tax pressure in Spain, following two decades of tax cuts. In 2024, a new 20% deduction is applied to the regional portion of the IRPF for non-residents who become fiscal residents.
Large private investors who choose to establish themselves in Madrid find here a refuge not only to enjoy a good climate, excellent cultural and gastronomic environment, and a platform to explore Europe, but also a great ally in making their investments profitable.
Maximum administrative agility
The Madrid administration is known for its responsiveness to the needs of the business community. Regular consultations with business leaders and continuous improvements in policies reflect the commitment to creating a favorable environment for the growth and innovation of businesses.
Madrid is committed to administrative agility and against bureaucracy. It has an Investment Accelerator that reduces the timeframes for large business projects and facilitates their swift implementation, alongside an open line against overregulation. The Madrid administration simplifies and accelerates the investment process with Invest in Madrid, its investment promotion agency, and other initiatives like Regional Scope Projects.
Personal Income Tax (IRPF) in the Madrid region
For foreign investors planning to open a business in the Madrid region, there are several aspects to consider regarding Personal Income Tax (IRPF), which mainly affects individuals residing in Spain:
- 1.- Tax Residence:
- Tax residence in Spain: To be subject to IRPF, a foreign investor must be considered a tax resident in Spain. This is determined if the person spends more than 183 days a year in Spain or has their main economic interests in Spain.
- If the investor is not a tax resident, they will only pay taxes in Spain on income earned within the country, rather than on their global income.
- 2.- Tax Rates:
- In the Madrid region, IRPF rates are regional and progressive. This means that the higher the income, the higher the tax percentage.
- 3.- Business Income:
- If the foreign investor is opening a business, the income generated from that activity will be subject to IRPF. This income is added to other income the person receives, and the applicable tax rate depends on the total global income.
- 4.- Non-Resident Income Tax (IRNR):
- If the investor is a non-resident, income earned in Spain (such as dividends, capital gains, or rents) will be subject to Non-Resident Income Tax (IRNR). The general rate for this tax is usually 24% on income obtained in Spain. For EU residents, the rate may be reduced to 19%.
- 5.- Tax Benefits in the Madrid region:
The Madrid región is known for having one of the lowest tax pressures in Spain, making it highly attractive for foreign investors. Some of the tax benefits include:
– Tax reductions for SMEs and freelancers.
– Inheritance and Donation Tax bonuses for residents in the Community of Madrid.-
– Generally, corporate income taxes and other tax burdens are competitive compared to other regions of Spain.
– A new 20% deduction in the regional portion of the IRPF for non-residents who become tax residents.
- Requirements to Benefit from the Deduction:
- Conversion from Non-Residents to Tax Residents: This deduction is aimed at non-tax residents in Spain who become tax residents in the Madrid region.
- To benefit from the deduction, the individual must reside for more than 183 days a year in Spain or have their main economic interests in the country (i.e., most of their economic activities are carried out here).
- How the Deduction Works:
- The deduction is 20% of the regional portion of IRPF, which is the part of the income tax managed by the Madrid region.
- The regional portion refers to the part of the tax managed by the autonomous community, applied after calculating the progressive IRPF rates at the national level.
- This 20% deduction applies during the first six years of fiscal residency in Madrid, starting from when the person is considered a tax resident.
- What Benefits Does It Provide?
- Significant tax reduction: This measure allows a reduction of up to 20% in the regional portion of the IRPF, which can be highly attractive for investors moving to Madrid to develop their business activity.
- It is a way to make the Madrid region more attractive for foreign investors planning to settle in Spain, especially those seeking to optimize their personal taxation.
- Considerations:
- Applicable only to the regional portion: The deduction only affects the regional portion of IRPF, not the national portions. However, it is still a considerable incentive for those moving to Madrid.
- Residency requirements: As mentioned earlier, investors must meet the tax residency requirements (spending more than 183 days in Spain or having economic interests in the country) to benefit from this deduction.
- How to Apply for the Deduction:
- Interested individuals must declare their tax residence in the Madrid region through their IRPF tax return, and the deduction will be applied directly in the tax settlement process.
- It’s important to have the correct documentation proving the conversion from non-resident to tax resident (e.g., registration or evidence of the economic activity carried out).
- 6.- Corporate Tax:
If the investment is made through a company, it will be important to consider Corporate Tax. The general tax rate for companies in Spain is 25%, with certain incentives and reductions available depending on the activity and size of the company.
- 7.- Other Taxes to Consider:
- VAT (Value Added Tax): Companies engaged in commercial activities must be registered for VAT, which in Spain has a general rate of 21%.
- Property Transfer Tax (ITP): When purchasing real estate, this tax may apply.