2025 Spanish Regional Tax Competitiveness Index

Executive Summary

The Regional Tax Competitiveness Index (RTCI) for Spain enables policymakers, businesses, and taxpayers to measure and evaluate their regions' tax systems. This Index analyzes how well regions structure their tax systems and serves as a road map for policymakers to reform their tax systems to make their regions more competitive and attractive for both entrepreneurs and residents.

The Index compares the 19 Spanish regions on more than 60 variables in five major areas of taxation-individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source, wealth taxA wealth tax is imposed on an individual's net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary., inheritance taxAn inheritance tax is levied upon the value of inherited assets received by a beneficiary after a decedent's death. Not to be confused with estate taxes, which are paid by the decedent's estate based on the size of the total estate before assets are distributed, inheritance taxes are paid by the recipient or heir based on the value of the bequest received., transfer taxes and stamp duties, and other regional taxes-combining the results to generate a final ranking. The Index provides a simple metric to assess the whole tax system and identify strengths and weaknesses. The result is a score that can be compared across regions.

Main Tax Trends

After the Spanish central government made permanent the "solidarity wealth tax" for net assets exceeding €3 million on top of regional wealth taxes, some of the regions that offered 100 percent relief approved a tax deductionA tax deduction allows taxpayers to subtract certain deductible expenses and other items to reduce how much of their income is taxed, which reduces how much tax they owe. For individuals, some deductions are available to all taxpayers, while others are reserved only for taxpayers who itemize. For businesses, most business expenses are fully and immediately deductible in the year they occur, but otfor the difference between the regional wealth tax liability and the solidarity wealth tax liability. This allows Andalusia, Cantabria, La Rioja, Madrid, and Murcia to retain the revenues the central government planned to collect while still offering relief to individuals with net wealth below €3 million. Extremadura chose not to implement this deduction, allowing the central government to collect any revenue from the residents in Extremadura with net wealth exceeding €3 million. Additionally, the Balearic Islands and the Valencia Community raised the exception threshold to €1 million.

Following previous RTCI recommendations, numerous regions reformed their inheritance taxes by offering 99 percent tax relief for close heirs, bringing the total to 11 regions that offer this important tax relief. Many regions have also introduced tax relief for different types of beneficiaries, including more distant relatives. Currently, Spain has the highest inheritance tax rate in the world. For unrelated or distant heirs, the top inheritance tax rate reaches 87.6 percent, transforming the inheritance tax into a confiscatory measure. The relief offered by most of the Spanish regions for close heirs is motivated by the high inheritance tax liabilities that push taxpayers to disclaim inheritances by selling assets. However, like the wealth tax, the central government is looking to introduce a new inheritance tax on top of the current one or eliminate the deductions for close heirs that most regions currently apply.

The five best regions in this year's Index are:

1. Community of Madrid
2. Biscay
3. Alava
4. Guipuzcoa
5. La Rioja

What distinguishes the top five regions from the rest is their high score in each of the five components of the Index.

Madrid

Madrid remains in the top position, but its score worsened slightly by 0.21 as the difference with the other autonomous communities decreased. Following the 2024 RTCI recommendations, Madrid increased its inheritance tax relief for more distant relatives. Madrid could further improve by cutting the top inheritance tax rate from 34 percent to 25 percent and abolishing the factor that depends on the level of pre-inheritance wealth and familial closeness to the inheritor. Madrid could also improve its score by automatically indexing the income tax to inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a "hidden tax," as it leaves taxpayers less well-off due to higher costs and "bracket creep," while increasing the government's spendin(to avoid bracket creep) and by cutting the tax rate for the first income tax bracket by 0.5 percentage points, to equal the one applied in Extremadura and La Rioja.

Basque Country

The differences among the three Basque provinces are driven by the wealth tax component of the Index. On the wealth tax component, Guipuzcoa ranks 17^th, Alava 10^th, and Biscay 8^th. Additionally, in response to the solidarity wealth tax, the three Basque provinces approved their own solidarity tax to complement the wealth tax that the three provinces were already applying. In 2025, Biscay, Alava, and Guipuzcoa also implemented one of the RTCI recommendations: the net income allowance was increased so that taxpayers earning the minimum wage would no longer pay income tax. This helped the provincial governments maintain their position in the ranking.

All three Basque provinces could benefit from reforming their inheritance taxes as they are tied for 12^th place on this component of the Index. Additionally, Guipuzcoa could improve by raising the wealth tax threshold to the level applied in Biscay and reducing the tax rate.

La Rioja

La Rioja improved three places in the overall Index from 8^th to 5^th place. Following the 2024 RTCI recommendations, La Rioja approved a tax deduction for the difference between the regional wealth tax liability and the solidarity wealth tax liability. La Rioja could improve its score by reducing the top income tax rate by 4 percentage points and by automatically adjusting all brackets and personal and family deductions for inflation.

The five lowest-ranked regions in this year's Index are:

1. Castilla La-Mancha
2. Valencia Community
3. Aragon
4. Asturias
5. Catalonia

The regions with the worst overall scores obtain low scores in almost all the components of the Index and especially in the three most important ones: income tax, wealth tax, and inheritance tax.

Catalonia

Despite reforming the income tax, Catalonia didn't improve its score, ranking last in the overall Index. Positively, in 2025, policymakers reduced the tax rate of the first income tax bracket by one percentage point, adjusted the lower brackets for inflation, and streamlined the tax structure by reducing the number of brackets to eight. However, on the other hand, it restructured the property transfer tax by introducing two more tax bracketsA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat.and raising the maximum rate from 11 percent to 13 percent. It also introduced a 20 percent tax rate on the purchase of residential properties by large-scale landlords and on transactions involving entire buildings.

Catalonia has twice as many regional taxes as the rest of the Spanish regions and some of the worst-structured individual income, inheritance, and wealth taxes.

Asturias

Despite increasing the generosity of the personal income tax to support families with children, Asturias still ranks 18^th in the 2025 Index. Asturias would benefit significantly from income and inheritance tax reform. Asturias has by far the highest inheritance tax liability among the regions.

Aragon

Aragon has not undertaken any reforms this year and remained in 17^th place in the 2025 Index. Aragon has several shortcomings regarding income, wealth, and inheritance tax components. Aragon should also repeal the two new regional taxes on wind and solar farms.

Valencia Community

Despite reforming the wealth tax and eliminating some regional taxes, the Valencia Community remained in 16^th place. Valencia reformed the wealth tax by raising the exemption threshold from €500,000 to €1,000,000. At the end of 2024, Valencia repealed three regional taxes that were set to take effect on January 1, 2025. Despite these reforms, Valencia still has some of the most burdensome wealth taxes, transfer taxes, and stamp duties in Spain. However, certain reforms in transfer taxes and stamp duties have already been approved and are scheduled to take effect in July 2026. This could improve Valencia's ranking next year. Additionally, Valencia's overall (central and regional) top marginal income tax rate stands at 54 percent, the fourth highest in Europe, after Denmark (55.9 percent), France (55.4 percent), and Austria (55 percent).

Castilla-La Mancha

Due to the lack of tax reforms and the reinstatement of the water environmental levy, Castilla-La Mancha remains in 15^th place.

2025 Regional Tax Competitiveness Index Ranks, Component Tax Ranks, and 2024-2025 Changes

Notable Ranking Changes in This Year's Spanish Regional Tax Competitiveness Index

Cantabria

Cantabria approved a wealth tax deduction for the difference between the regional wealth tax liability and the solidarity wealth tax liability, and improved its overall rank from 12^th to 10^th place.

Balearic Islands

Despite the lack of important reforms, due to Galicia's drop in the ranking, the Balearic Islands improved its relative overall rank from 13^th to 12^th place.

Galicia

Galicia introduced both a tourist tax and an offshore wind installations tax, and dropped two places in the 2025 Index to 13^th overall. However, Galicia also introduced an inheritance tax allowance for more distant relatives.

Andalusia

The lack of major reforms and the relative improvement of both La Rioja and the Canary Islands led Andalusia to drop two places in the 2025 Index to 7^th overall.

Extremadura

The lack of reforms and the relative improvement of La Rioja led Extremadura to drop one place in the 2025 Index to 8^th place. Currently, Extremadura is the only region that maintains 100 percent wealth tax relief regardless of whether the solidarity tax applies or not. This allows the central government to collect any revenue from Extremadura's residents with net wealth exceeding €3 million.

Castile and Leon

The lack of reforms and the relative improvement of Cantabria led Castile and Leon to drop one place to 11^th in the 2025 Index.