Freelancers and self-employed workers in Spain have to pay income tax and VAT on profits, as well as make social security contributions.
If you register as a freelancer or self-employed person living in Spain, you will pay taxes at the same rates as everyone else. But how and when taxes for freelancers in Spain are paid depend on what type of work you are doing. Furthermore, social security contributions from new freelancers are now set at a lower rate for the first 12 months.
When you register with the Spanish tax office and social security, they will ask you to categorize your business for this reason. Independent professionals (profesionales autonomos) usually pay through a retention (retencion) system whereby customers keep back a percentage of the invoice to pay to the tax office on your behalf. Business or trading self-employed people (empresarios individuales) usually pay 20% tax up front every quarter themselves. Setting yourself up as a freelancer or a self-employed person living in Spain Read doesn’t have to be a difficult process.
Freelancers and the self-employed in Spain also have to make contributions to the Spanish social security system through the Special Regime for Autonomous Workers (Régimen Especial de Trabajadores Autónomos or RETA).
Below is an explanation of taxation and the social security system for self-employed workers and freelancers in Spain. The information contained in this article is a guide only and you should seek specialist advice regarding your specific circumstances.
Paying income tax in Spain
Freelancers and the self-employed pay Impuesto sobre la Renta de Personas Físicas (IRPF) or personal income tax at the same rate as everyone else. As an autónomo, you need to declare your income every three months.
For example, in January, you declare your income for the October to December period. Then every April, you must complete two forms: one for the past three months and one corresponding to the previous tax year. This tax return (Declaración de la Renta on Modelo 100) summarizes how much tax you have paid during the year. The only way you would be exempt from having to make the declaration would be if you had three consecutive months with no work activity. For more information on tax rates, personal allowances and tax returns, see Expatica’s guide to taxation in Spain.
IRPF for freelancers and the self-employed can be calculated in two ways:
- Estimación Directa, which calculates tax based on your own profits;
- Estimación Objetiva, which compares your profits to the standard profits in your sector to calculate a tax payable in modules (this is the less common option).
Depending on the nature of your work, you may then pay the tax in two different ways: withheld tax or retention of income (retenciones) and up-front payments.
Filing US taxes from Spain
Despite the fact that every US citizen and Green Card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so.
Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. You do! For more information and help filing your US tax returns from Spain, contact Taxes for Expats and see our Guide to taxes for American expats.
Withheld tax or retention of income (retenciones)
If you are an autónomo offering professional services, or forestry or agricultural services, whenever you invoice another autónomo or business in Spain, that business has to retain a percentage of your invoice to pay to the tax office as advance income tax on your behalf.
In 2019, the retention rate is 19% for EU/EEA residents if the country of residence of the recipient exchanges tax information with Spain (24% for non-residents). The rate is reduced to 7% for the first two calendar years of business. For women under 35 and men under 30, the reduction continues for the first three years.
The withheld amounts are credited to your tax bill. If you de-register from the system (dar de baja como autónomo), you lose the reduction benefit for two years.
There is no retention if you are invoicing a private individual, a business outside Spain, or if you are a trading autónomo (empresario individual).
Advance tax payments in Spain
Unless 70% of the people you work for are businesses that are paying retained tax on your behalf (see above), you will have to complete Modelo 130 every quarter and pay 20% of your profits to the tax office as advance tax payments.
If you are paying tax under the modular system (estimación objetiva) then you have to use Modelo 131. The form must be completed between the 1st and 20th day of each quarter: January, April, July, and October.
You can claim deductions on your tax return for the following, provided you have a proper invoices and receipts:
- social security contributions;
- expenses such as accounting and tax services;
- professional subscriptions;
- office expenses;
- phone and internet;
- any vehicles that you use for work.
Paying social security in Spain
If you are earning more than the annual Spanish minimum wage as a self-employed worker or an autónomo, you will have to pay social security contributions. If you are eligible and don’t pay social security, you won’t get the benefits. These contributions entitle you to health care and, after you’ve paid into the scheme for 15 years, a pension. You can pay more than the basic amount to get a higher pension, or make additional contributions to be covered for accidents or sickness at work.
In 2018, changes were made to encourage more people to register as autónomos. The monthly contributions for new freelancers was cut to just €50. It then rises to €137 for months 13–18 (50% reduction), €192 for months 18–24 (30% reduction) and after 24 months it reverts to the standard rate. For women under 35 and men under 30, the reductions continue for three years.
Most autónomos pay a flat rate of around €275 a month, no matter how much or how little you earn. You have to make the payments even if you don’t earn anything one month, so make arrangements to cover payments if necessary.
It is sometimes possible to pay less. For example, if you have not registered as an autónomo in the past two years, you can re-apply for the same discounts a new autónomo would receive. Women returning after maternity can claim 100% discount for 12 months. If you work in a full-time job and freelance in your spare time, you are entitled to a 50% reduction in social security contributions for the first 18 months, then a 25% reduction.
Another new regulation allows freelancers who work from home to claim up to €26.67 per day for food expenses if you need to eat away from home for business, as long as you pay by credit card or electronic payments and can produce the receipts. They can also claim up to 30% off internet and utility bills, providing they registered their home address as their centre of economic activity when they registered as an autónomo.
If the autónomo also partially uses a vehicle for business, 50% of their expenditures on it are deductible for income tax and VAT.
You have to pay 21% IVA (Impuesto sobre el Valor Añadido) however low your annual turnover is, although some goods and services such as educational services are exempt.
You have to pay VAT every January, but have to report your VAT every quarter and also complete an annual IVA (VAT) declaration or Modelo 390, which you can do online through the Agencia Tributaria. If you provide exempt services, you don’t have to submit a VAT return and you cannot reclaim VAT on your own costs.
VAT within the EU
You may be exempt for paying VAT on goods and services if you are dealing with business customers (i.e., VAT registered) outside of Spain but within the EU, as they pay the VAT at their country’s rate at their end.
If you intend on doing this, you need to register this with the Agencia Tributaria to receive a special tax number, and will need to make quarterly declarations about your intra-community business. As of January 2018, if you are selling digital services to consumers within the EU, you now have to charge VAT at the rate of your customer’s country.
Keeping records and documentation
You will have to keep careful records for income tax and VAT – not only for submitting your quarterly tax records but also in case you are ever audited or want to claim any tax reductions. Keep copies of all your invoices (facturas) and all your receipts.
Spanish invoices should include the following information:
- Your business name
- Address and contact details (phone, e-mail, website)
- Your business ID number (NIE or DNI number)
- Description of your product or service
- Invoice amount, including VAT (IVA) if applicable
- Terms of payment and how you would like to be paid (e.g., bank transfer, with account number)
- Agencia Tributaria, the Spanish tax authority, for information on all aspects of tax in Spain for individuals and companies.
- Spanish social security for information on social security.