International News

Spain at the bottom of world tax ranking

Jose Maria Alfin
October 6, 2023

An excellent post published in the international online web tax foundation concludes that Spanish tax reforms could lead into a recession and directly to the bottom of the international tax index

Spain at the bottom of the World Tax Index

Based on the excellent post drafted by Mrs Cristina ENACHE for the prestigious international tax magazine TAX FOUNDATION, taking as reference the worldwide tax rankings 2022, concludes that Spain, as a consequence of the last tax reforms, could downgrade its position even more.

For us, this is awful news for our neighbour country. But, adding taxes like solidarity; digital; raising the savings base brackets or capital gains tax, and other measures are completely counterproductive. These measures will directly impact the competitiveness of Spain and could bring the country into a great recession.

We think that the Spanish tax system (accurately, we could say that there are several tax systems) is creating year after year more problems, increasing the tax pressure above the limits of confiscation and fomenting tax dumping among the different regions (Comunidades Autónomas).

Surprisingly, Spain still maintains a substantial burden through the Netwealth tax, which applies to residents or non-residents in Spain, Inheritance Tax and Gift Tax. If we add the personal income tax plus the Netwealth tax, the marginal rate theoretically cannot surpass 60% of the rents originated by the individual. But this is not accurate since the interpretation of the Spanish tax authorities sometimes entails a tax average rate of over 60%.

The economic experience has demonstrated historically that tax policy should try to stimulate economic activity. Still, these measures in a moment when Spain is in a critical financial situation don't seem the better for this country.
Taking into account that the vast majority of developed countries have considered the net wealth tax counterproductive and that only five countries in the world  are maintaining such tax (which is taxing assets that were taxed in the past, either because they were inherited or received as a consequence of rents that were also taxed, creating a clear internal double taxation), introducing even more tax pressure over the high-income individuals is not going to help the growth or recovery of the country.

The tax policy should always consider the limit of tax pressure, but this is not the case for Spain with the last tax reforms.

And, when the Government ignores the limit of tax pressure, the individual could easily decide to emigrate to a more tax-friendly country.

Even Mr Montoro approved an exit tax to limit relocations, but this will not stop individuals since the exit tax cannot be liquidated at the moment of relocation if the individual relocates to an EU country or a country member of the European economic area.

Andorra could be an exciting option considering that an agreement between Andorra and the European Union is very advanced and probably will be signed during the next financial year.

In conclusion, the tax hell that Spain is creating is going to be counterproductive, and we forecast a massive movement of people relocating to the many options that other countries within the EU offer (Italy, Portugal, Greece, Malta, Cyprus, or Andorra if finally join the EU, as an associated country).