Spain Global Payroll & Tax Information Guide
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 PAYROLLPayroll 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:
- Header: The collection identification data of the company and the worker.
- Accruals or perceptions: The amounts that the worker receives for the different concepts are considered as such.
- Deductions: Includes the contribution of the worker to the General Social Security System, union fee, income tax withholdings, advances, and others.
- Determination of the contribution bases to the General Social Security: These are the amounts and percentages by which the Social Security levies are calculated.
- 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 HOURSThe 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 HOURSExtra 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 PERIODSThe 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 VACATIONAnnual 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 SPAINForeign 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