IBI and IAE Compensation 2026: Distribution Criteria to Municipalities

Key data

Spanish municipalities do not collect all they could from IBI and IAE: state law requires them to apply exemptions on certain properties and activities, generating a loss of municipal revenue. To offset this impact, the State pays annual compensation to affected local entities.

The Resolution of April 13, 2026 from the State Secretariat for Finance establishes the technical criteria that determine how this compensation is distributed among municipalities for fiscal year 2026. The legal basis is the eightieth additional provision of the Law 31/2022, of December 23, on General State Budgets for 2023, which has been extended for this fiscal year.

What does this regulation establish?

The resolution sets the technical distribution criteria for the compensation that the State transfers to municipalities for mandatory exemptions in two local taxes:

• Real Estate Tax (IBI): exemptions on certain properties established by state law, which reduce the municipal tax base.
• Economic Activities Tax (IAE): exemptions on certain economic activities that municipalities are required to apply without being able to offset them through their own means.

The distribution criterion is objective: the compensation received by each local entity is calculated based on the potential revenue lost by that specific municipality. This means it is not a linear or per-capita distribution, but proportional to the actual impact that exemptions have on each municipality's finances.

This compensation is not new. The eightieth additional provision of Law 31/2022 established it for fiscal year 2023 and has been extended for 2026. The April 2026 resolution adapts the distribution criteria to the current fiscal year.

Economic and operational impact

For municipalities, this compensation represents a direct source of income to municipal treasury. Its importance varies depending on the volume of exemptions applied in each municipality: the greater the loss of IBI and IAE revenue resulting from mandatory exemptions, the greater the compensatory amount received.

From a budget planning perspective, this income must be anticipated and correctly budgeted. An error in estimating this amount can generate imbalances in municipal budget settlement or in short-term treasury planning.

The fact that compensation is based on objective parameters linked to lost potential revenue means that municipal managers must have well-documented and quantified the loss of income resulting from each exemption applied, both in IBI and IAE. This documentation is the basis on which the amount corresponding to the municipality will be calculated.

Who does it affect?

• Spanish municipalities and local entities that apply mandatory exemptions in IBI and IAE by state law mandate.
• Treasurers and municipal finance managers who must anticipate and budget this compensatory income for fiscal year 2026.
• Municipal comptrollers who must correctly reflect this income in accounting and budget settlement.
• Secretaries and comptrollers of small local entities, who in many cases manage these taxes with limited resources and need to know the expected amount for planning.
• Advisors and consultants in local administration who support municipalities in budget and tax management.

Practical example

A medium-sized municipality applies mandatory exemptions in IBI on state-owned properties, public educational centers, and certain properties of non-profit entities. Additionally, it applies exemptions in IAE on activities that state law excludes from the tax.

These exemptions mean that the municipality ceases to collect a certain amount that, without state compensation, would become a net loss of income. With the criteria established in the Resolution of April 13, 2026, the State Secretariat for Finance calculates the potential revenue lost by that municipality and assigns it compensation proportional to that impact.

The municipal manager who has well-documented and quantified those exemptions will be able to anticipate with greater precision the amount they will receive, incorporate it into the 2026 revenue budget, and avoid treasury tensions resulting from an incorrect estimate of this item.

What should municipal managers do now?

1. Review the Resolution of April 13, 2026 from the State Secretariat for Finance to understand the exact technical distribution criteria applicable to fiscal year 2026.
2. Quantify the potential revenue lost from mandatory exemptions in IBI and IAE in the municipality, as this is the objective parameter that determines the compensation amount to be received.
3. Incorporate the estimated amount into the 2026 revenue budget, under the corresponding concept of state transfers or compensation, to avoid imbalances in budget settlement.
4. Verify that the documentation of applied exemptions is updated and correctly recorded, as it is the basis on which compensation is calculated.
5. Coordinate with municipal comptroller to correctly reflect this income in accounting and in budget monitoring reports for fiscal year 2026.