When it comes to planning a move to Spain, understanding the tax differences between the Autonomous Communities is crucial. In this article, we will focus on taxes in Valencia and compare its tax structure with that of Madrid, two of the country’s most attractive regions.
Income Tax for Individuals (IRPF) in Valencia
The IRPF is a tax that taxes the income of individuals and is divided into two sections: the state and the autonomous community. Each Autonomous Community has the power to modify the autonomous section, which generates significant differences in the tax burden depending on the place of residence.
IRPF Brackets in Valencia:
Minimum autonomous rate: 10% for incomes below €12,450.
Maximum autonomous rate: 25.5% for incomes over €120,000.
Total IRPF (adding state and autonomous sections): Between 19.5% and 54%.
Taxes in Madrid
Madrid, on the other hand, is known for having one of the lowest tax burdens in the country. The Community of Madrid has used its regulatory power to reduce tax rates in the autonomous section of the IRPF.
IRPF Brackets in Madrid:
Minimum autonomous rate: 8.5% for incomes below €13,362.22.
Maximum autonomous rate: 20.5% for incomes over €57,320.40.
Total IRPF (adding state and autonomous sections): Between 18.5% and 45.5%.
Comparison between Valencia and Madrid
Overall Tax Burden: Madrid offers a lower tax burden compared to Valencia. The maximum IRPF rate in Madrid is considerably lower (45.5% compared to 54% in Valencia).
Tax Brackets: Madrid’s tax brackets are more lenient, especially for higher incomes, where the difference can be significant.
Attractiveness for Investors and Residents: Madrid’s lighter tax structure makes it an attractive destination for investors and new residents looking to maximize their after-tax income.
To better illustrate the tax differences between Valencia and Madrid, let’s use the example of a single person earning €3,000 per month, which equates to €36,000 per year:
Total IRPF in Valencia: €9,231.07 (state) + €4,720.32 (autonomous) = €9,231.07
Total IRPF in Madrid: €9,231.07 (state) + €4,055.65 (autonomous) = €8,566.40
A single person earning €3,000 per month would pay €664.67 more in annual taxes
in Valencia than in Madrid.
Other Taxes
In addition to the IRPF, there are other taxes that may vary between Valencia and
Madrid:
Inheritance and Gift Tax: Madrid offers significant reductions and bonuses that can result in almost no tax burden in some cases, while Valencia does not offer as many facilities.
Wealth Tax: Madrid grants a 100% bonus on this tax, while in Valencia it is applied with different brackets depending on the value of the assets.
Choosing between Valencia and Madrid depends not only on personal or professional preferences but also on a detailed analysis of the tax burden. Madrid, with its lower tax burden, may be a more attractive option for those looking to optimize their finances.
If you are considering moving to Spain and need advice on the tax implications, our team at Sterna Abogados is here to help. Contact us for a personalized consultation and secure your financial future in Spain.