Earners in Spain pay less tax than the European average

Fiscal News

Spain has lower tax burdens than European countries like Ireland, Italy, Denmark or Germany.


High earners in Spain pay less in tax compared with the European average according to new research from UHY International, the international accountancy network*.

Individuals earning the equivalent of 220.000€ per annum in Spain pay on average 78.297€ in tax (35.6% effective tax rate) compared with an average of 88.257€ in tax and social security contributions (40.4% effective tax rate), ranking 16th among the 30 European countries analysed.

For those earning 1.53million euro per annum in Spain, they pay on average 572.778€ in tax (43.4% effective tax rate) compared with an average of 581.575€ (44.2%), ranking 13th amongst all countries.

Finally, those earning 22.000€ per annum pay an average of 2.128€ (9’7%), ranking 24th compare to the European average set in 4.209€ (19’2%)

UHY studied tax data in 30 countries across its international network. The study captured the ‘take home pay’ for low (25,000 USD), middle (250,000 USD) and high income workers (1,500,000 USD), taking into account personal taxes and social security contributions.  The calculations are based on a 40 years old single, unmarried taxpayer with no children, no private pension and not benefiting from any additional income from its company.

For Spain, it must be taken into account that the tax burden varies from one autonomous region to the other. For the study the tax data used has been the general one of Madrid, therefore data will differ when considering a different Spanish region. Furthermore, there are taxpayer with high income that also have a considerable net wealth that will have to pay wealth tax, increasing this way their tax burden.

Now we are yet to see if Spain’s Prime Minister, Pedro Sanchez, increases income taxes on Spain’s highest earners to 52% as he promised in his campaign. If the proposed changes are approved by the Spanish parliament, Spain would then have the second highest tax burden out of all 30 countries in the UHY rankings.

The Spanish Government hopes that raising the tax burden on high earners will help reduce the Spanish deficit to zero by 2022. Spain’s budget deficit fell below the European Union’s limit of 3% of economic output last year for the first time in over a decade*.

Out of all the countries studied, Russia had the lowest income tax rate, where all tax payers, including high earners, pay just 13% income tax.

Denmark had the highest tax burden out of all 30 countries who participated in the study, according to how much tax the government takes from the incomes of high earners (see table below).

Mauel Reina, Senior Manager of the Tax Department of UHY member firm UHY Fay & Co comments: “Spain is currently an attractive tax jurisdiction for high earners especially compared with other European countries, if we only take into account income tax.”

“This could change in the future, however, with the new Spanish government trying to increase the tax burden on high earners in an attempt to reduce the deficit and increase spending on education and disability benefits.”

“Ultimately, a balance needs to struck between the Government collecting enough tax revenues to fund public spending and not overtaxing to the point that high earners are disincentivized.”


Western countries move to reduce taxes for high earners

UHY notes that high earning Western European taxpayers are still being taxed at a higher rate than peers in BRIC and developing economies.

G7 countries including France, Canada the US and UK, have all recently taken measures to reduce or withdraw top rate tax bands imposed following the financial crisis. In 2014 for example, France’s rate of 45.8% (on a 220.000€ income), was substantially higher than the current rate of 34%. In 2014, the French government also decided to scrap the country’s 75% marginal rate on incomes above €1 million.

Dennis Petri, Chairman of UHY International, says: “Taxes on the top earners residing in G7 economies have eased off slightly since the changes imposed after the financial crisis.”

“Many Western European governments are still concerned though that their jurisdictions may become uncompetitive given the low tax rates in other developing jurisdictions so a number of countries have now taken steps to reduce their top rate of tax.”

“However as developing countries mature and their middle classes expand, governments may decide to increase their marginal rates of tax to meet greater demand for public services. This is beginning to happen in Asian countries such as India and China.”

“Over time, as the population of developing countries becomes wealthier, this tax disparity between the G7 and BRIC economies could reduce.”


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