Below is an excerpt from the 2024 Spanish Regional Tax Competitiveness Index (RTCI), a recent report published in collaboration with the Fundación para el Avance de la Libertad. Click the link above to download the full report in Spanish.
Executive Summary
The Regional Tax Competitiveness Index (RTCI) for Spain provides a crucial tool for policymakers, businesses, and taxpayers to measure and evaluate their regions’ tax systems. This Index analyzes how regions structure their tax systems and offers a road map for reform, aiming to enhance their competitiveness and attract both entrepreneurs and residents.
The Index compares the 19 Spanish regions across more than 60 variables in five major areas of taxation—individual income tax, wealth tax, inheritance tax, transfer taxes and stamp duties, and other regional taxes—combining the results to generate a final ranking. This simple metric helps identify the strengths and weaknesses of each region’s tax system, resulting in a comparative score.
Main Tax Trends
Following the introduction of a “solidarity wealth tax” by the Spanish central government for net assets exceeding €3 million, some regions that previously offered 100 percent relief enacted a temporary tax deduction to offset the difference between regional wealth tax liability and the solidarity wealth tax liability.[1] This allowed Andalusia and Madrid to retain the planned revenue for 2024 while continuing to provide relief for individuals with net wealth below €3 million. Additionally, three regions raised their exemption thresholds to match the relief offered by Andalusia, Extremadura, and Madrid.
Following the 2023 RTCI recommendations, regions like Valencia Community, Canary Islands, and La Rioja reformed their inheritance taxes by offering 99 percent tax relief for close heirs, bringing the total to 11 regions providing significant relief. Spain imposes the highest inheritance tax rates globally, sometimes reaching 87.6 percent for distant heirs, necessitating reforms for competitive advantages.
The Five Best Regions in this Year’s Index
- Community of Madrid
- Biscay
- Alava
- Guipuzcoa
- Andalusia
The standout feature of the top five regions is their high score across all five components of the Index.
Madrid
Madrid’s income tax reforms reaffirmed its top ranking. Following the 2023 RTCI recommendations, Madrid indexed its income tax to inflation to prevent bracket creep. The region also raised the basic tax credit and child tax credit, enhancing support for large families. Potential improvements include cutting the top inheritance tax rate and abolishing the factor linking pre-inheritance wealth to tax liability.
Basque Country
The three Basque provinces show discrepancies primarily in the wealth tax component, with Guipuzcoa ranking 16th, Alava 8th, and Biscay 7th. In 2024, all three indexed their income taxes to inflation and increased both the basic and child tax credits. Nonetheless, inheritance tax remains a point of reform for all three provinces to further improve their standings.
Andalusia
Andalusia maintained its 5th place due to its temporary tax deduction that offsets the solidarity wealth tax, allowing 100 percent relief for taxpayers with net assets below €3 million. Further improvements could be achieved by reducing other regional taxes and lowering the top income tax rate.
The Five Lowest-Ranked Regions in this Year’s Index
- Castilla-La Mancha
- Valencia Community
- Aragon
- Asturias
- Catalonia
The regions with the lowest scores typically perform poorly across most components, particularly in income, wealth, and inheritance taxes.
Catalonia
Despite removing the wealth tax bracket for net assets over €20 million introduced in 2023, Catalonia still ranks last in the overall Index. This is due to its extensive array of regional taxes and poorly structured individual income, inheritance, and wealth taxes.
Asturias
Asturias fell from 17th to 18th place despite improving personal income tax incentives for families with children. The region would benefit greatly from comprehensive income and inheritance tax reforms.
Aragon
Introducing new regional taxes on wind and solar farms caused Aragon to drop from 16th to 17th place. However, it did index the first two income tax brackets to inflation and raised the wealth tax exemption threshold. These changes improved the wealth tax component but other tax reforms are needed.
Valencia Community
Valencia Community reformed wealth and inheritance taxes, improving its rank from 18th to 16th. Despite these reforms, the region still has some of Spain’s most burdensome wealth, transfer taxes, and stamp duties.
Castilla-La Mancha
The lack of tax reforms and the improvement of other regions led Castilla-La Mancha to drop four places to 15th overall in the 2024 Index.
Notable Ranking Changes in this Year’s Spanish Regional Tax Competitiveness Index
Extremadura
Extremadura significantly improved its ranking by reforming the wealth tax, introducing tax cuts, and enhancing inheritance tax relief. These changes lifted the region eight places to 7th overall.
Canary Islands
The Canary Islands’ inheritance tax reform improved its rank to 6th overall, owing in part to other regions’ declines.
La Rioja
La Rioja introduced income tax cuts and improved inheritance tax relief, enhancing its ranking from 10th to 8th place.
Balearic Islands
The Balearic Islands improved their ranking by reforming income and wealth taxes, increasing the wealth tax exemption threshold.
Murcia and Castile and Leon
The lack of reforms saw both Murcia and Castile and Leon drop to 9th and 10th respectively.
Galicia
Galicia’s wealth tax rate increase led to a drop to 11th in the 2024 Index.
Navarra
Despite indexing to inflation, Navarra dropped to 14th place due to other regions’ improvements.
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[1] While Andalusia, Madrid, and Extremadura offer 100 percent relief, Extremadura chose not to implement this deduction, allowing the central government to collect the revenue from residents with net wealth exceeding €3 million.
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