If you live in Mallorca or plan to bring a car to the island, you should look beyond Palma when registering your vehicle. Hidden in the picturesque Serra de Tramuntana, the tiny municipality of Escorca has become an unusual magnet for companies looking to save on Spain’s annual vehicle tax. In fact, this secluded mountain village is now among the top “tax havens” for car registration in the entire country.
Escorca: The Tax Haven Phenomenon in Mallorca
With just over 200 inhabitants, Escorca registered an impressive 3,599 company vehicles in 2024 – up from 2,104 the previous year. That’s 17.7 cars per inhabitant, a figure that surpasses even some major urban centers. The reason for this surge is simple: registering a car in Escorca is far cheaper than in Palma or most other parts of Spain.
According to the latest report from Automovilistas Europeos Asociados (AEA), registering a standard car (with 11.99 fiscal horsepower) in Escorca costs just €35. In contrast, the same car registered in Palma is taxed at €68.16 – almost double. If your vehicle has more than 20 fiscal horsepower, the difference widens: Escorca charges €112, while Palma demands €224. Motorcycle owners also benefit; for example, a 600cc motorcycle costs €31 to register in Escorca, compared to €60.58 in Palma.
These savings have made Escorca a hotspot for rental and leasing companies, many of whom base their fleets there to cut costs. And it’s not just Escorca – several other small towns across Spain are seeing similar trends. Indeed, La Hiruela, a municipality near Madrid with only 83 inhabitants, registered over 4,000 vehicles last year, leading the national list with an astonishing 50.4 cars per inhabitant.
Palma: One of Spain’s Most Expensive Cities for Car Tax
Palma, meanwhile, is among Spain’s most expensive provincial capitals when it comes to the Impuesto sobre Vehículos de Tracción Mecánica (IVTM) – colloquially known as “el numerito.” With a fee of €68.16 for a mid-range car, it’s on par with cities like Barcelona, Tarragona, Granada, and Huelva. Only a handful of places charge more: San Sebastián leads with €87.90, followed by Bilbao (€71.45) and Vitoria (€74.31). Larger capitals like Madrid (€59), Valencia (€58.87), and Seville (€61) are significantly cheaper. Santa Cruz de Tenerife is the cheapest capital at €34.08 – even beating Escorca by a few euros.
A Fragmented System: The Cause of Discrepancies
Why such large differences? Spanish tax law sets a national minimum rate for the IVTM but allows municipalities to adjust the rate at their discretion. They can also grant discounts of up to 75 percent, depending on engine type or environmental criteria.
AEA argues that this flexibility “distorts the original purpose of the tax system” and has transformed dozens of towns into tax havens, as companies register their fleets where rates are lowest – regardless of where the vehicles are actually used. The result is a patchwork with price differences of up to 900 percent between municipalities. Critics warn that it is unfair to residents who end up paying more for the same type of vehicle simply because of where they live.
The Vehicle Mechanical Traction Tax (IVTM), introduced in Spain thirty-five years ago to replace the motor vehicle tax, generates annual revenues of approximately €3,900 million for local tax authorities. For passenger cars, the tax is based on the vehicle’s fiscal horsepower, and for motorcycles, on their displacement. It is more complex for trucks and buses, where weight and number of seats determine the tax amount, always in accordance with a minimum rate set for the entire national territory, with the exception of the historical territories of the Basque Country and Navarre.
However, the law allows municipalities to increase these fees at their discretion, up to double the minimum rate, a situation that, according to the AEA report, occurs in 7 of the 52 Spanish provincial capitals. The law also allows for discounts of up to 75% depending on the fuel type and characteristics of the engines, and even exemption from the tax for historic vehicles and vehicles older than 25 years, thanks to an amendment introduced by AEA in the Local Finance Law in 1999. Since then, hundreds of thousands of motorists have saved on paying this tax to preserve a heritage that is part of a specific era of automotive production.
For example, a motorist from San Sebastian pays almost 50% more for their car’s municipal tax than a motorist from Madrid, or 158% more than a motorist residing in Tenerife. However, when compared to a motorist registered in one of the “25 tax havens” existing in Spain, the differences can be up to 900%. This is one of the conclusions of the study by the AEA drivers’ association, which once again analyzes the large differences in taxation in Spanish municipalities regarding the Vehicle Mechanical Traction Tax (IVTM) and the existence of these true “tax havens.” “It is this discretionary power of the municipalities,” says the AEA in its report, “that has allowed the purpose of the local tax system to be distorted and has led to the creation of true ‘tax havens’ in Spain regarding the payment of a tax to which more than 38 million taxpayers are obliged.”
The report points out, for instance, that a medium-type vehicle with 11.99 fiscal horsepower pays €34.08 in Santa Cruz de Tenerife city council; €59 in Madrid, €68.16 in Barcelona, and €87.93 in San Sebastián. That is, 158% more expensive in San Sebastian than in Tenerife. Among the most expensive municipalities, AEA also lists Vitoria, Bilbao, or Barcelona, in addition to San Sebastián. Conversely, among the capitals that could be considered “tax havens” are Santa Cruz de Tenerife, Melilla, Ceuta, Zamora, Palencia, Badajoz, Cáceres, and Jaén.
However, the differences in rates do not only occur between the provincial capitals of the different autonomous communities but also between the municipalities of the same province. For example, the rate charged by the Madrid municipalities of La Hiruela, Patones, or Las Rozas de Puerto Real is seven times cheaper than that in the capital, Madrid.
40% of Registrations in Ten Small Municipalities
This fact has led many rental and leasing companies to concentrate the registration of their fleets in small municipalities where they have opened branches due to favorable tax treatment. In return, they win the “lottery” every year for the revenue they receive from the vehicle tax for cars that do not even circulate, and will never circulate, in that town.
AEA explains that the origin of this “tax haven” phenomenon began as a result of the abolition of the provincial code from Spanish license plates in September 2000, which allowed owners of large vehicle fleets for car rental and leasing to concentrate the registration of their vehicles in municipalities with low taxation.
This is the case for ten municipalities (Moralzarzal, Venturada, Navacerrada, Las Rozas de Puerto Real, Robledo de Chavela, Brunete, Collado Mediano, and Patones in Madrid; Finestrat in Alicante; and Tejeda in Gran Canaria) – with populations between 600 and 15,000 inhabitants – where approximately 39% of the total company cars in Spain are registered due to their privileged tax treatment. This accounts for 220,006 passenger cars out of a nationwide total of 562,538 units.
The report includes a list of 27 municipalities where the number of newly registered vehicles exceeds the number of registered inhabitants, thus reaching a motorization rate far exceeding that of the USA or Japan, such as the Madrid municipality of La Hiruela with 83 inhabitants, where 50 vehicles per inhabitant were registered last year.
What Does This Mean for Expats?
For expats who have settled in Mallorca – or plan to stay long-term – it’s worth considering where you register your vehicle. Even if Escorca isn’t your daily destination, its extremely low tax rates can save you hundreds of euros over the years, especially if you own more than one vehicle or drive a high-powered car or motorcycle.
While this tactic is most beneficial for companies with fleets or leasing companies, it also highlights a broader reality: not all taxes are equal in Spain. So, before you head to Palma’s traffic office, research car tax rates in surrounding municipalities – your bank account will thank you.
