Boasting some of Europe’s most beautiful landscapes, Spain is one of the most important economies in the European Union. Madrid and Barcelona are home to important multinational companies, including Amazon, McDonald’s, Microsoft, and Oracle. Known for its work-life balance, Spain is a talent hotspot for companies looking to hire top talent internationally.
Spanish employers have a lot of requirements that they need to follow in order to compliantly run payroll, which means setting up payroll in Spain can prove to be an extremely difficult process. Employers not only have to pay taxes at the national level; they are also subject to paying various deductions at the municipal level.
Companies expanding to Spain have a few options for paying workers: establish a subsidiary or entity and use a PEO service that outsources payroll, or partner with a global EOR service like Via that handles the entire global HR and payroll process.
This article gives everything you need to know when you plan to expand to Spain, as well as how to set up payroll in Spain while maintaining compliance with local labor laws.
In Spain, the pay period for employees is monthly. These payments normally go out on the last day of the month. Most employers opt to give their employees two extra months pay, one in July and another December. These bonuses should be explained by the employment contract during the hiring process. Employers should also provide their employees a record of payment so they have it for their taxes each year.
Typically, companies that want to hire employees in Spain need to establish a subsidiary, entity, or branch office prior to hiring employees. However, many companies are now choosing to outsource their payroll using an EOR service like Via that handles the entire HR and payroll process.
Employers need to remember that on top of the normal withholding deductions, they also need to pay capital tax, transfer tax, real property tax, and other statutory local government taxes to abide by Spanish regulations and laws.
To set up payroll in Spain, companies need to follow these steps:
Get an individual tax ID number and social security number
Get a fiscal identification number for their company (for VAT)
Register the company at the local Chamber of Commerce
Register the company for corporate and income tax deductions
Obtain authorizations from the government to hire employees (after establishing a subsidiary or entity)
Gather information from their employees on their nationality, tax residence, national identity, and social security, and submit these forms to the correct specific authorities
Both employers and employees are required to pay into the Spanish social security system. Social security in Spain covers things like maternity and paternity leave, paid leave, and unemployment.
Employer social security contributions break down as:
23.6% for Social Security
5.5% for Unemployment
0.2% for Salary Guarantee Fund
0.6% for Professional training
When added up together, the contributions equal 29.9% of the employees’ salaries.
Employee contributions break down as:
4.7% for Social Security
1.5% for Unemployment
0.1% for Professional Training
These contributions add together for employee social security contributions of 6.4%.
The corporate income tax rate in Spain is a flat 25%. All companies are required to pay this standard deduction when calculating their deductions at the end of the year.
In Spain, the Value Added Tax (or sales tax) rate is 21% on all goods and services.
There are reduced tax rates of 10% for passenger transport from the airport and hotel and restaurant services. Also, there is a reduced rate for food and drink and construction work.
The withholding or income tax system in Spain is set up as a progressive tax rate system. This means that for workers in Spain, the income tax deduction depends entirely on the employee's salary.
When it comes to payroll taxes, Spain is different from many other EU countries. Any income earned by non-residents will still be subject to withholding tax. For EU and EEA citizens, the income tax deduction is 19%. For non-EU citizens, the withholding rate is 24%.
To easily calculate employee deductions in Spain, use a calculator (like Spain (ES) - Salary After Tax Calculator) that gives the estimated net payment after deductions.
To pay Spanish employees from a foreign country like the United States, there are a few options.
Foreign companies can use a remote payroll system that runs out of the parent company for their business in Spain, team up with a third-party outsourced payroll (like a PEO), or partner with a global EOR service like Via that handles the entire process and knows how payroll operates in Spain.
For companies that have a commitment to establishing and growing a business presence in Spain, running payroll internally makes sense. However, this option requires setting up an entity, which can take over six months and requires in-depth knowledge about tax laws. You will need a large amount of investment capital, so you can set up an internal HR team and register with a number of government organizations.
Another option is to use a global PEO service that handles payroll and hiring, or to use an internal payroll processing company. These services handle payments, benefits, deductions, and other payroll processes.
However, PEO services and internal processing companies do not take full responsibility for legal compliance. If anything were to go wrong, the parent company is still held liable. This is technically a co-employment model, which means the parent company will still need to set up an entity within the country.
Finally, you can hire employees using a global EOR service like Via. EOR services handle global payroll, benefits, and compliant onboarding. An EOR service already has an established entity in Spain, so that you don’t have to worry about establishing your own-employer-of-record to pay Spanish employees.
Many companies want to hire employees in Spain, but are unsure of how to navigate the complex labor and tax laws that are set forth in the country. Via makes hiring Spanish talent and building your global team seamless. Our easy-to-use platform helps you manage the local HR processes for benefits, payroll, background checks, and more. We have a local team of lawyers and on-the-ground experts that understand compliance as you expand abroad.
As your employer-or-record/entity in Spain, Via assumes full responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in Spain with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.