As one of the most attractive places to live in Europe, with its high quality of life, deep-rooted culture and well-developed economy, Spain as home to a large number of foreign businesses. When setting up in any country, it is important to ensure your business remains in compliance with local tax regulations and payment procedures. As a global PEO and payroll outsourcing partner in Spain, INS Global can assist your business with its payroll and tax administration. Here are some important points to note on payroll and tax in Spain.
Payroll Processing Spain
When hiring employees in Spain, it is important to understand the complexities behind payroll processing. There are various elements that need to be taken into consideration including Individual Income Tax, social security contributions, VAT, any withholding tax, and corporate income tax, amongst others. It is also important to differentiate between residents and non-residents when determining the relevant contributions.
Individual Income Tax in Spain
In Spain, employers are obligated to withhold a percentage of an employee’s gross salary as a contribution to individual income tax (IIT) also known as Personal income tax. A distinction is made between full time and part time employees. With full time employees their tax is calculated on a progressive tax system, meaning their tax rate increases as their salary increases. It starts at 19% for the first tier and is limited at 45% for the highest tier. Any additional overtime pay and bonuses are also subject to IIT.
Depending on the region your business is based on in Spain the taxation rules may differ. In most regions, employers submit tax contributions to the National Tax Authority (Administración Tributaria), however employers in the regions of Basque or Navarra submit their tax contributions to local authorities. There are various other rules that should be observed, depending on the region the business is registered in.
Social Security Contributions
Both employers and employees are required to make social security contributions to the national social security institute. The general contribution rates are 6.35% for employees (depending on the type of contract) and for the employer 29.9%.
For self-employed persons who are below 47 years old, they may chooser the level of contribution they intend to make, that is within their income bracket. The general social security rate is 30.3% on a monthly contribution basis. The minimum social security contribution for persons who are 48 years old and above their minimum social security contribution is €1,018.50 per month.
Under particular circumstances, certain may be exempt from making social contribution payments, if the employee is a foreign national and:
- A social security agreement has been reached between Spain and the employee’s home country.
- They are still employed with the employer from their home country and continue to make social security contributions there.
- They only intend on having a limited stay in Spain (typically between 1 and 5 years), and there is an agreement between the countries outlining the social security contribution policy.
VAT in Spain
Value added tax (VAT) in Spain is paid on goods and services supplied within the territory of Spain. The are 3 rates of VAT applied to different goods and services, namely:
- Ordinary VAT – which is applied at a rate of 21%, on regular goods and services.
- Reduced VAT – which is applied at a rate of 10%, on basic necessities, cultural events, and movie tickets.
- Super-reduced VAT – which is applied at a rate of 4%, on basic necessities considered to be important for daily life (e.g., certain vegetables, milk, bread, and books).
With corporate income tax in Spain, it is currently set at a rate of 25%. There may be other applicable taxes for a business depending on the type of country it is in. For permanent establishments of foreign companies in Spain, the non-resident income tax is applicable on the company’s income at a fixed rate of 25%.
Partner with Us in Spain
INS Global has more than 15 years of experience helping companies with their HR needs. As a full-service HR solutions provider we are able to find the right talent in Spain, assist you in hiring staff, help you invoice clients and many more. Get in touch with us today and let us help you simplify doing business in Spain.