Self-Employed Tax & VAT
The combination of good infrastructure, an educated workforce and nice weather is making Spain an attractive location for many expat freelancers. There are, however, many misunderstandings with the self-employed regime in the country.
At Del Canto Chambers, we can help you understand the advantages and disadvantages of choosing this line of work. Most of all, because the responsibility for registering and filing the right forms falls onto the self-employed individual. For many foreign expats, the first visit to the Tax Authority and other governmental websites can be quite daunting.
What Is the Self-Employment Regime Like in Spain?
The main idea is the following: every single person who makes earnings from freelance assignments, as a contractor or managing a small business, irrespective of their sector, must be registered as Autónomo (self-employed in Spanish). It should be noted, though, that some individuals who earn below a threshold do not have to register. For example, if a retired individual collaborates sporadically with a local business, making less than the monthly minimum wage, it is likely they will not have to register. There are many myths about the Spanish self-employed sector, such as workers’ reluctance to register and widespread abuses of the system. However, in past years the State is more and more able to supervise that taxpayers are following the rules and there are fewer pockets of “informal activity” across the country.
By registering as self-employed, you can ensure that all of your payments are properly accounted for. Besides, you are allowed to run your own business as a company but without the many requirements (money and otherwise) imposed to limited companies. For many British and other foreigners seeking to try a line of business in Spain, it is the quickest way to understand an idea’s market potential. This does not mean, on the other hand, that becoming Autónomo is entirely cost-free.
First, as any other EU-based business, you must apply a VAT (Value Added Tax) to your services. As with income tax, there is a degree of responsibility: you are supposed to add the corresponding rate to your services, and later declare your earnings. This rate can be of up to 21%; different industries have different rules. Then, you have to take care of Income Tax which, as described on its own section, can also be challenging understanding. Finally, you have to pay Social Security, which is usually adjusted to the length of time of your activity. There are different time periods during which these payments must be taken care of. This is why many Spaniards actually hire gestores to manage their payments. Missing key deadlines can mean some significant fines: as a foreigner, professionals at Del Canto Chambers will be happy to advise you on the best way to avoid these issues as you set up shop in Spain.
What Are My Legal Obligations As a Self-Employed Individual in Spain?
Generally, under current legislation, there are certain essential responsibilities as a registered self-employed individual in Spain. First, you must regularly submit social security, tax and VAT returns. You should keep proper records of all of your invoices and other interactions with customers and clients. Plus, all of your records should be drafted according to Spanish accounting standards.
Recently, the government has attempted to simplify bureaucracy and costs when becoming self-employed. Payments like energy expenses at home, transport costs or the flat registration rate have been reduced. There are other interesting deductions, such as those involving food expenses away from home. It is also easier than ever to close shop. Again, it is best to carry out (at least) your first year or so of operating as self-employed with the help of legal experts.
Will I Need a Specific Licence to Conduct Business in Spain?
Like many other tax-related issues in Spain, this depends on geographical location. At Del Canto Chambers, our legal team is aware of the different status of professionals across the country. For example, any business which welcomes the public will require an opening license from local authorities. The license is granted after an inspection. At the same time, if you work from home you are not likely to require any licenses.
As in any other countries, there are specific tax deductions that can be applied to vital business equipment, even if you work from home. Finally, there are special rules for certain businesses, as it is expected. Educational establishments, registered professions and others will generate additional requirements from authorities.