Spain is known for its vibrant culture and history, but it’s also an excellent place to expand your business and tap into a vast talent pool. However, the labor market is highly regulated, so you’ll have to comply with multiple requirements before setting up payroll and hiring employees.
Instead of navigating the complex payroll setup process alone, G-P can help. Here are a few useful tips for setting up payroll in Spain.
Taxation rules in Spain
Companies in Spain are subject to various taxes at both national and municipal levels, including corporate income tax, branch profit tax, and value-added tax (VAT). The corporate income tax rate is 23%, and the VAT rate is 21%. Businesses must also pay a capital tax of 1%, a transfer tax between 6% and 11%, a real property tax of 3%, and other local government taxes.
Spain has a progressive income tax rate, from 19% to 45%, which increases as an employee’s salary increases. Any income earned by non-residents is also subject to withholding tax (WHT) requirements. From 19% in dividends and interest to 24% in royalties, companies need to keep an eye on these laws as they could impact non-resident team members.
Spain payroll options for companies
Any new company in Spain needs to set up payroll. The 3 main payroll options in Spain include:
- Internal: If you already have an established subsidiary in Spain, you can run payroll internally. However, this option will be more expensive because you will need to hire a full HR team. This option is best suited for larger companies that plan to maintain a long-term presence in Spain.
- Spain payroll processing company: Companies that want to outsource can do so through a local payroll processing company in Spain. However, you will still be held liable for any compliance mistakes.
- G-P: The easiest way to run payroll in Spain and stay compliant is partnering with an Employer of Record (EOR) like G-P. With us, you can rest assured that all employees will be paid on time, freeing you to focus on other important aspects of your business.
How to establish a payroll in Spain
Before you can begin hiring and running payroll, you must establish a subsidiary in Spain or partner with an EOR. Next, you’ll need specific information from employees such as their nationality, country of tax residence, national identity document, social security number, and more.
Entitlement/termination terms
Labor laws in Spain are strict, and companies are legally required to draft a strong employment contract. It’s best practice to include termination requirements in this contract as part of the terms of employment. Termination of an employment relationship in Spain is only permitted under certain circumstances. If a dismissal is declared unfair, the employer must either reinstate the employee or provide severance payment for the amount of 33 days of salary per year worked, with a maximum payment of 24 months’ salary.
Streamline global payroll management with G-P.
G-P streamlines each step of the payroll management process with our market-leading Global Growth Platform™. Pay your team with confidence anywhere in the world in 150 currencies with our 99% on-time automated payroll system — all with just a few clicks. Our products also integrate with leading HCM solutions, syncing employee payroll data across platforms automatically to create one reliable, convenient source of truth for HR teams.
Contact us to learn more about how we can support you.