The structure of the Spanish fiscal system was profoundly modified in 1977 and 1978. Currently income tax rates are determined according to the 1996 division of competence between the central government and the provinces. The progressive schedule of rates applied to taxable income has six brackets: 18% up to €3,678; 24% on the next increment of income up to €12,874; 28.3% on the next increment of income up to €25,134; 37.2% on the next increment of income up to €40,460; 45% on the next increment of income up to €67,434; and 48% on the increment of income above €67,434. There is also a wealth tax with a maximum rate of 2.5%
The basic corporation tax rate is 35%. A reduced rate of 30% is applied to companies with annual turnover of less than €3 million. Capital gains are taxed at 35%. Dividends from one resident company to another are subject to 25% withholding.
The main indirect tax is Spain's value-added tax (VAT), introduced 1 January 1986 with a standard rate of 12%, a reduced rate of 6% and an increased rate of 33%. In 2002, under changes effective since 1 January 1995, the standard rate is 16% and there are two reduced rates: 4% on basic foodstuffs, pharmaceuticals, social housing and books, newspapers and periodicals; and 7% on food, water supplies, medical equipment, waste disposal, agricultural inputs, social services, medical and dental care, renovation and repair to private houses, hairdressing and public transportation. Indirect taxes include levies on inheritances, documents, sales, special products (alcohol, petroleum, and others), luxury items, and fiscal monopolies. As a condition of entry into the EU, Spain introduced a value-added tax on 1 January 1986. It replaced several taxes—such as the turnover, luxury, and equalization taxes—and coexists with the remainder. As of 1996, the VAT rate was 16% reduced to 7% and 4% for basic necessities.