Spain at a Glance

Employers and employees are free to negotiate the terms and conditions of their employment relationship. However, employees retain various minimum rights under the law, regardless of any contrary language in an employment agreement. These minimum working conditions are set forth in the Workers Statute and the applicable collective agreement, among other documents.

Employers must pay employees two “extraordinary salaries” (gratificaciones extraordinarias) each year. As a rule, one salary is paid at Christmas, and the other is generally paid in June or a month stipulated by an applicable collective agreement. However, a collective agreement may provide for the salaries to be paid in monthly instalments. The amount of the salaries is not set by law but left to collective agreements to decide (in practice, each salaries is typically worth one month’s pay).

The Labor Law requires that the party seeking to terminate an employment agreement provides the other party with a minimum of 15 days’ notice prior to termination. The parties involved in the contract may agree upon longer notice periods.

A disciplinary dismissal does not entitle an employee to receive any compensation in the form of a severance payment from the company, unless a court ruling declares the dismissal unfair.

The Spanish Constitution gives unions the authority to promote and defend the economic interests of workers. It also empowers unions to represent workers in collective bargaining and to engage in the preliminary mandatory conciliation steps before disputes can be presented to government conciliation agencies.

In principle, employment contracts are presumed to be for an indefinite term. There are, however, a limited number of definite-term employment agreements. If the employee continues to work past the original term of the temporary agreement, the relationship becomes indefinite in time and the employee becomes entitled to the standard severance upon termination. Fixed term contracts are very restrictive and highly controlled, we require valid reasons for Fixed Term Contracts, and they limited to the following scenarios:

In accordance with legal requirements in Spain and to provide a secure and confidential way to report potential violations within the workplace or professional environment, whilst maintaining the protection of individuals reporting regulatory violations and anti-corruption measures, all legal employers are mandated to provide a Whistle Blowing Channel (Buzón de denuncias) which can be accessed here

Requirements of setting up a Subsidiary:

• Requires at least one shareholder, who may be an individual or a legal entity. A minimum share capital of €3,000 is required, fully paid at incorporation.
• At least one director is required, with a maximum of 12 unless a board is established (mandatory for listed companies).

Requirements of setting up a Branch:

• No minimum share capital is needed, as it is not a separate legal entity.
• Directors are not applicable as it functions under the parent company.

Note that although a Local Resident Administrator is not mandatory, non-resident companies may need a local tax representative.

While Spain does not mandate a specific hierarchy for transfer pricing (TP) methodologies, the comparable uncontrolled price (CUP) method is often preferred in practice. Companies should ensure that intercompany agreements comply with local regulations, and professional assistance is advised for drafting or reviewing such agreements.

Businesses in Spain are obligated to maintain accounting records adhering to the Spanish Accounting Standards, known as the Plan General Contable (PGC). Proper record-keeping ensures transparency and aids in accurate financial reporting.

Spanish companies are required to prepare the following statutory financial statements:

• Director’s Report
• Balance Sheet
• Income Statement
• Appendix with Notes to the Financial Statements

These documents must be submitted as part of the Annual Financial Statements.

Foreign companies operating in Spain must appoint a local tax representative to fulfill their tax obligations effectively.

E-invoicing under the Suministro Inmediato de Información (SII) system is mandatory for:

• Large taxpayers (annual invoicing exceeding €6 million)
• VAT groups
• Companies registered in the monthly VAT refund regime

Other entities may opt-in voluntarily. The SII system is overseen by the Spanish Tax Authorities (Agencia Tributaria).

The fiscal year in Spain can follow any 12-month cycle, providing flexibility for businesses to align their financial planning.

• Corporate Tax: By the 25th calendar day of July
• Annual VAT Return: By January 30th of the following year

Personal income tax in Spain is progressive, ranging from 19% to 47%. It is deducted monthly from the employee’s salary. Tax rates may vary slightly based on the region in which the employee resides.

Personal income is taxed under the Impuesto Sobre la Renta de las Personas Físicas (IRPF). The tax is progressive, ranging from 19% to 47%, and deductions are made directly from employees’ salaries. The exact rates may vary slightly depending on the autonomous community in which the employee lives.

Individuals who are resident in Spain for tax purposes are generally subject to personal income tax (PIT) on their worldwide income, regardless of where it is generated, which is taxed, following statutory reductions, at progressive rates. Non-residents are subject to NRIT only on their Spanish-source income.

There are two types of taxable income for Spanish PIT purposes: general taxable income and savings taxable income:

General taxable income includes:

• All income that is not savings taxable income.
• Capital gains not generated from transfers of assets (such as lottery prizes).
• Income allocations, attributions, or imputations, as established by law.
• Interest and other income generated from transferring the taxpayer’s own capital to a related company when the capital exceeds three times the latter’s equity and for the part corresponding to the excess.

Progressive tax rates are applied to general taxable income,  These are based on the sum of the applicable rate approved by the state and the applicable rate approved by each autonomous community of Spain in their progressive tax rate scales. Tax liability may therefore differ from one autonomous community to another. While most employers in Spain submit these payments to Spain’s Tax Authority, employers in the Basque and Navarra regions submit income taxes to local authorities.

The scale below can be used as a guideline of the progressive tax rates applicable for the general taxable base. However, the scale applicable in the corresponding autonomous community of Spain should always be consulted to calculate the total progressive tax rate.

Tax scale for withholdings applicable in 2025:

Deadlines for Payroll Tax Submissions

Employers are obligated to submit payroll tax filings either quarterly or monthly, depending on their annual invoicing. Small businesses and taxpayers with annual invoices under €6 million must submit payroll taxes quarterly, due by the 20th of the month following the end of each quarter. Large taxpayers, with annual invoicing over €6 million, must submit payroll tax returns monthly, also by the 20th of the following month.

Both the employer and the employee are required to contribute to Spain’s social security system. The total contribution rate is 28.30%, with 23.60% covered by the employer and 4.70% by the employee. These contributions cover various social benefits, such as healthcare, pensions, and unemployment benefits.

Both employers and employees are required to contribute to Spain’s Social Security system. Contributions vary based on the type of contract and employee earnings. These contributions fund healthcare, pensions, and other social services. The employer’s share of the social security contribution is 23.60%, while employees contribute 4.70%.

The legal framework for social security is derived primarily from the Social Security Act 1/1994. In Spain, Social Security’s national insurance contributions cover:

• Common contingencies, these contributions cover the situations included in the Social Security’s general regime,
• Professional contingencies cover expenses resulting from labour accidents and occupational diseases,
• Overtime,
• Other concepts such as unemployment, training or the Wage Guarantee Fund, and
• Public medical care to all affiliated workers.

Social security contributions are paid on salaries and wages. In Spain, the maximum monthly base is EUR 5,101.20 in 2026. The general contribution rates from January 2026 are 6.50% for employees, depending on the type of contract, and 32.15% for employers, plus a variable rate for accidents at work (for example, 1.5% for office work). Spain must pay their employees monthly, or more frequently depending on the employment contract or collective agreements.

Already included in the above %, the Mechanism of Intergenerational Equity (MEI) has increased to 0.90% as of January 2026. This cost will be distributed with 0.15% paid by the employee and 0.75% by the employer. The MEI is a component of Social Security contributions, designed to strengthen the public pension fund.

*The above rates serve as a broad guideline. Actual rates charged will differ.

In Spain, bonuses are salary supplements as defined in Article 26.3 of the Workers’ Statute (Estatuto de los Trabajadores). This remuneration scheme is based on the company’s performance or on the employee achieving certain objectives. At the outset, the company should set requirements that entitle an employee to receiving a bonus. The employer has an obligation to ensure that their employees are aware of the conditions and objectives that must be met in order to receive a bonus. Workers are entitled to receive payment of bonuses even if the employer has violated the disclosure obligations. Since a bonus has a salary character, it must be included in the compensation in case of dismissal. There are only two possibilities that allow not including it: first, if both parties have agreed not to include it; and second, if the bonus had been paid in exceptional circumstances (regardless of the achievement of certain goals).

Seniority Pay – This is a bonus for years of service as follows:

• 5% raise every 3 years up to a maximum of 5 raises
• After this, 10% raise every 3 years up to a maximum of 3 raises
• A last raise of 5%

In certain situations, such as termination of employment, employers may be required to provide severance pay. The amount depends on the employee’s length of service and the type of employment contract.

A disciplinary dismissal does not entitle an employee to receive any compensation in the form of a severance payment from the company, unless a court ruling declares the dismissal unfair.

The severance pay resulting from an objective dismissal is a tax-free payment in the amount of 20 days’ salary per year of service, up to 12 months’ salary. If the dismissal is deemed unfair by the judge or acknowledged as unfair by the company before the Conciliation Chamber or the Court, the relevant tax-free severance is 33 days’ salary per year of service up to 24 months’ pay.

Severance compensation is calculated under two criteria: Seniority and daily salary. In case of objective or unfair disciplinary dismissal the severance will be calculated by multiplying the seniority by the daily salary and the days (20 in case of objective dismissal/ 33 in case of unfair dismissal). The daily salary is calculated taking into consideration the 12 last payments, and the company shall include all salary concepts, including salary in kind and extra-hours. Therefore, bonus, incentives and irregular payments are included. Only extra-salary concepts should be excluded. Stock Options are salary and are included in the computation for indemnity.

The gross salary is the amount paid to the employee before any deductions. It varies based on factors like the employee’s role, experience, and industry.

Employers in Spain must pay their employees on a monthly basis, or more frequently depending on the employment contract or collective bargaining agreements.

The total annual compensation package will be divided into 14 months:

• 12-month salary
• 13th month in June
• 14th month in Christmas

The 13th and 14th month must be paid within the 15 and 20 of each month. If the employee has not worked for the whole month, it will be calculated and prorated.

All payments must be made by cheque or direct bank deposit, and, for payments made by cheque, the employer must provide a payslip with the amount of payment and withholdings to be signed by the employee.

In Spain, it’s obligatory for companies to pay employees two extra payments per year: one at Christmas and another during the summer. While these payments can be spread across the 12 monthly salaries, the equivalent amount of one month’s wage is standard.

The employee will typically receive an official monthly payslip – called nómina – by the end of each month. This is a legal document which proves the contractual relationship with the employer and exchange of the provided services and payment. The employee has to sign two copies, one of which is kept by the employer and the other one is for the employee. The payslip is separated into three distinct sections:

• Header which must contain information about the employer and employee;
• Body which includes information about the worked period, earnings and deductions;
• Footer which includes information about the rates used for calculation.

Employers must provide paid vacation days and public holidays, contributing to the overall employment costs. If employees work on public holidays, they are typically compensated at a higher rate.

Any sick leave compensation depends on the length of the absence:

• The first 3 days of the sick leave: the company will pay.
• From the 4th to the 15th day of the sick leave: an allowance consisting of 60% of the calculation basis is to be paid by the company.
• From the 16th to the 20th day of the sick leave: an allowance consisting of 60% of the calculation basis is to be paid by social security.
• From the 21st day of the sick leave: an allowance consisting of 75% of the calculation basis is to be paid by social security.
• If an employee is absent due to an accident at work, employers must make a payment of 75% of salary, but this is then reimbursed to the employer by Spain’s National Institute of Social Security.

The company pays the corresponding amount to the worker and this amount is refunded by social security to the company.

A minimum previous contribution period of 180 days’ worth of social security contributions in the previous 5 years has to be fulfilled for the Spanish Social Security covers part of the worker’s salary, except where the incapacity is due to an occupational illness or accident at work.

A worker’s period of sick leave cannot exceed one year; however, the National Institute of Social Security (INSS) may extend the sick leave by 6 months if it considers that the worker can recover in that period of time.

** Please refer to the collective bargaining agreement as this can be more favourable than the minimum terms set out above.

In the following circumstances, employees are entitled to receive their full salaries for the periods indicated:

• Fifteen calendar days in case of marriage and civil partners duly registered;
• Four days of paid leave in cases of force majeure, where the employee’s absence from work is necessary for urgent and unforeseen family reasons and where illness or accident makes the employee’s immediate presence crucial.
• Five days of leave in the event of a serious accident or illness, hospitalization, or surgery without hospitalization that requires home rest for the employee’s spouse, unmarried partner, or relatives up to the second degree of consanguinity or affinity. This also includes blood relatives of the unmarried partner, as well as any other person living in the same household who requires the employee’s direct care;
• Two days of leave in the event of the death of a spouse, common-law partner, or relatives up to the second degree of consanguinity or affinity. If travel is required, the leave is extended by two additional days;
• The time required to comply with a public obligation (e.g., voting or jury duties);
• One day for moving to a new residence;
• For tests and examinations prior to childbirth, and training prior to adoption or fostering, whatever time is needed where this coincides with working hours;
• For premature births involving hospitalization of the newborn, one hour per working day;
• For breastfeeding children under nine months of age, workers are entitled to one hour of absence from work per day, or half an hour if taken at the beginning or end of the working day. This leave may be taken either by the mother or the father, if both are working;
• For legal guardianship of a child under 12 or of a person with a disability, reduction of the working day by between one-eighth and one-half;
• To fulfill public and personal obligations (jury duty, appearance in court, etc.), as long as necessary;
• To perform trade union or workers’ representation duties, the time established by law or collective agreement.
• Up to four days of leave if unable to access the workplace due to travel restrictions, official recommendations, or serious risks, including natural disasters or adverse weather. If conditions persist beyond four days, leave may be extended until the situation is resolved, unless the company opts to suspend the contract or reduce working hours due to force majeure (Article 47.6). If remote work is feasible and network conditions allow, the company may implement it while ensuring compliance with Law 10/2021, including the provision of necessary equipment and tools.
• The necessary time needed to carry out the preparatory acts for the donation of organs or tissues, provided this is taken place within the working day.

In all cases, to exercise their right to leave, workers must notify the employer in advance and provide proof of the reason for their absence.

Employees are entitled to unpaid leave under certain conditions if they have worked for the employer for at least 1 year.

The unpaid leave can be taken for a maximum of 1 month per year, split into 15 days per leave period.

However, the application for unpaid leave can be rejected if several workers are taking unpaid leave at the same time as follows:

• Companies with 1-20 employees: 1 employee
• 21 – 50 employees: 2 employees
• 51 – 100 employees: 3 employees
• 100+ employees: More than 3% of the workforce

Workers are entitled to request leave to care for family members for:

• the maximum duration of three years to care for each child,
• one year, extendible by collective bargaining agreement, to care for a blood relation or relation by marriage up to the second degree or similar, who for reasons of age, accident or illness cannot look after themselves and do not perform paid work.

Leave for Caring for a Family Member with a Disability

The Statute of Workers also guarantees employees unpaid leave of up to two years to take care of a close family member (parent, child, sibling, grandparent or grandchild, aunt or uncle, first cousin or niece or nephew) in the event the family member is handicapped or is deemed by the health authorities to be unable to execute the most basic activities of daily living without help from a third person.

Voluntary Unpaid Leave

Employees with at least a year’s tenure are entitled to the voluntary unpaid leave of between four months and five years. After the exercise of this right, no other voluntary unpaid leave may be taken for four years. Following unpaid leave, the employee is entitled to be reinstated in their previous professional category, but not necessarily in the same position. Time taken for unpaid voluntary leave is not considered in the calculation of seniority.

A new Royal Decree introduced a novelty in paid leaves for birth and adoption, which applies to all births that occurred after the 1st of April 2019. This regulation aims to achieve effective equality between men and women in employment in the promotion of personal and family life, through equalization of the time for both parents to enjoy the leave for birth and adoption. The term “Paternity” has been replaced by “Partner Leave”, this last term referring to the parent other than the biological mother.

Maternity & Partner leave: 17 weeks. The mother & father must take 6 of these weeks immediately after the birth or adoption. The remaining 10 weeks can be organised at the parents’ discretion (to be taken in blocks of 1 week) until the child is twelve months old. The biological mother can commence maternity leave up to four weeks before the expected date of birth.

Childcare leave: Employees are entitled to 2 weeks of parental leave to care for child. This leave may be taken until the child reaches the age of eight. This leave may be taken continuously or in segments, in a flexible manner, and it cannot be transferred to another individual. Applicable to children born on or after 2 August 2024. Leave periods may be requested starting 1 January 2026.

Unpaid parental leave: Employees are entitled to up to 8 weeks of unpaid parental leave to care for a son or daughter, or a child who has been fostered for more than a year. This leave may be taken until the child reaches the age of eight. This leave may be taken continuously or in segments, in a flexible manner, and it cannot be transferred to another individual.

Reduction of working hours: The employee (mother or father) have a right to ask for a reduction of working hours if they have a child younger than 12 years old. In this case, the employee will only receive the salary according to the base hours worked. The company cannot dismiss the employee, or the dismissal can be declared invalid (“nulo”).

Adoption rights: Each adoptive or foster parent receives 6 weeks of mandatory uninterrupted leave which they should take during the first 12 months after the child comes into their home. The law extends this leave on a voluntary basis for up to 16 weeks for each adoptive parent, and two extra weeks for each additional child. Also, one parent can leave the other parent up to 6 weeks of their leave.

Pregnancy leave: Pregnant workers shall have the right to be absent from work, with the right to remuneration, to carry out prenatal examinations, but the employer has to be informed in a timely manner.

Nursing leave: Workers who are nursing a child under nine months of age shall be entitled to one hour of absence from work at a time to be chosen by them, and which may be divided into two parts, one at the beginning and one at the end of the day. The worker must notify the employer fifteen days in advance of the date on which she will return to her usual working hours. It is also permissable to accumulate this leave which normally equates to 15/20 days off.

Paternity leave: For single parents, the new paternity leave has been established as follows:

• Six compulsory weeks, on a full-time basis, to be taken immediately after childbirth, the judicial resolution establishing the adoption, or the administrative decision on pre-adoptive guardianship or fostering.
• Twenty-two weeks, which may be taken at the parent’s discretion, in weekly blocks, before the child reaches twelve months of age.
• Four additional weeks of parental care, to be taken in weekly periods until the child reaches the age of eight.

Spain has a comprehensive social security system covering over 90% of the population. It includes:

• Healthcare (Plus sickness and maternity),
• Industrial injuries,
• Unemployment insurance,
• Old age (pensions),
• Invalidity and death benefits.

Employers may offer additional benefits, which could include bonuses, meal allowances, or transportation allowances. These vary by company and industry but are commonly provided as part of the overall compensation package.

Depending on the sector or specific collective bargaining agreements, companies may have additional obligations, such as providing meal or transportation allowances, private insurance, or training allowances.

Common additional employment benefits include:

• Variable pay
• Company car
• Pension plan
• Private Health insurance
• Mileage reimbursement (The maximum tax-free amount is 0.26 €/km)