Self–employment in Spain
Tax expert Susana Serrano-Davey discusses what it means to be 'autonomo' in Spain and offers tips on how you can sort out your taxes as a self-employed worker in Spain.
Before starting a business in Spain, think carefully about the implications from a compliance point of view. As setting up a limited company here is time-consuming and expensive, many people start their business as a self-employed person and set up a limited or SL company once the business is established.
If you decide to become self-employed, this is what you should expect:
Facts about being autonomo in Spain
As an autonomo in Spain you will have to pay your social security of EUR 235 each month. This will allow you to enjoy Spanish national healthcare system and a pension when you retire. You will therefore need to enlist the services of a gestor or accountant who can help register you with the hacienda (tax office) as being self-employed and do the quarterly and annual accounts.
If you are invoicing a company as an autonomo you may have to include Impuesto sobre la Renta de las Personas Físicas (IRPF) of 15 percent. This means the company you invoice retains the 15 percent of the tax on your behalf and pays it at the end of the year. You will have to pay the remaining 5 percent.
As an autonomo in Spain you pay tax and your VAT every quarter. Each quarter you may be required to pay 20 percent tax on your income (after expenses have been taken into account).
Before you start trading, it is essential that you register with the tax office to inform them that you will be commencing a business activity. This is because any expenses incurred prior to registration will not be tax allowable and as registering with the tax office is a legal requirement, failure to do so can result in a fine.
Registration is done via a census return which informs the tax office of the following:
- Name, address and identification number
- Date of commencement of trade
- Description of business activity
- Whether your activity is subject to VAT
- The type of profit calculation and taxation system applicable to your trade (some trades fall within business modules that are taxed at fixed rates regardless of volume of business)
- Whether you are obliged to present quarterly returns on your profits to date
- Whether you have business premises, and the address details if so
- Whether you will be importing or exporting and wish to be registered on the EU traders list
You must also register with the social security office upon commencement of trade as a self-employed individual and start paying your monthly national insurance contributions.
Do your research!
Many of the frustrations arising when starting in business in Spain are due to a lack of awareness regarding the local compliance system. Make sure you have understood all the aspects that are relevant to your particular trade before you start to minimize problems. If you have any doubts, be sure to consult a professional as this will greatly contribute to your chances of success.
As an individual, you are not obliged to maintain records which include a balance sheet. Your minimum obligation is to maintain records of all your sales and business expenses; in a way that meets the required standards. Of course, even though you are not obliged to maintain a balance sheet, you may benefit from it as it will help you manage your business more effectively.
Withholding tax on your sales
In some instances, your clients will be obliged to withhold some of your fees to be paid over to the tax office on your behalf as income tax. For example:
The standard rate of withholding tax in Spain for professional sole traders is 15 percent, however, during your first two years you may opt for 7 percent retention instead. Our advice is that if your profit margins are high and you are have difficulties setting money aside to pay your taxes, it is better to suffer a 15 percent retention as any balancing payments due will inevitably be lower.
As any other business you will need to report to the tax office on a quarterly basis by filing the relevant returns. In addition to the general obligations that apply to all businesses, you may be obliged to file a return disclosing your accumulated profits for the current year.
Income tax payments on account
Generally, when a profit has been made, you will need to pay the tax office 20 percent of these reported profits as a payment on account of your personal income tax. This may come as a surprise if you were used to making payments on account in your home country only twice a year. However, you may appreciate the benefits of this system as you are less likely to face large tax bills on an annual basis. A simple example of your quarterly tax return would look as follows:
Once the year has come to an end, you will have to file a personal income tax return. This return will combine all of your sources of income, including your business profits, and all of the tax reliefs you are entitled to as any other resident individual.
When your final tax liability for the year has been ascertained through this process, you will either have to make a balancing payment or request a tax refund.
A balancing payment will arise if your tax liability is greater than any payments on account already made through the system noted above. Bear in mind that the maximum payment on account suffered will have amounted to 20 percent of your business profits, and that the higher earners in Spain are taxed up to 43 percent.
A refund may be requested if the withholding tax suffered exceeded your liability once other reliefs, such as mortgage costs, have decreased your taxable base leading to an effective rate of tax below 20 percent.
Susana Serrano-Davey / Expatica
Expatica tax expert Susana Serrano-Davey is the founder and director of Rose & Clavel, an Anglo-Spanish chartered accountants based in Nueva Andalucia, Marbella. Her firm offers high-quality, professional and reliable accountancy services and innovative business solutions in English and Spanish. To ask her a question, click here.
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