2026 Spanish Regional Tax Competitiveness Index

Executive Summary

The Regional TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Competitiveness Index (RTCI) for Spain enables policymakers, businesses, and taxpayers to measure and evaluate their regions’ tax systems. The RTCI 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 RTCI 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 RTCI 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 ot for 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 €3 million and €2 million, respectively. Nevertheless, a Constitutional Court ruling is still pending on whether the increase in the top marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. from 2.5 percent to 3.5 percent is consistent with the constitutional principle prohibiting confiscatory taxation, and whether the 2021 Budget Law exceeded its constitutional remit by removing the tax’s temporary status and granting it indefinite duration.

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. While Spanish regions have occasionally adjusted elements of their personal income tax systems to account for 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, La Rioja, following RTCI recommendations, became the first region to enact legislation providing for the automatic indexation of all 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., as well as personal and family allowances, whenever inflation reaches or exceeds 3 percent. As a result, La Rioja is the first region in Spain to introduce a comprehensive automatic inflation-adjustment mechanism for personal income taxation.

The Five Highest-Ranked Regions in This Year’s RTCI

1. Community of Madrid
2. Biscay
3. Álava
4. Guipuzcoa
5. Canary Islands

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

Madrid

Madrid remains in the top position, and its score improved slightly by 0.10 as the difference with the other autonomous communities increased. 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 inflation (to avoid bracket creepBracket creep occurs when inflation, or real income growth, pushes taxpayers into higher income tax brackets. Bracket creep results in an increase in income taxes without an increase in real income. Many tax provisions—both at the federal and state levels—are adjusted for inflation. Over time, bracket creep can increase how much income tax people owe as their income grows, either due to inflat) 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 RTCI. On the wealth tax component, Guipuzcoa ranks 17^th, Álava 11^th, and Biscay 9^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 December 2025, the three Basque provinces indexed both the personal allowance and the income tax brackets to inflation. In addition, Gipuzkoa and Biscay also adjusted family allowances for inflation, while Álava had already increased them for the 2025 tax year.

However, all three provinces could benefit by increasing the earned income tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income rather than the taxpayer’s tax bill directly.. This would ensure that workers earning the minimum wage in 2026 would not be required to pay income tax. They could also reform their inheritance taxes, as they are tied for 12^th place on this component of the RTCI. Additionally, Guipuzcoa could improve by raising the wealth tax threshold to the level applied in Biscay and reducing the tax rate.

Canary Islands

The Canary Islands climbed to 5^th place, reclaiming the position it had ceded to La Rioja the previous year. The increase is largely attributable to the region’s decision to index its income tax to inflation. The Canary Islands could improve its score by introducing a wealth tax credit equal to the difference between the regional wealth tax liability and the solidarity wealth tax liability. It could also reduce personal income tax rates by 3 percentage points and bring the combined top marginal tax rate to 47.5 percent, in line with Germany’s. In addition, it could further improve its system by automatically indexing the income tax to inflation.

The Five Lowest-Ranked Regions in This Year’s RTCI

15. Galicia
16. Castilla La-Mancha
17. Aragon
18. Asturias
19. Catalonia

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

Catalonia

Catalonia, which has not enacted any significant tax reforms in 2026, continues to rank last and to levy twice as many regional taxes as any other autonomous community. Catalonia has some of the worst-structured individual income, inheritance, and wealth taxes.

Asturias

Asturias still ranks 18^th in the 2026 RTCI, as its 2026 personal income tax reform had a negligible impact on its ranking. The reform lowered the bottom tax rate, increased personal and family allowances, and expanded the childcare tax credit, while raising taxes on higher-income earners. 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 2026 RTCI. 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.

Castilla-La Mancha

Castilla-La Mancha dropped one place in the ranking, to 16^th overall, reflecting the absence of significant tax reforms and the improved performance of the Valencia Community.

Galicia

Galicia dropped two places in the 2026 RTCI to 15^th overall, overtaken by the Valencia Community and Navarre. To strengthen its competitiveness, Galicia should repeal the tourist tax and fully exempt wealth tax by increasing the current 50 percent relief to 100 percent.

2026 Regional Tax Competitiveness Index Ranks, Component Tax Ranks, and 2025-2026 Changes

Source: 2026 Spanish Regional Tax Competitiveness Index

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

Valencia Community

The Valencia Community climbed two places to 14^th overall, overtaking Galicia and Castilla-La Mancha. The improvement was driven by tax reforms affecting personal income, wealth, inheritance, and property transfer taxes. In July 2026, the Valencia Community reduced the personal income tax rates across all brackets and approved further rate cuts to take effect in 2027. Property transfer tax and stamp duty rates were slightly reduced under reforms approved in 2025 that took effect in July 2026. For the second year in a row, Valencia reformed the wealth tax by raising the exemption threshold from €1 million to €2 million. It also introduced a 25 percent inheritance tax relief for certain extended family members, rising to 50 percent from June 2027.

Despite these reforms, Valencia still has some of the most burdensome wealth and income taxes in Spain. Valencia’s overall (central and regional) top marginal income tax rate stands at 53.85 percent, the fourth highest in Europe, after Denmark (60.5 percent), France (55.4 percent), and Austria (55 percent).

Navarre

Navarre moved up two places over the past year to 12^th overall, driven by personal income tax reforms. For 2026, the threshold for the €1,400 employment income deduction was increased from €10,500 to €12,500, while the personal allowance was raised by €1,280 for taxpayers earning up to €17,500. Despite these improvements, further measures could enhance Navarre’s tax competitiveness. Navarra should reduce the tax burden on incomes above €35,000, increase personal and family allowances, cut income tax rates across all brackets, and reduce the top marginal rate to 47.5 percent, to align it with Germany’s top marginal tax rate. Annual indexation of tax brackets, allowances, and employment income deductions to inflation would also help prevent fiscal drag.

Balearic Islands

The Balearic Islands climbed one place to 11^th place overall, due to the decline of Castile and Leon in the ranking. Nevertheless, the region still requires further reforms, particularly in personal income taxation, as well as lower rates for the property transfer tax and stamp duty, to strengthen its fiscal competitiveness.

Castile and Leon

Castile and Leon dropped two places to 13^th overall due to an RTCI methodological change: its environmental impact tax is now counted as four separate taxes instead of one, improving comparability with other autonomous communities.

La Rioja

La Rioja dropped one place to 6^th overall after being overtaken by the Canary Islands following the latter’s income tax reforms.

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