Payroll taxes in Spain: An employer’s guide

When you hire in Spain, you — as the employer — are responsible for calculating, withholding, and submitting payroll taxes from your team members’ pay slips. For some taxes, you are also required to make employer contributions.

In this article, we’ll explain clearly which taxes you need to withhold, which taxes you need to contribute to, and how to remit and make payments. So let’s jump straight in.

What is payroll tax?

Payroll taxes are the contributions employees and businesses make to the government to fund public programs, such as retirement, healthcare, and unemployment insurance. They typically include income tax and social contributions, and are set at pre-determined rates.

These rates (and the rules governing them) vary by country, but it’s every employer’s responsibility to ensure they are compliant, and that they are withholding and submitting the correct amounts.

What is the difference between payroll taxes and corporate taxes?

Generally, payroll taxes are tied to your employees’ wages, while corporate taxes are based on your company’s profits. 

Which payroll taxes do you need to withhold from your employee in Spain?

In Spain, the taxes you’ll need to withhold are:

Income tax (IRPF)

You must withhold income tax (IRPF) from your employees' gross salaries. In Spain, the withholding rates are progressive and vary depending on your employees’ income level and personal circumstances.

These rates also vary depending on the autonomous community (region) in which your employee lives, but generally range between 19% to 47%.

When to pay: You must remit withheld taxes to the tax authorities by the 20th of the following month.

Employee social security contributions

Employees contribute to Spain's social security system, which funds benefits like pensions, healthcare, and unemployment insurance.

The general contribution rate for employees is approximately 6.35% of their gross salary, subject to minimum and maximum contribution bases.

When to pay: Contributions must be paid by the last calendar day of the following month.

Note that you may also be required to withhold additional taxes for certain employees, such as child support payments, student loan repayments, or any other court-ordered garnishments.

Which payroll taxes does your business need to contribute to?

As well as withholding the taxes and contributions listed above, you are also required to make your own contributions, as follows:

Employer social security contributions

Employers are also required to contribute to the social security system on behalf of their employees.

The general contribution rate for employers is approximately 30.48% of the employee's gross salary, plus a variable rate for occupational accidents (e.g., 1.50% for office work).

When to pay: This must be paid alongside your employees’ contributions by the last calendar day of the following month.

To quickly see a full breakdown of payroll taxes and employment costs for your Spanish hire(s) based on their salary, use our free Employee Cost Calculator tool.

How do you remit and pay payroll taxes in Spain?

Income tax needs to be paid to the Agencia Tributaria. To do this:

1. Calculate the correct amounts for withholding. If you use Remote Payroll or Remote EOR, we will do this for you.

2. Ensure that you adhere to the payment deadlines detailed above.

3. Pay directly through the Agencia Tributaria’s online portal. You can also pay manually through online banking.

For social security contributions, the process is the same. However, you must make these payments to the Tesorería General de la Seguridad Social (TGSS), either through direct debit or bank transfer.

How do you manage payroll taxes as an international employer?

When you hire a Spain-based team member from abroad, there are several ways you can manage their payroll and payroll taxes.

If you already have your own legal entity in Spain, you can:

• Handle it in-house. You can hire your own payroll tax specialists and manage everything internally. This can be costly, however.

• Use a local third party. You can hire a local firm to handle payroll, although this can be unreliable, costly, and pose data risks.

• Use a PEO. A professional employment organization (PEO) acts as an outsourced HR provider, and includes payroll.

• Use a global payroll provider. Global payroll providers — like Remote — have local specialists in multiple countries, ensuring that you are fully compliant with all tax requirements in each one. This is especially convenient if you have (or plan to have) employees in different countries, as you can manage all of them through one platform.

If you don’t have your own entity in Spain and you still want to hire there, you can:

• Set up your own entity. This can be extremely costly and time-consuming, but if you plan on establishing your business long-term in Spain, it might be a viable approach. To pay your employees, you would then need to choose one of the options above.

• Use an EOR. Employer of record (EOR) providers — like Remote — enable you to quickly and easily hire anywhere in the world, and also handle all the core HR functions (such as compliance and payroll). As well as being generally more cost-effective than opening your own entity, this option is highly scalable and, again, enables you to streamline all your global HR tasks in one place. How does an EOR work?

Global HR —

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EOR, Payroll, or both: What does your business need?

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What about independent contractors?

In Spain, independent contractors are classified differently to employees. As a result, they (in most cases) are responsible for calculating, managing, and paying their own taxes.

However, it’s crucial to understand the difference between contractors and employees, as you may inadvertently create misclassification risk. This can result in severe fines and penalties for your business. Learn more about hiring contractors in Spain.

How can Remote help?

Knowing which payroll taxes you need to calculate, withhold, and contribute to requires local expertise, especially as these rules can — and do — change. And if you make a mistake or fail to comply, the financial consequences can be significant.

Whether you have your own entity in Spain or not, Remote ensures that you are withholding and contributing the correct amounts, and that you are fully compliant at all times with local tax and employment laws. We also provide 24/7 support for any guidance you may need.

To see how we can help — and to learn which approach is the most suitable for your business — speak to one of our friendly payroll experts today.

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