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Did you know that income tax and VAT account for more than 70% of all tax revenue in Spain? Understanding these two taxes in depth will not only allow you to comply with your legal obligations but also optimize your personal or business finances.
In this post, we will analyze in detail what income tax is, what VAT is, how they work in 2025, how they are calculated, their main differences, and we will answer the most common questions. Everything is explained clearly, up-to-date, and geared toward helping you apply this knowledge to your daily financial life.
What is income tax and how does it work in Spain?
Income tax (IRPF, Impuesto sobre la Renta de las Personas FÃsicas) is one of the most important taxes in the Spanish tax system. It is a direct and progressive tax: it is levied on the income earned by individuals during the fiscal year, applying tax rates that increase as income rises.
It is divided into a state portion and a regional portion, which means that part of the tax goes to the state and another part to the autonomous communities, which can establish certain additional rates or specific deductions. The revenue is used to finance essential public services such as healthcare, education, pensions, and social security.
Who pays income tax and why is it applied?
IRPF is paid by all tax residents in Spain who obtain income of any kind: salaries, pensions, rents, bank interest, dividends, economic activities, among others.
The main objective of IRPF is to apply a fair contribution system, where each citizen contributes according to their economic capacity, thus guaranteeing the financing of public expenditure and promoting the redistribution of wealth.
Income tax brackets and rates: how it is calculated
In 2025, income tax in Spain continues to be applied progressively, divided into brackets that combine a state rate and a regional rate. Here is how it is structured:
- Up to €12,450: 9.5% state tax + 9.5% regional tax = 19% total rate
- From €12,451 to €20,200: 12% state tax + 12% regional tax = 24% total rate
- From €20,201 to €35,200: 15% state tax + 15% regional tax = 30% total rate
- From €35,201 to €60,000: 18.5% state tax + 18.5% regional tax = 37% total rate
- From €60,001 to €300,000: 22.5% state tax + 22.5% regional tax = 45% total rate
- Over €300,000: 24.5% state tax + 22.5% regional tax = 47% total rate
These are the state reference values for 2025. Remember that some autonomous communities may slightly adjust their regional tax rates, so the total percentage may vary depending on where you live.
Practical example: how income tax appears on your pay slip or invoice
If your gross annual salary is €30,000, income tax is calculated by dividing your income into brackets and applying the corresponding percentage to each:
- Up to €12,450 → 19%: €2,365.50
- From €12,451 to €20,200 → 24%: €1,860
- From €20,201 to €30,000 → 30%: €2,940
- Total estimated income tax: €7,165.50 per year.
A proportional withholding is applied to your monthly paycheck. For self-employed workers, income tax appears as a withholding (usually 15%) directly on the invoice issued.
Key dates for filing income tax returns in Spain
The 2025 income tax campaign, corresponding to the 2024 tax year, has the following dates:
- Start of the campaign: April 2, 2025
- End of the regular filing period: June 30, 2025
- Deadline for direct debit: June 25, 2025
Failure to file your return on time may result in surcharges, interest, and even financial penalties.
What is VAT and how does it work in Spain?
VAT (Value Added Tax) is an indirect tax levied on the consumption of goods and services. It is paid by the end consumer and managed by the companies that sell those goods or provide those services.
The main feature of VAT is that it does not depend on the taxpayer’s income, but on the act of consumption. Therefore, the more you consume, the more VAT you pay. Its collection is essential for the public budget, contributing more than 30% of the State’s tax revenue.
VAT rates in force in Spain: standard, reduced, and super-reduced
In 2025, the VAT rates applicable in Spain are:
- 21%: Standard rate, applicable to most products and services
- 10%: Reduced rate, applicable to food, transportation, hospitality services, among others
- 4%: Super-reduced rate, reserved for essential products such as bread, milk, medicines, books, newspapers, and social housing
Each rate has a social purpose: to tax non-essential consumption more heavily and to protect access to basic goods.
Who pays VAT and how is it collected?
VAT is paid by the consumer at the time of purchase but is collected by the seller or service provider. Companies must then pay this VAT to the tax authorities through quarterly and annual returns.
The VAT deduction mechanism allows companies to pay the tax authorities only the difference between the VAT charged to their customers and the VAT paid to their suppliers.
Practical example: How VAT is reflected in a purchase or invoice
If you buy a mobile phone with a base price of €500, the calculation would be:
- VAT (21%): €105
- Final price: €605
On an invoice, VAT must be clearly itemized, indicating the taxable amount, the VAT rate applied, and the corresponding VAT amount.
VAT return: Self-employed workers and companies
Self-employed workers and companies file form 303 quarterly, declaring:
- VAT charged (sales)
- VAT paid (purchases)
If the VAT paid is higher than the VAT charged, they can request a refund or offset it in subsequent quarters.
Differences between personal income tax and VAT: A clear comparison for non-experts
Although both taxes are fundamental to the Spanish tax system, they have very different characteristics, purposes, and methods of application. Understanding these differences is vital for sound financial and tax planning.
IRPF taxes the economic capacity (income) of individuals, while VAT taxes the consumption of goods and services, regardless of the consumer’s income.
Nature of the tax: Income vs. Consumption
- IRPF: Direct tax on income earned (work, rent, investments)
- VAT: Indirect tax on the consumption of products and services
Who pays and who collects it
- IRPF: Paid directly by the taxpayer through their income tax return
- VAT: Paid by the consumer, but collected and remitted by the seller
Frequency and form of declaration
- IRPF: Annual return during the income tax campaign, except for advance payments required from self-employed workers
- VAT: Quarterly returns and an annual summary
Direct impact on your personal or professional finances
- IRPF: Directly affects your monthly disposable income
- VAT: Influences the price of goods and services you consume daily
How IRPF and VAT are calculated: Practical guide
Calculating income tax and VAT correctly will allow you to forecast your tax burden and optimize your financial planning. Knowing how to calculate these taxes also helps you detect errors in payrolls or invoices and take advantage of legitimate deductions.
Both calculations have specific characteristics that vary depending on the type of income or economic activity you perform.
Steps to calculate income tax on your salary or self-employment income
- Add up all your gross annual income.
- Apply personal reductions and deductions (personal allowance, children, disability, etc.).
- Apply the income tax rates by brackets.
- Subtract any withholdings or payments on account already made.
- The result will be the final amount to be paid or refunded.
How to calculate VAT on your purchases or sales
1- Apply the corresponding VAT rate to the taxable amount.
2 – Add the VAT charged on sales.
3- Subtract the VAT paid on purchases.
4- If the amount charged is higher, you pay the difference to the tax authorities. If it is lower, you can request a refund.
Frequently asked questions about income tax and VAT in Spain
Finally, we answer some of the most common questions about these taxes, updated for 2025.
What happens if I don’t file my return on time?
Surcharges of 1% plus an additional 1% for each full month of delay will be applied, up to a maximum of 15%. From the twelfth month onwards, interest on arrears will also be charged.
Can I recover VAT if I am self-employed or a company?
Yes, if you pay more VAT than you charge, you can request a refund on a quarterly basis or at the end of the year using the appropriate forms.
How does my personal situation (family, children) affect my income tax?
Your personal situation significantly impacts your income tax: there are reductions and deductions available for children, disability, maternity, compensatory pensions, and contributions to pension plans, among others, which can significantly reduce your final tax liability.
