Taxing Wages 2018

Spain

Abstract

This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in t-he form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.

Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.

 

 

The national currency is the Euro (EUR). In 2017, EUR 0.89 was equal to USD 1. In that year the average worker earned EUR 26 535 (Secretariat estimate).

1. Personal income tax system

1.1. Central government income tax

1.1.1. Tax unit

As a general rule, the tax unit is the individual. Nevertheless, families have the options of being taxed:

• As married couples filing jointly on the combined income of both spouses and dependents.

• As heads of households (only unmarried or separated individuals with dependents).

1.1.2. Tax allowances and tax credits

1.1.2.1. Standard reliefs

• Basic reliefs: Married couples filing jointly may claim an allowance of EUR 3 400. This figure amounts to EUR 2 150 for heads of single-parent households.

• Maternity tax credit: a non-wastable tax credit addressed to working females with children under 3 years of age up to EUR 1 200.

• Large families (3 or more children) or dependent family members with disabilities tax credits: this additional non-wastable tax credit (up to EUR 1 200, in general, or EUR 2 400 for special large families, with 5 or more children) also may be claimed (within the Taxing Wages framework) by single-parent households with two children.

• Relief for social security contributions: All social security payments are fully deductible.

• Other expenses allowance: up to EUR 2 000, which may be increased by the same amount in case of accepting a job in a different location implying a change of residence.

• Employment related allowance: Net employment income (gross income – employee social security contributions) may be reduced according to the following rules:

  • Taxpayers with net employment income equal or less than EUR 11 250: EUR 3 700.

  • Taxpayers with a net employment income between EUR 11 250.01 and EUR 14 450: EUR 3 700 less the result of multiplying by 1.15625 the difference between net employment income and EUR 11 250.

• Disabled workers allowance: an allowance of EUR 3 500 for disabled salary earners. Those with reduced mobility may claim an augmented allowance of EUR 7 750.

As a result of the application of the above rules, net income cannot become negative.

1.1.2.2. Main non-standard reliefs applicable to an AW

• Contributions to Pension Plans. Contributions made by each member of the household may reduce taxable income up to the lower of the following amounts:

  • 30% of the sum of labour and economic activities net incomes;

  • EUR 8 000.

Moreover, those households whose second earner has net labour income below EUR 8 000 may reduce taxable income up to a maximum of EUR 2 500 on a yearly basis if the principal earner contributes to a Pension Fund for the spouse.

• Relief for subscriptions paid in respect of membership of a trade union and business or professional associations (last item is limited to mandatory membership) up to EUR 500.

• Relief for expenses made for the legal defence of the taxpayer for labour-related conflicts up to a maximum limit of EUR 300.

Other non-standard reliefs provided as deductions are:

• Investment in the acquisition and rehabilitation of own-housing: As a general rule, up to 1 January 2013, taxpayers were allowed to deduct from their tax liability 15% of the investment made during the year, up to a maximum of EUR 9 040.

• Furthermore, disabled taxpayers were also allowed to deduct from their tax liability 20% of the investment expenses incurred in the repairs carried out for housing adaptation to the handicapped personal needs according up to a maximum of EUR 12 080.

• With effect from 1 January 2013, the above tax credit has been abolished. Nevertheless, grandfathering rules apply for those taxpayers who before 1 January 2013 had acquired their main residence; had made some payments for it to be built; had made some payments for restoration/enlargement of their main residence or had made some payments to carry out the adaptation of the main residence of disabled people. However, in the latter two cases the works performed should be completed before 1 January 2017. For these taxpayers, the above tax credit can still be applied in accordance with the rules set up above.

• Gifts: 75% of the amounts (below EUR 150) donated to non-profit entities, public administration, public universities and other qualifying institutions. For larger gifts, 30% on the excess, which may be increased to 35% when meeting certain conditions (for fidelity cases) and 10% of the amount donated non-qualifying foundations or associations.

• Investments and expenses in goods of cultural interest: 15% of the amounts granted to the importation, restoration, exhibition, etc. of certain goods listed in the General Register of Goods of Cultural Interest.

Each of these last two amounts cannot exceed 10% of taxable income.

1.1.2.3. Exempt Income

• The base amount is EUR 5 550 per taxpayer. The same amount is granted for family units filing jointly. Taxpayers aged over 65 years may add EUR 1 150 to the former amount. Those aged over 75 years may claim additionally EUR 1 400.

• Dependent children (under 25 years, in general; for each age, in case of disability): EUR 2 400 for the first dependent child; EUR 2 700 for the second one; EUR 4 000 for the third, and EUR 4 500 for any additional child.

• Child care allowance: an additional allowance of EUR 2 800 for each of the above dependent children under 3 years of age.

• In case of disabled workers and additional amount of EUR 3 000 also applies. In case of great disability prior amount reaches EUR 9 000.

Child allowances have to be shared equally between spouses when they file separately.

1.1.3. Tax schedule

General rates of tax – resident individuals:

 

Taxable income (EUR)	Tax at the lower limit (EUR)	Tax rate on taxable income in excess of the lower limit (%)
0-12 450	0	9.50
12 450-20 200	1 182.75	12.00
20 200-35 200	2 112.75	15.00
35 200-60 000	4 362.75	18.50
Over 60 000	8 950.75	22.50

1.2. State and local income taxes

The Autonomous Communities (Regional Governments) are liable to set up their own personal income tax schedule to tax the general income tax base. For 2017, those tax rate schedules vary from five to ten brackets and their marginal rates from 9.5 to 25.5%. Up to 2009, the tax autonomous share (regional share of the tax) on the general tax base was determined by applying a progressive tax ladder with default values laid down by the Law regulating this tax, and fixed by Government. However, the Autonomous Communities (Regional Governments) were competent to modify these values under certain limitations. The complementary tax scale, fixed by the Central Government and applied in default as explained, was removed in 2010, which leaves a State-level ladder and each Autonomous Community determining their own tax scale, subject only to the progressivity requirement. From that moment on, by exercising their legislative competences, the Autonomous Community have been approving their tax scales that, although identical to the State-level tax scale in the beginning, as time elapsed they became increasingly different. These differences have grown since 2015, coinciding with the entry into force of the reform of this tax, up to the point that in 2016 and 2017 each Autonomous Community applies a different tax scale, with currently only one matching the Central Government tax scale.

Therefore, instead of taking into account a tax rate determined by an Autonomous Community equal to that applied by the Central Government, as past years, the new criteria followed in 2017 is to consider that of the Autonomous Community of Madrid (Madrid Region), which is thought as the most representative tax scale on different grounds, among which it is worth mentioning that this Autonomous Community comprises the Spain capital city and its relative significance as regards this tax, both in terms of number of taxpayers, income level and income tax roughly amounting to one quarter of the total revenues. All these make of it a potential stable criteria over time.

Spain

Madrid Schedule for general tax base in 2017

Taxable income (EUR)	Tax at the lower limit (EUR)	Tax rate on taxable income in excess of the lower limit (%)
0-12 450	0	9.50
12 450-17 707.20	1 182.75	11.20
17 707.20-33 007.20	1 771.56	13.30
33 007.20-53 407.20	3 806.46	17.90
Over 53 407.20	7 458.06	21.00

Now, there isn’t any local tax rate or schedule in the Spanish PIT. However, some Local Governments (the bigger and province capital cities) receive a fixed percentage of the PIT revenues.

2. Compulsory social security contributions to schemes operated within the government sector

Social Security contributions are assessed on the basis of employees’ gross earnings taking into account certain ceilings of gross employment income. In 2017, these ceilings are:

• Lower ceiling: EUR 9 907.20

• Upper Ceiling: EUR 45 014.40.

These ceilings are based on a full-time job. For part-time workers, ceilings are proportional to the real hours worked (the tax equations used for this Report do not take into account the lower ceiling).

2.1. Employees’ contributions

• Old age pension/sickness and disability: 4.7%

• Unemployment: 1.55%

• Professional Training: 0.1%

2.2. Employers’ contributions

• Old age pension/sickness and disability: 23.6%

• Unemployment/Work injuries: 5.50%

• Wages fund: 0.2%

• Professional Training: 0.6%

3. Universal cash transfers

3.1. Transfers related to marital status

None.

3.2. Transfers for dependent children

EUR 291 for 1-child families with annual gross earnings below EUR 11 576.83; the child transfer decreases with income between EUR 11 576.83 and EUR 11 867.83; the value is 0 for gross earnings exceeding EUR 11 867.83. EUR 582 for families with 2 children with annual gross earnings below EUR 13 313.35; the child transfer decreases with income between EUR 13 313.35 and EUR 13 895.35; the value is 0 for gross earnings exceeding EUR 13 895.35.

4. Main changes in tax/benefit systems in 2017

None

5. Memorandum items

5.1. Identification of an AW and calculation of earnings

Refer to the information provided in the Annex of this Report.

Spain

2017 parameter values

Average earnings/yr	Ave_earn	26 535	Secretariat estimate
Work related allowance	wr_rate	1.15625
	wr_lim_max	14 450
	wr_lim_min	11 250
	wr_allow_max	3 700
Other deductible expenses	oth_ded_exp	2 000
Personal & family exempt income	Per_fam_exempt_inc	5 550
Joint taxation allowance	Joint_tax_allow_fam1	3 400
	Joint_tax_allow_fam2	2 150
Dependent children	dep_child	2 400
	dep_child2	2 700
	dep_child3	4 000
	dep_child4	4 500
Single parent tax credit (chld>=2)	SP_tax_credit	1 200
Tax Schedule	tax_sch_sg	0	0	9.50%
		12 450	1 182.75	12.00%
		20 200	2 112.75	15.00%
		35 200	4 362.75	18.50%
		60 000	8 950.75	22.50%
	tax_sch_sa (Madrid)	0	0	9.50%
		12 450	1 182.75	11.20%
		17 707.20	1 771.56	13.30%
		33 007.20	3 806.40	17.90%
		53 407.20	7 458.06	21.00%
Social security contributions
Employee:
Pension	pension_rate	0.047
Unemployment	unemp_rate	0.0155
Other	oth_rate	0.001
Employer
Pension	pension_empr	0.236
Unemployment	unemp_empr	0.055
Other	oth_empr	0.008
Ceiling and Floor	min_lim	0	9 907.20
	top_lim	45 014.40
Child benefit	SS_child_benefit	291
	SS_child_table	1	11 576.83	11 867.83
		2	13 313.35	13 895.35
		3	17 423.84	18 296.84
		4	20 246.02	21 410.02
		5	23 068.20	24 523.20

2017 tax equations

The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_sp” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_sp” values taken as 0.

 

	Line in country table and intermediate steps	Variable name	Range	Equation
1.	Earnings	earn	B	for individual taxation: earn=earn_princ, or earn=’earn_sp’ for joint (family) taxation: earn=earn_princ+earn_sp
2.	Allowances:
	Work related, individual	work_ind	B	IF(earn-SSC<=wr_lim_min,wr_allow_max+oth_ded_exp,IF(earn-SSC<=wr_lim_ max,wr_allow_max-wr_rate*((earn-SSC)-(wr_lim_min))+oth_ded_exp,oth_ded_ exp))
	Work related, family	work_fam	J	IF(AND(earn_sp=0,married=0,children=0),0,IF(earn_total-SSC_fam<=wr_lim_min, wr_allow_max+oth_ded_exp,IF(earn_total-SSC_fam=wr_lim_max,wr_allow_max-wr_rate*((earn_total-SSC_fam)-(wr_lim_min))+oth_ded_exp,oth_ded_exp)))
	Joint taxation allowance	joint_allow_fam	J	IF(AND(Married=0,Children=0),0,IF(AND(Married=0,Children>0),joint_tax_allow_ fam2,joint_tax_allow_fam1))
	Personal and family exempt income, individual	ex_inc_ind	B	per_fam_exempt_inc
	Personal and family exempt income, family	ex_inc_fam	J	IF(AND(Married=0,Children=0),0,per_fam_exempt_inc)
	Children exempt income, individual	child_ex_inc_ind	P	IF(earn_sp=’0,’ (children>0)*(dep_child+(children>1)*dep_child2+(children>2)* dep_child3+(children>3)*(children-3)*dep_child4), (children>0)*(dep_child+ (children>1)*dep_child2+(children>2)*dep_child3+(children>3)*(children-3)* dep_child4)/2)
			S	IF(earn_sp=’0,’ 0, (children>0)*(dep_child+(children>1)*dep_child2+(children> 2)*dep_child3+(children>3)*(children-3)*dep_child4)/2)
	Children exempt income, family	child_ex_inc_fam	J	(children>0)*(dep_child+(children>1)*dep_child2+(children>2)*dep_child3+(children>3)*(children-3)*dep_child4)
3.	Credits in taxable income	taxbl_cr	B, J	0
4.	CG taxable income	tax_inc	B, J	IF(AND(Married=’0,’ Children=’0),’ tax_inc_princ, MINA(tax_inc_princ+tax_inc_sp, tax_inc_fam))
		tax_inc_ind	B	Positive(earn-(work_ind+SSC))
		tax_inc_fam	J	IF(AND(Married=’0,’ Children), 0, Positive(earn-(work_fam+joint_allow_fam+SSC_ princ+SSC_sp)))
5.	CG tax before credits	CG_tax_ind_excl	B	MAXA(0, VLOOKUP(tax_inc_ind, tax_sch_sg, 2)+(tax_inc_ind-VLOOKUP(tax_inc_ ind, tax_sch_sg, 1))*VLOOKUP(tax_inc_ind, tax_sch_sg, 3))
		CG_tax_fam_excl	J	MAXA(0, VLOOKUP(tax_inc_fam, tax_sch_sg, 2)+(tax_inc_fam-VLOOKUP(tax_ inc_fam, tax_sch_sg, 1))*VLOOKUP(tax_inc_fam, tax_sch_sg, 3))
6.	CG tax credits :	CG_tax_cr_ind	B	MAXA(0,VLOOKUP(ex_inc_ind+child_ex_inc_ind,tax_sch_sg,2)+ ((ex_inc_ind+ child_ex_inc_ind)-VLOOKUP(ex_inc_ind+child_ex_inc_ind,tax_sch_sg,1))* VLOOKUP(ex_inc_ind+child_ex_inc_ind,tax_sch_sg,3)+IF(AND(earn>0,married=0,children>=2),MIN(SP_tax_credit,(SSC+SSC_empr)),0)
		CG_tax_cr_fam	J	MAXA(0,VLOOKUP(ex_inc_fam+child_ex_inc_fam,tax_sch_sg,2)+ ((ex_inc_fam+ child_ex_inc_fam)-VLOOKUP(ex_inc_fam+child_ex_inc_fam,tax_sch_sg,1))* VLOOKUP(ex_inc_fam+child_ex_inc_fam,tax_sch_sg,3)+IF(AND(earn_total>0,married=0,children>=2),MIN(SP_tax_credit,(SSC_fam+SSC_empr_fam)),0)
7.	CG tax	CG_tax_ind	B	CG_tax_ind_excl-CG_tax_cr_ind
		CG_tax_fam	J	CG_tax_fam_excl-CG_tax_cr_fam
8.	State and local tax before credits	local_tax_ind_excl	B	MAXA(0, VLOOKUP(tax_inc_ind, tax_sch_sa, 2)+(tax_inc_ind-VLOOKUP(tax_ inc_ind, tax_sch_sa, 1))*VLOOKUP(tax_inc_ind, tax_sch_sa, 3))
		local_tax_fam_excl	J	MAXA(0, VLOOKUP(tax_inc_fam, tax_sch_sa, 2)+(tax_inc_fam-VLOOKUP(tax_ inc_fam, tax_sch_sa, 1))*VLOOKUP(tax_inc_fam, tax_sch_sa, 3))
	local tax credits	local_tax_cr_ind	B	MAXA(0,VLOOKUP(ex_inc_ind+child_ex_inc_ind,tax_sch_sa,2)+ ((ex_inc_ind+ child_ex_inc_ind)-VLOOKUP(ex_inc_ind+child_ex_inc_ind,tax_sch_sa,1))* VLOOKUP(ex_inc_ind+child_ex_inc_ind,tax_sch_sa,3))
		local_tax_cr_fam	J	MAXA(0,VLOOKUP(ex_inc_fam+child_ex_inc_fam,tax_sch_sa,2)+ ((ex_inc_fam+ child_ex_inc_fam)-VLOOKUP(ex_inc_fam+child_ex_inc_fam,tax_sch_sa,1))* VLOOKUP(ex_inc_fam+child_ex_inc_fam,tax_sch_sa,3))
	State and local tax	local_tax_ind	B	Positive(local_tax_ind_excl-local_tax_cr_ind)
		local_tax_fam	J	Positive(local_tax_fam_excl-local_tax_cr_fam)
9.	Employees’ soc security	SSC	B	IF(AND(earn>0, earn<=’min_lim),’ min_lim*(pension_rate+unemp_rate+oth_rate), IF(earn>=’top_lim,’ top_lim*(pension_rate+unemp_rate+oth_rate), earn* (pension_rate+unemp_rate+oth_rate)))
		SSC_fam	J	SSC_princ+SSC_sp
11.	Cash transfers	Child_transf		IF(Children=0,0,IF(earn<=’VLOOKUP(Children,’ SS_child_table,2),SS_child_ benefit*Children, IF(earn<=’VLOOKUP(Children,’ SS_child_table, 3), VLOOKUP (Children, SS_child_table, 3)-earn, 0)))
13.	Employer’s SSC	SSC_empr		IF(AND(earn>0, earn<=’min_lim),’ min_lim*(pension_empr+unemp_empr+ oth_ umpr), IF(earn>=’top_lim,’ top_lim*(pension_empr+unemp_empr+oth_empr), earn*(pension_empr+unemp_empr+oth_empr)))

Key to range of equation B calculated separately for both principal earner and spouse P calculated for principal only S calculated for spouse only J calculated once only on a joint basis.