The Community of Madrid topped Spain's regional tax competitiveness for another year, while Catalonia finished last and levies twice as many regional taxes as any other autonomous community, according to the 2026 Spanish Regional Tax Competitiveness Index published by the Tax Foundation in collaboration with Fundación para el Avance de la Libertad. The report examined how well Spain's 19 regions structure their tax systems across individual income, wealth, inheritance, transfer taxes and stamp duties, and other regional levies. Madrid's score improved by 0.10 points as the gap with other autonomous communities widened, while Catalonia maintained the worst-structured individual income, inheritance, and wealth taxes in the nation.
The top five regions—Madrid, Biscay, Álava, Guipuzcoa, and the Canary Islands—distinguished themselves by scoring high across all five tax components measured. The bottom five regions (Galicia, Castilla-La Mancha, Aragon, Asturias, and Catalonia) obtained low marks in nearly every category, particularly on the three most heavily weighted: income tax, wealth tax, and inheritance tax. Following recommendations from previous reports, 11 regions now offer 99 percent tax relief for close heirs on inheritance taxes, up from fewer regions in prior years. Spain currently has the highest inheritance tax rate globally, with the top rate for unrelated or distant heirs reaching 87.6 percent—a level the report describes as confiscatory that pushes taxpayers to disclaim inheritances by selling assets.
La Rioja became the first Spanish region to enact automatic indexation of all tax brackets, personal allowances, and family allowances whenever inflation reaches or exceeds 3 percent, introducing a comprehensive mechanism to prevent bracket creep. In December 2025, the three Basque provinces indexed both personal allowances and income tax brackets to inflation, with Gipuzkoa and Biscay also adjusting family allowances. The Valencia Community climbed two places to 14th overall after reducing personal income tax rates across all brackets in July 2026 and raising the wealth tax exemption threshold from €1 million to €2 million for the second consecutive year. Despite these reforms, Valencia's combined 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).
The report identifies specific reform opportunities for regions seeking to improve competitiveness. Madrid could cut its top inheritance tax rate from 34 percent to 25 percent and abolish the factor that depends on pre-inheritance wealth and familial closeness to the inheritor. The three Basque provinces should increase the earned income tax credit to ensure workers earning minimum wage in 2026 don't pay income tax, while Guipuzcoa could raise its wealth tax threshold to match Biscay's level. Catalonia, which enacted no significant tax reforms in 2026, would benefit from comprehensive restructuring of its individual income, inheritance, and wealth taxes. The Canary Islands could introduce a wealth tax credit equal to the difference between regional and solidarity wealth tax liability, and reduce personal income tax rates by 3 percentage points to bring the combined top marginal rate to 47.5 percent—in line with Germany's rate.