How Spanish companies are helping their employees pay less tax
A new movement is emerging in the Spanish business world: companies paying an increasing part of their employees’ salaries not in money, but in non-taxable benefits.
In Spain, deductive personal income tax exemptions apply on up to 30 percent of your annual gross salary, and by redirecting some of it to non-taxable benefits, such as transport tickets and gym memberships, companies not only allow their staff to pay less income tax but also decrease their overall wage commitments.
According to Borja Aranguren, CEO of Cobee, an employee benefits platform, “companies are trying to find new formulas to help the workforce, trying to alleviate the ravages of the inflationary landscape with measures such as flexible remuneration plans, which allow different social benefits such as restaurant tickets, transport, childcare or health insurance to be deducted, to name a few”.
Essentially employers and employees agree on a plan, deciding which non-taxable benefits they want to include and the amount of their salary that they want to be put towards each of them.
As personal income tax exemption extends to 30 percent of the gross annual salary, part of the salary (whether the full 30 percent or less, depending on the package) is not paid in salary but spent on services such as food in restaurants, childcare, transport, all of which are exempt from personal income tax.
This can make significant savings on the income tax return, something which could, in the future, potentially move the employee down a tax bracket.
So how much could someone on a ‘flexible remuneration’ package actually save on their tax return?
Take for example someone who receives an average salary of €1,922 a month. According to Cobee, they could save an average of €1,021 per year on their income tax declaration, since most of these plans offer benefits with significant tax exemption opportunities.
Flexible remuneration plans “are a highly recommended option to reduce the payment of taxes through personal income tax,” Aranguren says, and “it means a substantial improvement in the net available salary without skyrocketing the labor costs of the companies”.
As a result of this, these types of packages are growing in popularity across Spain. According to the report ‘Trends in Benefits for Employees 2023‘, 36 percent of employees say that their companies have offered them some kind of flexible benefits.
In fact, the majority of the people interviewed for the report claimed that if offered two jobs, they would opt for the job with a lower salary but more benefits.
According to the findings of the report: “If they were offered in a job interview €50,000 gross per year without any benefits and another of €48,000 gross per year plus health insurance, gym subscription and restaurant tickets, 81 percent would take the second”.