2025 has started with up to nine tax increases that affect individuals and businesses in their daily lives. On January 1st, the fiscal changes approved in the last session of the Congress of Deputies came into effect with the aim of raising around an additional 4,500 million euros per year, as communicated by the Government to Brussels in the October Structural Tax Plan. The first day of the new year also saw the end of some aid measures to combat inflation that have been in place in recent years, although transportation subsidies will remain unchanged for another six months. The public coffers have disbursed 120,000 million euros since 2020 in tax breaks and subsidies. Their disappearance implies that inflation is being controlled, but it also has a negative impact on the wallets of the most modest families.
Pending the Government's presentation of the General State Budget Bill including new fiscal measures, the year begins with a slightly more expensive basic shopping basket. On December 31st, basic food items revert to their usual 4% tax rate, including olive oil. The original 21% VAT rate on electricity also returns, increasing the monthly bill for households.
The Tax Agency will save 5 billion by correcting the measures taken during Montoro's time
Companies will also see how their tax bill increases, especially for large corporations. In this section, the Congress of Deputies approved a tax reform that did have a significant gesture towards small and medium-sized enterprises by reducing their Corporate Tax, as requested by Junts. In 2025, SMEs will pay 700 million less, according to estimates from the Treasury. Multinationals, on the other hand, will have to pay a global minimum rate of 15% if they bill more than 750 million.
The major banks have also seen how in 2025 the new tax on the financial sector, which taxes interest margins and fees, has come into effect. The tax rate is progressive, with a scale ranging from 1% to 7% depending on the taxable base, and the revenue collected will be distributed among the autonomous communities based on their GDP. Additionally, the Government introduced a provision in the latest decree of the year to increase the tax burden if acquisition operations, such as BBVA's takeover of Sabadell, were to go through. The Treasury estimates it will collect €1.7 billion annually from the taxation of the financial sector over the course of three years.
The tax reform also includes a modification of the hydrocarbons VAT to prevent fraud affecting major oil companies, as well as a revision in Corporation Tax. On one hand, it aims to limit deductions and, on the other hand, address the revenue loss caused by the repeal of fiscal measures from the time of Cristóbal Montoro. The Treasury estimates that with this latter measure, it will prevent tax refunds of up to 5,000 million.
Some individuals will also see an increase in their tax burden through a two-point rise in the Personal Income Tax for capital incomes exceeding 300,000 euros. They now pay a 30% rate. However, in reality, all incomes will be affected once again by inflation as the tax brackets are not adjusted for it. A report from the Bank of Spain estimated that the Tax Agency has collected an additional 11 billion euros in recent years by not adjusting the Personal Income Tax brackets for inflation.
Smokers have also seen that on January 1st, the tobacco tax has increased and a new tax on electronic cigarettes has been approved. In the coming months, drivers with diesel vehicles may see an increase in the hydrocarbon tax as the current discount is removed. This measure does not have the support of Podemos and is therefore blocked, although it is a commitment from Spain to Brussels in order to continue receiving European funds on time.
In 2024, there is record revenue close to 300,000 million, but the average tax pressure is lower than the EU average
This picture of state taxes needs to include the current regional and local tax taxation that creates significant differences among citizens depending on the region where they reside. Catalonia is the region with the most local taxes and the least tax breaks, while Madrid has the lowest tax burden, a difference that has been increasing since January 1st due to newly approved tax reductions.
The Tax Agency closed 2024 with a new record collection, close to 300 billion, but the average tax burden remains below the EU average. According to the latest data from Eurostat, in 2023 Spaniards faced a pressure of 37% of GDP, taking into account income levels and contributions, after applying deductions. Above them were Portugal (37.6%), Germany (40.3%), Italy (41.3%), and the leading country, France (45.6%).
The tax changes that came into effect on January 1st
Corporate Tax. Multinationals with a turnover of over $750 million will pay a minimum rate of 15%. Additionally, deductions are being reduced to bring the actual rate closer to the effective rate. Measures approved by previous Governments that have led to multimillion-dollar refunds due to the annulment of rules in court are also being corrected.
**Bank Tax**. Taxes the margin of interest and commissions generated by banks operating in Spain with a progressive rate ranging from 1 to 7%.
Hydrocarbon VAT. Controls are being strengthened to prevent fraud in sales, a measure demanded by large companies.
**Capital Income Tax**. Incomes exceeding $300,000 will now be taxed at 30% instead of 28%.
Income Tax on Labor Income. Adjusting the tax rate would mitigate the impact of rising prices on workers. This has been a flagship policy of the PP since the inflation crisis, but the Government is discarding it.
Tobacco and E-cigarettes. The aim is to combat the increase in tobacco consumption in all its forms, especially among the youth. The Treasury ensures it is not a revenue-generating tool.
Electricity VAT. The standard rate of 21% for VAT is reintroduced regardless of the users' tariff.
Food VAT. Basic necessity products return to a super-reduced rate of 4%, including olive oil, whose tax has been exempted at 0%.
Garbage Tax. This new levy, which will cover the cost of waste collection, transportation, and treatment, will be implemented by all local entities starting in April. It will include discounts.
Diesel Tax. As part of the fiscal changes, Hacienda includes an increase in the hydrocarbon tax on diesel. It was slated to take effect in April, but the Government currently lacks the votes to approve it today.
Tax on Energy Companies. The decree approved in December lacks the necessary support for confirmation and will lapse in the coming days.
