Money Talks, But Is Spain Listening? A Look at Madrid’s Tax System
As Europe focuses on boosting competitiveness, experts warn that Spain’s tax rules could be slowing down growth.
Spain’s economy has been a bright spot in Europe after the pandemic. Thanks to tourism and a strong job market, it has grown around 3% since early 2024, compared to just 1% for the wider eurozone.
But despite this success, experts are worried about Spain’s complicated tax system. Critics say it could discourage investors and wealthy individuals. “Spain has one of the most complex tax systems in Europe,” said Cristina Enache, a global tax economist. “The central government could learn from regional governments and other European countries.”
In the Tax Foundation’s Competitiveness Index of 38 OECD countries, Spain ranks 34th. This low ranking is due to weaknesses in five areas: corporate income tax, individual taxes, consumption taxes, property taxes, and the international tax system.
Corporate Taxes
Spain offers both a patent box and an R&D credit to encourage business innovation. A patent box lowers taxes on profits from patented inventions, while the R&D credit rewards research and development. Enache says having both can make the system more complex and distort business decisions.
Roberta Poza Cid from Deloitte added that big companies face multiple taxes, unclear rules, and sometimes double taxation. For instance, banks and energy firms must pay a windfall profits tax on top of corporate income tax.
Spain also has a Digital Services Tax (DST) on revenue from digital companies like Apple and Meta. Because Spain taxes revenue rather than net income, even less profitable firms can be affected.
Individual and Property Taxes
Spain’s central government sets the top income tax rate at 49%, but many regions offer lower rates. “Competition between regions is preventing Spain from becoming a tax nightmare,” said Enache. Some regions, like La Rioja, are even indexing income tax to inflation.
Spain also collects a wealth tax alongside inheritance, gift, property transfer, and capital taxes. It is one of only three European countries to do so. While these taxes don’t raise much revenue, they can drive wealthy individuals to leave the country.
Balancing Goals
Giulio Allevato, a tax law professor, says regional tax competition has pros and cons. It can improve efficiency, but it can also make the system more fragmented and complex. He notes that aggressive tax policies in countries like Ireland and Luxembourg benefit them but hurt others—a problem the OECD is trying to address.
Allevato said that the Tax Foundation’s ranking does not give enough credit to Spain’s focus on redistributing wealth, which is a key part of its system. “This may make Spain less appealing to some taxpayers,” he said, “but it also strengthens social unity and equality, which is important for investors deciding whether to put money in the country.” While wealth in Spain is not evenly spread, the country still has less wealth inequality than many other European nations.
Experts may not always agree on the best policies, but most agree that making the tax system simpler and easier to follow should be a priority. In the coming years, a major change will be the rollout of the OECD’s global minimum tax. Experts say the main challenge will be applying it without putting too much burden on companies. Reducing uncertainty, applying the rules fairly, and aligning them with national taxes will be essential.
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