Overview of the Spanish Tax System
Spain’s tax system is known for its modern and efficient structure, organized across three levels: state, autonomous community, and local. The central government legislates and collects the main taxes, distributing funds to regions through fiscal transfers. However, the Basque Country and Navarre autonomous communities maintain highly independent tax regimes. The system is broadly divided into direct taxes (like corporate and personal income tax) and indirect taxes (like VAT and transfer tax). All tax activities are governed by the foundational General Tax Law 58/2003.
Key Reforms in Corporate Income Tax
According to Royal Decree-Law 7/2024, passed on December 20, 2024, Spain has made several significant adjustments to Corporate Income Tax, with key provisions including:
Introduction of Global Minimum Tax and New Levies
- Global Minimum Tax: To implement EU Council Directive (EU) 2022/2523, Spain has officially adopted the global minimum tax rule, ensuring that large multinational and domestic groups with annual revenues exceeding €750 million are subject to an effective tax rate of at least 15%.
- New Taxes: Effective January 1, 2024, a tax on the net interest and commission income of credit institutions has been introduced, replacing the previous temporary levy. Furthermore, starting January 1, 2025, a special manufacturing tax will be imposed on e-cigarettes and related liquids in all regions except the Canary Islands, Ceuta, and Melilla.
Tax Incentives and Adjustments to Limits
- Tax Reductions and Incentives: For micro-enterprises with a net turnover below €1 million, the tax rate will be progressively reduced over three years, while small and medium-sized enterprises (SMEs) will see this reduction over five years. Additionally, investments in new electric vehicles related to business activities are eligible for accelerated depreciation, at a rate twice the official standard. The tax base reduction for the capitalization reserve is linked to increases in workforce, with a maximum reduction of 30%.
- Changes to Deduction and Loss Compensation Rules: Limits on pre-tax deductions for large companies have been reinstated. For companies with an annual turnover exceeding €20 million and €60 million, the deduction limits for expenses are 50% and 25%, respectively. The limit for compensating losses of subsidiaries within a corporate group has been raised to 50% for the 2024-2025 period.
Dynamic Adjustments to VAT on Essential Goods
In response to economic shifts, Spain has made several dynamic adjustments to its VAT rates throughout 2024, with a focus on essential consumer goods:
- Energy Rates: The reduced 10% VAT rate on electricity and natural gas supplies was extended until March 31, 2024. The special tax on electricity was set at 2.5% for the first quarter and increased to 3.8% in the second quarter.
- Basic Foodstuff Rates: The zero-VAT policy on staple foods such as bread, milk, and fruit has been extended until September 30, 2024, after which the rate will increase to 2%. Olive oil, seed oils, and pasta will maintain a reduced 5% rate during the same period, subsequently rising to 7.5%. From January 1, 2025, olive oil will officially be subject to a 4% reduced rate.
- Anti-Fraud Measures: Specific VAT anti-fraud rules have been introduced in the hydrocarbon sector. These rules mandate that products leaving tax warehouses must be handled by authorized operators who must provide a guarantee or pre-pay the tax, aiming to prevent fraud at the source.
New Rules for Personal Income Tax and Fuel Duty
Spain has also implemented targeted adjustments for individual taxpayers and specific consumption areas:
- Personal Income Tax: Under Royal Decree-Law 6/2024, the tax rate on annual savings income exceeding €300,000 has been increased from 28% to 29%. The decree also provides tax relief measures for taxpayers affected by the DANA floods, including filing extensions and interest relief.
- Fuel Duty: Starting April 1, 2025, Spain will increase the excise duty on diesel. The tax per liter will rise from €0.307 to €0.40069, which will significantly increase the cost of using diesel fuel.
