Spain Global Payroll & Tax Information Guide

Jan 18, 2018 | Country Payroll Guides

Spain is located in the southwest of Europe, occupying 80% of the Iberian Peninsula. It is bordered to the North by the Cantabrian Sea, France, and Andorra, to the East by the Mediterranean Sea, to the South by the Mediterranean Sea and the Atlantic Ocean, and to the West by the Atlantic Ocean and Portugal. Compared to many countries in the world, Spain represents a small part of the map. However, in relation to European continents, Spain is the third largest country, after Russia and France. Spain is one of the main tourist destinations in the world, thanks to the various attractions that the country has to offer. In this sense, it is important to point out that Spain is second in the world for World Heritage sites, third in number of natural areas declared Biosphere Reserves and the country with the highest number of blue beaches in the Northern Hemisphere. In addition to its vibrant culture, beautiful beaches and rich heritage, Spain has a lot to offer multinational organisations planning to expand to the country. Key factors such as a highly qualified workforce, low labour costs and a gateway to accessing the growing markets within Europe, North Africa, and Latin America, make Spain an attractive location for business set up. Furthermore, the Spanish government offers a number of incentives for business development in the country. Our Spanish payroll partner Martínez Comín has detailed some key points companies should consider when setting up in Spain from a Global Payroll prospective.  

BASIC FACTS ON SPANISH PAYROLL 

Payroll for a labor contract is the equivalent of an invoice for a commercial contract. It is the proof of the payment that has been made and where all payment information and levies are detailed. The salary or wage bill can be divided into four parts:
  1. Header: The collection identification data of the company and the worker.
  2. Accruals or perceptions: The amounts that the worker receives for the different concepts are considered as such.
  3. Deductions: Includes the contribution of the worker to the General Social Security System, union fee, income tax withholdings, advances, and others.
  4. Determination of the contribution bases to the General Social Security: These are the amounts and percentages by which the Social Security levies are calculated.
Payroll is made up of a monthly part corresponding to the Annual Gross Salary (SBA), minus the deductions corresponding to taxes and social security. It is important to know the difference between gross and net salaries. The first one refers to the Monthly Salary (SM) which, in Spain, will be a division of the annual salary between 12, 14, 15 or 16 payments. The number of payments has to be agreed between the employer and the worker, and if nothing has been agreed, this will be the collective agreement of the company’s sector that determines the division. Annual salary (SBA) consists of a minimum of 14 payrolls per year. Within this, there are two official extra-payments (Pagas extras), one to be received by the worker in the month of December, the second to be received in June or July. It is frequent that Collective Agreements establish a third extra payment, usually received in the month of March. The monthly salary can include the addition of salary supplements such as travel expenses and food. The net or liquid salary is the amount in which each employee receives after levies are extracted. To sum up, SM = SBA / number of payments. Withholdings for Social Security (RSS): are paid both from the employee’s salary (SBA) (around 6.4%, but this is a variable %) and from the employer (between 30 to 40%). For example, if the SBA was €20,000, the worker would pay € 1,280 of € 20,000 and the employer would have to pay a further 30% = € 6,000. Meaning the real cost of the worker to the company is: € 20,000 + € 6,000 = € 26,000. The total amount paid to Social Security is the employer’s part (€ 6,000) and the one that part assumed by the worker (€ 1,280) = € 7,280. Therefore, the Social Security’s withholdings (RSS) are:
  • RSS = SM x 6.4%
 

WITHHOLDING OF PERSONAL INCOME TAX:

(Income Tax for Individuals or “IRPF”) is the tax paid by people who have economic activities subject to it. This withholding is controlled by the Ministry of Economy and is calculated according to the family circumstances (number of children, etc.) and income. This is a progressive tax, according to the level of income. The more the employee receives, the higher the percentage that will be applied to the income. Let’s suppose that this percentage is 11.67%, following the numbers of the previous example:
  • IRPF = SM x 11.67%
  • Therefore, the net salary (N) to be collected will be:
  • N = SM – RSS – IRPF
 

THE MINIMUM INTERPROFESSIONAL SALARY (SMI) 

The SMI establishes the minimum remuneration amount that the worker shall receive for the legal working day, regardless the employee’s sex, age and permanency within the company. The value of this SMI is fixed each year by the Government, through the publication of a Royal Decree. The determination the SMI includes, factors such as the CPI, the average national productivity achieved and the increase of labor participation in the national income are taken into account. In 2018, the Ministry of Employment and Social Security fixed the Interprofessional Minimum Wage into the following values:
  • Minimum Daily Salary: € 24,33
  • Minimum monthly salary: € 735,90
  • Minimum annual salary: € 10.302,60 (14 payments)
 

WORKING HOURS

The duration of the working day is established by collective agreement or employment contract. The maximum duration of the ordinary workday is forty hours per week of effective work on average in an annual computation. By collective agreement or, failing that, by agreement between the company and the workers or employee representatives, an irregular distribution of the working day can be established throughout the year. The number of ordinary hours of effective work may not exceed nine daily. This may change by collective agreement or, in failing that, an agreement between the company and the employees’ representatives. If a collective agreement is made, a change in time worked on a daily basis can be established, taking into account any legally obliged rest periods between working days. Workers under the age of 18 cannot work more than eight hours a day, including, where appropriate, the time dedicated to training and, if they work for several employers, those carried out with each one of them.  

EXTRAORDINARY HOURS

Extra hours can be completed on a voluntary basis unless previously agreed by the employee or by collective agreement. It is illegal to carry out extra hours at night, except in cases of special days extended by regulation or when it is necessary to prevent and /repair accidents or other extraordinary and urgent damages. It is also illegal for minors under 18 years of age to work extra hours. For the calculation of overtime, time worked by an employee will be recorded and totalized in the period fixed for the payment of remuneration. A summary of work completed will be given to the employee in the corresponding receipt. The extra hours worked shall be paid economically or compensated with days in lieu by the individual or by collective agreement. The amount to be received for each extraordinary hour shall not be less than the value of the ordinary hour or be compensated for equivalent rest time paid. In the absence of an agreement, overtime hours performed must be compensated by means of days in lieu within four months following its completion. The maximum number of overtime hours per year that can be carried out by an employee totals 80 hours. Those that have been compensated by means of days in lieu within the four months following its completion will not be computed for these purposes. The maximum number of overtime that can be made by workers with an annual computation day less than the general working day in the company will be reduced in the same proportion that exists between such days. The limit of 80 overtime hours per year is not applied to those employed to prevent or repair extraordinary and urgent damages, although they will have to be paid as overtime.  

REST PERIODS

The legal break requirements between the end of one working day and the beginning of the next total 12 hours. When the duration of the daily working day exceeds six hours, a rest period must be established during the same period of not less than fifteen minutes. This period shall be considered as effective working time when it is fixed or established by collective agreement or by the work contract. When the duration of the daily working day exceeds four hours and thirty minutes, workers under the age of 18 will have a rest period of at least thirty minutes. Workers will be entitled to a weekly minimum rest, cumulative for periods of up to fourteen days, a day and a half uninterrupted, which, as a general rule, will include the afternoon of Saturday or, as the case may be, Monday morning and the full day of Sunday. The duration of the weekly rest of those under 18 years will be, at least, two uninterrupted days.  

ANNUAL PAID VACATION

Annual paid holidays shall never be less than thirty calendar days. The date of holidays will be fixed by an agreement between employer and employee in accordance with what is established in the case of collective agreements on annual vacation planning. If there is any disagreement, a claim will be filed with the corresponding jurisdiction, setting the date or dates of holidays, in a non-appealable judgment. The holiday calendar will be set for each company. These dates will be set two months prior to execution of annual paid leave. Vacation days are not substitutable by economic compensation, except in case of termination of work contract that precludes this right. In terms of temporary or seasonal employees, when the minimum legal holidays cannot be “taken” due to the period of company activity not coinciding with the period of holidays, the workers will receive, together with the salary, the proportional part corresponding to vacations.  

PERSONAL INCOME TAX (IRPF)

Personal Income Tax is the personal, progressive and direct tax that taxes the income obtained in a whole calendar year by employees residing in Spain. Thus, it is a tax figure belonging to the Spanish tax system. The general criteria to be subject to this tax is the physical permanence in Spain for more than 183 days of a calendar year. Temporary absences outside the national territory are not taken into account. For the absence outside Spain to be effective, the taxpayer has to act by providing a residence certificate from another country. Thus, if a person goes on holidays with a round-trip ticket, these days of absence will be considered as days of residence in Spain. Impatriate Regime or “Régimen De Impartriado” The impatriate regime is an option for workers, who, following the general criteria, would be considered Spanish residents and whose permanence is due to an employment contract. These individuals can be taxed on the Non-Resident Income Tax (IRNR) with a significantly lower rate than the IRPF previously detailed. To adhere to this regime, they must not have been Spanish residents during the previous 10 years, and the income obtained from the work will not be exempt from the IRNR.  

FOREIGN CITIZENS WORKING IN SPAIN

Foreign citizens who intend to carry out any lucrative and/or professional activity in Spain must meet the following requirements:
  • Be over sixteen years old, unless the work activity is carried out on its own, in which case, it is required to be over eighteen years of age.
  • Obtain the corresponding prior authorization to reside and work in Spain. Said authorization must be requested by the employer who offers the work contract.
  • Obtain a visa once the residence and work authorization has been issued
 

WHAT SHOULD A FOREIGN WORKER DO ON ARRIVAL IN SPAIN?

Once they have arrived in Spain, foreign workers must:
  • Register with the corresponding Social Security System
  • Apply for a foreigner’s identification number
Citizens of the EU and their families who travel to visit them are subject to a specific legal regime based on the rights recognized by the Treaties.  

EU CITIZENS WORKING IN SPAIN

To work in Spain, the worker needs an authorization delivered by their country of origin. In order to obtain this authorization, the applicant needs to be able to submit an offer of employment from the destination country. If he already has a permanent residence, there is no need to obtain authorization. In order to be authorised to work in Spain, an evaluation of the national employment situation, verifying that no Spanish resident from the EU or foreign employees currently working in Spain would be able to occupy the position offered. The employer or company interested in contracting the worker will present the request for authorization along with the required documentation. He must formalize the contract before entry to Spain. Once the authorization has been approved, the worker has one month to apply for the visa at the consular office of the workers country and for the signature of the contract. Once the visa has been granted, the employee will travel to Spain within the validity period of the visa, which will not be longer than 3 months. As soon as the worker enters Spain they can start work and proceed both to the affiliation and registration in Social Security. As of the date of entry, the worker has one month to apply for the foreigner identification number before the Foreigners Offices or at the Police Station. Important: The visa granted shall be attached to the initial residence authorization and work and will be granted for one year from the moment of entry into Spain and will appear in the passport. There are several types of visas or authorizations (study, work, residence, and transit) and each one requires to fulfill a series of conditions. No matter what type of visa applying for, the passport must be in force at any time of the process.  

THE NIE & SOCIAL SECURITY NUMBER

The foreign identification number (NIE) is the number that will identify the employee as a foreign resident. The employee can apply for the NIE at the General Directorate of the Police if the employee is already in Spain in a regular situation, or through the consular office of Spain in the country of origin. Another document that must be obtained is the Social Security affiliation number. It is required to be registered to the Social Security to make a work contract. This procedure shall be carried out in the Treasury of the Social Security.  

HEALTH SYSTEM IN SPAIN

In Spain, the National Health System (SNS) gives public coverage to members of Social Security. Healthcare in Spain is a competence that is managed by the autonomous communities, there is no single body in which all the management is centralized. For this reason, it is advisable to go to the nearest health centre.  There, information will be given on how to acquire the Individual Health Card. If the country in which the employee originally resides is within the European Union or has a bilateral agreement with Spain, as in the case of Morocco, Tunisia, Peru, Brazil or Chile, the European Health Card or the certificate of right are sufficient to benefit from the Spanish social security. This card shall be presented to the corresponding healthcare center, according to the particular situation of the worker.  

PRACTICAL ISSUES (“EMPADRONAMIENTO”, RENT & BANK ACCOUNT) 

On entering Spain, one of the first steps the employee must complete is registration of the municipality (“Padrón municipal”) in which the employee resides. To complete this, it is necessary to have established a place of residence. This procedure is carried out in the city council of the corresponding city. When renting an apartment, it is very likely that a guarantor will be requested, justifying that in any case, the rental payment can be made. Typically, they ask for the last payslips of this guarantor or of the tenant. It is also common that they ask for a month in advance as a deposit. Opening a bank account is another of the first requirements to comply with as the employee takes up residence in Spain. For further information on payroll in Spain and Payslip’s international payroll services contact us today!  
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