Spain’s central government could learn valuable lessons about sound tax policy from both its own regional administrations and neighboring European countries, according to a sweeping new analysis. In the newly released 2026 International Tax Competitiveness Index (ITCI), Spain has suffered a notable decline, dropping sharply from 27th to 35th place out of 38 Organisation for Economic Co-operation and Development (OECD) countries.
This drop reflects a series of policy shifts under Prime Minister Pedro Sánchez’s administration, including multiple tax increases, newly introduced levies, and weaker performance metrics across all major tax categories. While the central government serves as the primary driver behind this downward trajectory, regional tax policies also play a complex role in shaping Spain’s overall economic competitiveness.
The broader Spanish tax landscape is characterized by a distinct tug-of-war between competing regional and central priorities. While several autonomous regions have actively worked to offset distortive central taxes—particularly those targeting wealth, inheritance, and personal income—Spain’s overall tax competitiveness has steadily eroded over the past eight years. Policy analysts argue that strengthening competitiveness at both levels of government should be an urgent national priority.
To capture these internal disparities, the Spanish Regional Tax Competitiveness Index (RTCI) compares the country’s 19 regions across more than 60 distinct variables. These include individual income taxes, wealth taxes, inheritance duties, transfer taxes, stamp duties, and various regional levies. The stark contrast between central mandates and regional counter-reforms offers crucial lessons for future fiscal overhaul. According to economic projections, by simply repealing the specific taxes and tax increases introduced during the Sánchez administration, Spain could dramatically improve its standing on the global stage, climbing from 35th back to 22nd place in the international index.
Corporate Income Tax
Spain currently ranks a disappointing 33rd globally on corporate tax competitiveness, a result driven by several specific policy choices. First, the country maintains both a patent box regime and a research and development (R&D) tax credit. While these incentives are ostensibly designed to encourage local innovation, they tend to favor narrow, specific activities rather than treating overall business investment neutrally. This approach increases administrative complexity and distorts business decision-making.
Second, Spain’s corporate tax system has grown increasingly complex following the 2021 introduction of a national minimum tax. This domestic minimum framework severely limits the practical value of deductions, credits, and investment incentives previously available to large enterprises. Third, Spain stands out as one of only 10 OECD countries that levy a digital services tax (DST). Because DSTs target gross revenues rather than net income, they disproportionately burden low-margin firms. Finally, Spain’s statutory corporate income tax rate of 25 percent—and 28 percent in the region of Navarra—remains slightly above the OECD average of 24.2 percent.
Individual Taxes
Spain’s individual tax component has also deteriorated, sliding from 15th place in 2017 down to 20th. This decline is largely attributable to repeated increases in taxes levied on capital income. Since 2019, the top tax rate applied to capital gains and dividends has climbed by a cumulative seven percentage points. Furthermore, Spain maintains some of the highest top income tax rates in Europe.
When the central government raised the national top marginal income tax rate from 45 percent to 49 percent, several regional governments moved in the opposite direction. The Madrid regional government reduced its overall combined top rate to 45 percent, while Andalusia, Castilla-La Mancha, Galicia, and Murcia lowered theirs to 47 percent, and Castile and León trimmed its rate to 46 percent.
However, statutory tax rates represent only part of the equation. An equally critical issue is bracket creep, a phenomenon where inflation or nominal wage growth pushes taxpayers into higher income tax brackets even when their real, purchasing-power-adjusted income has not increased. While most European nations automatically index their income tax systems to inflation, Spain’s central government has consistently refused to do so.
Regional governments, by contrast, have acted more proactively. In 2026, the Canary Islands and the Basque provinces moved to index their tax brackets to inflation. Simultaneously, the Valencian Community and Extremadura reduced their personal income tax rates, while La Rioja made history by becoming the first Spanish region to adopt automatic inflation adjustments for both tax brackets and personal deductions through formal legislation.
Consumption Taxes
In the category of consumption taxes, Spain ranks 18th internationally. However, value-added tax (VAT) coverage remains relatively narrow, with only 45 percent of total consumption covered by the standard base. This is due to a web of exemptions and reduced rates that complicate the overall system and distort consumer choices.
Exempting certain goods and services from standard VAT, or applying reduced rates, forces governments to maintain higher standard rates to raise sufficient public revenue. Economists note that broadening the VAT base could create the necessary fiscal space to lower the overall standard VAT rate from its current 21 percent down to 12 percent.
Property Taxes
Spain performs worst in the property tax category, ranking 35th internationally. The nation levies a sprawling array of taxes on assets and transactions, including real property taxes, property transfer taxes, capital duties, financial transactions, net wealth taxes, inheritances, and gifts. Combined, these levies create a heavy cumulative burden that severely undermines Spain’s economic competitiveness.
Wealth Taxes
Spain remains one of the few OECD countries that still imposes a net wealth tax. Although the country briefly abolished the levy in 2008 before reinstating it, several regions implemented substantial relief measures. Madrid maintained a 100 percent exemption, a policy later mirrored by Andalusia and Extremadura, while Galicia introduced a 50 percent reduction.
The central government moved in the opposite direction in 2022 by establishing a temporary solidarity tax on high-net-worth individuals. Designed to complement the regional wealth tax, this measure acts as a mandatory top-up in regions that provide substantial regional rebates. Although initially introduced strictly for 2022 and 2023, the measure was subsequently made permanent.
In response, several regions created offsetting mechanisms. Andalusia, Cantabria, La Rioja, Madrid, and Murcia designed regional rebates that effectively redirected revenue from the central government back to regional budgets without materially increasing the actual tax liabilities of local residents. Conversely, Extremadura maintained its 100 percent relief without introducing an offsetting mechanism, allowing the central government to collect the solidarity tax directly from residents possessing net wealth exceeding three million euros. Other jurisdictions pursued alternative reforms, with the Balearic Islands raising their wealth tax exemption threshold to three million euros and the Valencian Community lifting its threshold to two million euros.
Inheritance and Gift Taxes
Inheritance and gift taxation is similarly administered by regional governments. Prompted by comparative structural recommendations, many regions have introduced a 99 percent tax relief for close heirs, bringing the total number of regions offering significant relief to 11. Several of these administrations have also expanded relief categories to include more distant relatives.
Despite these regional carve-outs, Spain continues to enforce some of the highest inheritance tax rates in Europe. For distant or unrelated beneficiaries, top marginal rates can reach an astronomical 87.6 percent in Asturias and Murcia.
Although inheritance and gift taxes generate relatively little public revenue, they carry profound economic implications. Because inherited wealth accounts for an overwhelming 95.6 percent of total net wealth in Spain, and because inheritances are proportionately larger for lower-wealth households, these taxes interact uniquely with national wealth inequality. Nevertheless, given their minimal revenue yield alongside their well-documented negative impacts on entrepreneurial activity, personal savings, and workforce participation, economic analysts suggest policymakers should seriously consider repealing inheritance and gift taxes entirely.
What Lies Ahead for Spanish Fiscal Policy?
Experts emphasize that Spain should implement principled tax reforms designed to foster sustainable economic growth by making the tax code simpler, more neutral, and globally competitive. Instead, the Sánchez administration has continued to introduce measures that increase complexity and weaken the nation’s standing.
A prominent example is the extension of the bank windfall tax. Originally introduced as a temporary measure for 2023 and 2024, the levy was extended through 2026. Although scheduled to expire and unlikely to be renewed, critics argue it should never have been implemented in the first place, noting that it fails to target actual economic windfalls, relying instead on gross net interest income and net fees. The progressive levy ranges from 1 to 6 percent and is only partly deductible from the corporate income tax base.
The European Central Bank has repeatedly warned that such targeted sector-specific levies could restrict credit availability, weaken financial institutions during economic downturns, drive up interest rates, distort market competition, and trigger protracted litigation. Because the tax applies selectively to a single industry, it directly violates the foundational principle of tax neutrality.
Simultaneously, Spain has continued to raise capital income taxes, pushing the rate on capital gains exceeding 300,000 euros up by another two percentage points to 30 percent. This hike continues an upward trajectory initiated in total back in 2019, representing a cumulative seven-percentage-point increase over the period. Economists caution that higher taxes on capital income yield minimal additional revenue while actively discouraging domestic investment and deterring international capital.
Policy experts argue that Madrid should also reconsider its domestic minimum tax regime, which restricts the practical value of deductions, tax credits, and investment incentives for major corporations—particularly as many are already covered by Pillar Two’s global minimum tax framework.
Rather than pursuing continuous tax increases, policymakers are urged to consider rolling back the levies introduced during the current administration, including the windfall profits tax, digital services tax, financial transactions tax, national minimum tax, solidarity levy, and traditional wealth tax. Coupled with a reduction in the top tax rate on capital gains and dividends from 30 percent to 23 percent, such structural reforms would elevate Spain from 35th to 22nd place in the international rankings.
Advocates suggest Spain could also emulate neighboring Portugal by leveraging past revenue gains to enact comprehensive tax cuts. Finally, by adopting nationwide inflation indexing modeled after La Rioja, Spain could successfully eliminate bracket creep and restore internal and international tax competitiveness by looking closely at the successful frameworks already pioneered by its own regional governments and overseas peers.
