Employers in Spain have several tax responsibilities, including contributing to social security and withholding personal income tax (IRPF) from employee salaries.

Social Security Contributions

Employers contribute approximately 29.9% of an employee's gross salary for general contingencies, depending on the employee's contract type. This covers various social security programs like pensions, unemployment benefits, and healthcare. The contributions are broken down as follows:

• Common contingencies: Around 23.6%
• Unemployment: 5.5%
• Wage guarantee fund (FOGASA): 0.2%
• Vocational training: 0.6%
• Work-related accidents (varies based on industry risk)

Personal Income Tax (IRPF) Withholding

Employers are responsible for withholding income tax (IRPF) from employee salaries, which is calculated according to progressive tax brackets. The income tax rates range from 19% to 47%. Regional variations may apply in places like the Basque Country and Navarre.

Payment Deadlines

Employers typically remit social security contributions and withheld IRPF monthly by the 20th of the following month. They must file Form 111 for withheld income tax and Form TC1 and TC2 for social security contributions.

In Spain, employees are subject to two main types of tax deductions: Personal Income Tax (IRPF) and Social Security Contributions.

Personal Income Tax (IRPF)

This is a progressive income tax deducted directly from salaries. All individuals earning income in Spain are liable for income tax, with residents and non-residents typically having different tax treatments. The tax is calculated using a progressive tax scale where the tax rate increases as income rises.

Social Security Contributions

These are deductions from salaries that support social security programs including pensions, healthcare, unemployment benefits, maternity/paternity leave, and disability benefits. Generally, these contributions are mandatory for all employees working in Spain. Exemptions may apply based on specific circumstances or social security agreements with other countries. Social Security Contributions are usually computed as a percentage of an employee's gross salary. However, the exact rate is determined by the type of employment contract and other factors.

In Spain, the standard Value Added Tax (VAT) rate is 21%, which is applied to most services. However, there are also reduced rates. A 10% rate applies to specific services, including passenger transport, hospitality, certain food products, and healthcare. A 4% rate applies to a limited set of services deemed essential, such as basic foodstuffs and books.

There are also certain services in Spain that are exempt from VAT. These generally include financial services (e.g., banking, insurance, financial transactions), educational services, medical and healthcare services, certain cultural services, and the rental of residential property.

Businesses exceeding a specific revenue threshold must register for VAT with the Spanish Tax Agency (AEAT). VAT returns are generally filed quarterly for most businesses. However, larger businesses might be required to file monthly. Submission deadlines depend on the filing frequency (monthly or quarterly). For precise dates and submission methods, it is recommended to consult the AEAT website.

Spain provides a range of tax incentives to stimulate investment and economic activity. These incentives are designed to support businesses in various stages of growth and across different sectors.

Reduced Corporate Income Tax (CIT) Rate

Startups and businesses operating in designated special economic zones (ZECs) can benefit from a reduced CIT rate. For startups, the CIT rate is 15% for the first four years with positive taxable income. The application process for ZECs varies depending on the specific zone, but generally involves submitting proposals to the relevant ZEC authority.

Tax Deductions and Credits

Several tax deductions and credits are available to businesses in Spain:

• Research and Development (R&D) Activities: Companies can benefit from a 25% tax credit for R&D expenses, with an additional credit for exceeding previous R&D spending.
• Innovation Activities: Deductions or tax credits are available for investments in innovation projects.
• Investment Deductions: Businesses can deduct a higher percentage of certain investments from their taxable income, like those in intangible assets used for innovation or environmental sustainability.
• Internationalization: Tax breaks may be available for expenses related to international expansion.

Applications for these deductions and credits are typically submitted with the regular corporate tax return.

Tax Deferral

Start-up companies can defer payment of a portion of their corporate income tax for the first two years with positive taxable income.

Exemption on Reinvested Dividends

Individual investors in startups can qualify for a tax exemption on a portion of their investments reinvested in the company within a specific timeframe.

Additional Considerations

Certain regions in Spain may offer additional tax incentives or variations on the national programs. The specific application process for each incentive program can vary, so consulting with a tax advisor familiar with Spanish tax laws is highly recommended.