Spain Ranks 35th in 2026 Tax Competitiveness Index as Regional Policies Cushion the Decline

Spain’s regional tax policies are cushioning some of the damage from the central government’s choices. That matters: the country’s overall tax competitiveness has fallen sharply, but the regional picture shows how different rules can soften the effect of taxes on wealth, inheritance, and personal income.

In the 2026 International Tax Competitiveness Index (ITCI), Spain ranks 35th of 38 Organisation for Economic Co-operation and Development (OECD) countries, down from 27th. The decline reflects tax increases, newly introduced taxes, and weaker results across every major category under Pedro Sánchez’s government. The central government is the main driver, though regional policy also shapes the national ranking.

The Spanish Regional Tax Competitiveness Index (RTCI) compares all 19 regions using more than 60 measures across individual income, wealth, inheritance, transfer and stamp duty, and other regional taxes. The comparison makes a useful point: regional governments have sometimes offset distortive central policies, but those efforts haven’t reversed Spain’s broader decline over the past eight years. Improving the tax system at both levels should be a policy priority.

There’s a sizable gap between Spain’s current ranking and what a different policy course might achieve. Repealing the taxes and tax increases introduced under Sánchez could lift the country from 35th to 22nd in the ITCI. That estimate underscores how much policy choices matter; it doesn’t, by itself, show what the fiscal or economic trade-offs of repeal would be.

Spain’s 2026 International Tax Competitiveness Index

Source: Tax Foundation, 2026 International Tax Competitiveness Index.

Corporate Income Tax

Spain’s corporate tax score is one of its weakest results: 33rd among OECD countries. The system offers both a patent box and an R&D tax credit. These measures aim to support innovation, but they favor selected activities and can make investment decisions more complicated. A national minimum tax introduced in 2021 adds another layer, limiting the practical value of deductions, credits, and incentives for large businesses.

Spain also levies a digital services tax, as do 10 other OECD countries. Because the tax applies to gross revenue rather than net profit, it can weigh more heavily on firms with low margins. The standard corporate income tax rate is 25 percent, or 28 percent in Navarra, compared with an OECD average of 24.2 percent. Taken together, these rules help explain the low ranking.

Individual Taxes

Spain’s individual tax ranking has slipped from 15th in 2017 to 20th, largely alongside repeated increases in taxes on capital income. Since 2019, the top rate on capital gains and dividends has risen by seven percentage points. The country also has one of Europe’s highest top income tax rates.

Regional decisions have partly countered the central government’s increase in the national top marginal rate from 45 to 49 percent. Madrid lowered its combined central and regional top rate to 45 percent. Andalusia, Castilla-La Mancha, Galicia, and Murcia set theirs at 47 percent, while Castile and León reduced its rate to 46 percent.

Rates aren’t the whole story. When inflation pushes people into higher tax brackets without raising their real income, they face bracket creep. Most European countries adjust income tax brackets for inflation; Spain’s central government has declined to do so. Several regions have acted: the Canary Islands and the Basque provinces indexed brackets in 2026, while the Valencian Community and Extremadura cut personal income tax rates. La Rioja became the first Spanish region to adopt automatic inflation adjustment for tax brackets and personal deductions.

Consumption Taxes

Spain ranks 18th for consumption taxes, but its value-added tax (VAT) reaches only 45 percent of consumption because exemptions narrow the base. Exemptions and reduced rates complicate the system and can distort what consumers buy; they also put pressure on the standard rate needed to raise revenue. Broadening the VAT base could make room to cut the standard rate from 21 percent to 12 percent.

Property Taxes

Property taxation is Spain’s poorest category: the country ranks 35th internationally. The system includes taxes on real property and transfers, capital duties, financial transactions, net wealth, inheritances, and gifts. Their combined effect is a significant drag on Spain’s competitiveness.

Wealth Taxes

Spain is among the few OECD countries that still levy a net wealth tax. The tax was abolished in 2008 and later reinstated. Some regions then reduced its reach: Madrid kept a 100 percent exemption, later matched by Andalusia and Extremadura, while Galicia introduced a 50 percent reduction.

The central government took the opposite approach in 2022, introducing a temporary solidarity tax on high-net-worth individuals. It supplements the regional wealth tax and acts as a top-up where regional rebates are substantial. Initially scheduled for 2022 and 2023, it was later made permanent.

Andalusia, Cantabria, La Rioja, Madrid, and Murcia responded with regional rebates that redirect revenue to regional budgets without materially changing taxpayers’ liabilities. Extremadura retained its full exemption and did not create an offset, so the central government can collect solidarity tax from residents whose net wealth exceeds €3 million. The Balearic Islands and the Valencia Community took other steps to reduce the burden, raising their exemption thresholds to €3 million and €2 million, respectively.

Inheritance and Gift Taxes

Regional governments also administer inheritance and gift taxes. Following RTCI recommendations, many have adopted 99 percent relief for close heirs; 11 regions now offer significant relief, and some have extended it to more distant relatives. Yet top rates for distant or unrelated heirs still reach 87.6 percent in Asturias and Murcia, among the highest in Europe.

The case for these taxes is contested. They raise little revenue, and the source material cites evidence that inheritances can reduce wealth inequality because they make up a larger share of wealth for lower-wealth households. That effect may matter especially in Spain, where inherited assets account for 95.6 percent of net wealth. The same taxes can discourage entrepreneurship, saving, and work, so policymakers face a real trade-off when weighing their limited revenue against those costs. The discussion draws on OECD revenue data and a study of inheritance and wealth inequality.

What’s Next?

Spain’s tax debate comes down to whether policy can support growth with a simpler, more neutral system. Over the past decade, Sánchez’s government has introduced measures that have added complexity and weakened the country’s competitiveness. Regional reforms show that some of those effects can be eased, though they haven’t changed the national trajectory.

The bank windfall tax illustrates the concern. First introduced as a temporary measure for 2023 and 2024, it was extended through 2026. It is due to expire that year, and renewal is considered unlikely. The tax is calculated on banks’ net interest income and fees rather than on profits above a defined threshold. Its progressive rate runs from 1 to 6 percent, and part of the tax is deductible from the corporate income tax base.

The European Central Bank has warned that bank taxes of this kind could constrain credit, leave banks weaker in downturns, push up interest rates, distort competition, and invite litigation. The tax also singles out one sector, a departure from tax neutrality.

Capital income taxes have continued to rise. Spain increased the rate on capital gains above €300,000 by two percentage points, to 30 percent. The change is expected to raise little revenue, but it continues a trend that began in 2019, bringing the cumulative increase to seven percentage points. The policy question is whether limited additional receipts justify the risk of discouraging investment and making Spain less attractive to investors choosing among jurisdictions.

Policymakers should also reconsider the domestic minimum tax introduced in 2021. It can reduce the value of deductions, credits, and investment incentives for large businesses, particularly those already subject to Pillar Two’s qualified domestic minimum top-up tax (QDMTT).

The strongest case for improving Spain’s tax competitiveness starts with reversing course. Policymakers should avoid further tax increases and consider repealing levies introduced under Pedro Sánchez, including taxes on windfall profits, digital services, financial transactions, national minimums, solidarity, and wealth. Cutting the top rate on capital gains and dividends from 30 percent to 23 percent, alongside those repeals, would raise Spain’s position in the International Tax Competitiveness Index from 35th to 22nd. That projected jump is substantial, though it depends on adopting the full package.

There’s also a fiscal choice behind the tax debate. Spain could take a cue from Portugal’s approach and use the additional revenue raised in recent years to cut taxes. The comparison points to a policy choice, not a guarantee that Spain could reproduce Portugal’s results.

One practical step is to index national tax provisions to inflation, following the model pioneered by La Rioja. That would help prevent bracket creep, which can push taxpayers into higher brackets as incomes rise with prices. If Spain wants a more competitive tax system, the central government could learn from its own successful regional governments and from international peers. The question is whether it will turn those examples into policy.