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Payroll & Tax in Spain

Spain payroll & taxation

Foreign companies operating in Spain may find it challenging to deal with the complexities of the country’s tax system. The primary concerns for a foreign company that needs to comply with tax laws in Spain are: Individual income tax (IIT) for employees in Spain, social security costs, VAT, withholding tax, business tax and permanent establishment concerns.

Here's our most recent article on running payroll and taxes in Spain.

Your Payroll Options in Spain

Remote Payroll

A remote payroll in Spain is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Spain. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Spain is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Spain under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Spain may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Spanish payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Spanish employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Spain to a GEO, like Shield GEO. This is possible for both foreign workers and Spanish nationals. This is the easiest, fastest and safest way to payroll staff in Spain.

Shield GEO manages all aspects of payroll for workers in Spain, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Spain

Information Explanation
Currency ?

Euro €

Employee Information Required ?

In addition to the details pertaining to the specific employment position, the following details are the minimum needed to set an employee up on the payroll in Spain: First name and surname(s), nationality, country of tax residence, date of birth, national identity document / passport or foreigner’s identity number, social security number, full address, marital status, number of children (with their years of birth), level of studies, and bank account number

Tax Registration Requirements ?
Resident companies must execute an incorporation deed at a notary’s office and register this at the Companies Register.
 
Non-resident companies require official registry documentation from their country of origin.
 
All companies register at the Tax Office, where a Tax Identification Code will be assigned to them.
Social Security Registration ?
Once the company has a Tax Identification Code, it may apply for a Social Security Contributions Account Code.
 
This will enable employees to be registered and for social security contributions to be paid on their salaries.
Documentation Required for New Employees ?
Employees must be given employment contracts on or before their first day of employment.
These contracts must then be registered at the State Employment Office, within ten days as from the start date.
Spanish employment contracts must be permanent unless there are specific and justified reasons for them being temporary.
Corporate Income Tax Rate

Taxes are levied in Spain both at the national level (either by the central government or the regions) and at the municipal level (by the municipal authorities). Spanish entities are mainly subject to corporate income tax, branch profits tax and Value added tax (VAT). Other taxes include capital tax, transfer tax, real property tax and miscellaneous levies by the local governments. There are no excess profits or alternative minimum tax. Spain offers a special tax regime for Spanish holding companies (ETVEs).

The current corporate income tax rate is 28%.

Payroll Tax

None

Sales Tax

Persons (individual person, partnership, company with share capital or institution, permanent establishments) making taxable supplies of goods and services in Spain (excluding the Canary Islands, Ceuta and Melilla) subject to Spanish Value Added Tax (VAT) regime are required to apply for an Spanish VAT number before commencing business.

The current VAT rate is 21%.

Withholding Tax

Spain imposes withholding tax (WHT) on certain classes of income earned by non-residents:-

  • Dividends: 20% (to be reduced to 19% in 2016)
  • Royalties: 24%
  • Interest: 20% (to be 19% in 2016)

A reduced rate may be available under an applicable Double Tax Treaty.

Other Tax

Real estate taxes, transfer taxes, tax on the erection and installation projects and construction work, tax on increase in urban land value whenever land is transferred. For more information on the Spanish tax regime, refer here.

Tax Figures

Information Explanation
Corporate Income Tax ?

Taxes are levied in Spain both at the national level (either by the central government or the regions) and at the municipal level (by the municipal authorities). Spanish entities are mainly subject to corporate income tax, branch profits tax and Value added tax (VAT). Other taxes include capital tax, transfer tax, real property tax and miscellaneous levies by the local governments. There are no excess profits or alternative minimum tax. Spain offers a special tax regime for Spanish holding companies (ETVEs).

The current corporate income tax rate is 28%.

Income Tax Rate ?
Grossed income Tax Rate (%)
0-€12450 20
€12451-20200 25
€202001-35200 31
€35201-60000 39
In excess of €60000 47
 
Payroll Tax ?

None

Sales Tax ?

Persons (individual person, partnership, company with share capital or institution, permanent establishments) making taxable supplies of goods and services in Spain (excluding the Canary Islands, Ceuta and Melilla) subject to Spanish Value Added Tax (VAT) regime are required to apply for an Spanish VAT number before commencing business.

The current VAT rate is 21%. .

Withholding Tax ?

Spain imposes withholding tax (WHT) on certain classes of income earned by non-residents:-

  • Dividends: 20% (to be reduced to 19% in 2016)
  • Royalties: 24%
  • Interest: 20% (to be 19% in 2016)
 A reduced rate may be available under an applicable Double Tax Treaty.
Income Tax (Personal Allowance) ?
Personal income tax in Spain is progressive, whereby the higher the salary, the higher the rate will be.
Personal situations are also taken into consideration, with dependent children tending to cause the rate of
tax to fall, etc.
 
Companies withhold the respective amounts from gross employee salary each month and pay over to the tax authorities on a quarterly basis (large companies do so monthly).
 
An annual summary return is also due to be filed in January of each year in relation to the preceding calendar year.
 
Under certain conditions, employees entering Spain may be entitled to apply for a special tax system with treatment as non-residents. This entails a flat tax rate, however high the salary, and may therefore potentially be very beneficiaL

Payments

Information Explanation
Payment Mode ?
Salary is normally paid by bank transfer into the accounts of employees.
 
Salary must be paid within the period of accrual (generally, by the end of each month).
Frequency of Salary Payment ?

It is most common for employees to be paid monthly. 13th and 14th payments are also paid occasionally, in addition to the 12 monthly installments. In such cases, the additional payments tend to be paid in June or July, and December.

Invoice / Payslips required ?

Monthly payslips are provided with a breakdown of salary items. Salary is to be paid within the period of accrual (generally, that is by the end of each calendar month).

Minimum Wage ?

For 2014, this is €21.51 / day or €645.30 / month (based on 30-day months).

13th Month and Bonus Payments ?
The number of payments is established in the individual employment contract.
 
There are not usually requirements for bonuses to be paid but this is often established in individual agreements with employees.
Reporting Requirements ?
Payroll tax:
This is generally quarterly, to be filed by 20th of
the month following the respective quarter-end.
Social Security:
This is monthly, to be paid by the last
working day of the following month.
 
Annual Filing Deadline:
For payroll tax summary returns: 20 January.
Personal income tax returns: This varies slightly but is
generally set for a date in late June of the following year.

Spain

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