The Impact of Corporate Taxation on Investment and Productivity

The Instituto de Estudios Económicos (IEE) has published its 2025 Tax Competitiveness Report, warning about the high tax burden borne by businesses in Spain. According to the report, Spain ranks as the fourth country in both the OECD and the EU with the highest reliance on corporate tax revenues: 48.8% of total tax revenue comes from taxes linked to business activity, well above the OECD average of 37.8% and the EU average of 39.4%. In the IEE's view, this excessive fiscal pressure represents a significant barrier to business investment — a key factor for boosting productivity and strengthening the competitiveness of the Spanish economy.

• While the global economy — and that of EU member states — has largely recovered from recent shocks such as the pandemic and the energy crisis, long-term fiscal pressures persist. Public budgets remain burdened by the residual costs of these crises, and structural challenges — including an ageing population, accelerating digitalisation, and the imperative to address climate change — will continue to weigh heavily on public finances.
  
  According to the report, any tax reform should strike a careful balance between the marginal gains of raising additional revenue from the business sector and the potential downsides: deterring investment, reducing job creation, and weakening economic growth.
  
  
• Corporate tax burden in Spain is among the highest in Europe and the OECD. Spain ranks as one of the countries with the heaviest business tax pressure, based on several indicators cited in the report:
  
  
  • Revenue from Corporate Income Tax and employer social contributions represents 33.8% of total tax revenues, compared to 26.1% in the EU, and reached 12.3% of GDP in 2023, which is more than three percentage points above the EU average.
  • Spain’s total corporate tax contribution as a share of GDP stands at 17.8%, exceeding both the EU average (14.8%) and the OECD average (12.8%). This places Spain among the countries with the highest business tax burden relative to the size of its economy, surpassing comparable economies such as Germany (15.3%), Sweden (15.7%), and the Netherlands (15.7%).
    
    
• The complexity of the Spanish tax system imposes additional compliance costs on businesses. Spain’s tax framework is significantly complex — 16.5% more than the EU average and 9.9% more than the OECD average. Compliance costs, particularly for small and medium-sized enterprises, can amount to 29% of the total tax collected. The report recommends simplifying tax regulations — by reducing exemptions, digitalising processes, and improving legal clarity — to lower compliance costs, boost investment, and strengthen trust in the tax administration.