How much tax do the self-employed pay in Spain and what other costs are there?

Spain, renowned for its sun-drenched beaches and majestic historic buildings, also offers a favourable environment for self-employed workers and entrepreneurs. But before launching into self-employment in Spain, it's important to understand the fiscal implications and additional costs. Here's an overview.

Self-employment Taxes & Fees in Spain

In Spain, self-employed workers, known as autónomos are subject to two primary types of taxes: Income Tax, in Spain this is called IRPF - Impuesto sobre la Renta de las Personas Físicas, and Value Added Tax which is called IVA - Impuesto sobre el Valor Añadido.

Income Tax (IRPF)

Income Tax in Spain is progressive as in most countries and the amount you pay will depend on how much you earn. Please note, that if you are new to self-employment, you can benefit from a reduced flat rate of 15% in your first two years. For 2023, these are the current applicable rates:

Value Added Tax (IVA)

IVA is charged for sales and services in Spain. The standard rate is 21%. However, certain products and services are subject to reduced rates of 10% and 4% or are exempt. You should consult with your tax expert to clarify your situation. Unlike in other countries, in Spain, all self-employed workers are value-added tax registered, no matter what their income level is.

Social Security Contribution Fees

As a self-employed individual, you'll pay monthly contributions to the Social Security system based on your annual net earnings. This new system was introduced in 2023 which ties your fee to your real net income and will be determined by your average net monthly income.

If you begin your self-employment activity, starting from January 1, 2023, you must report all activities you engage in as an autonomous worker to the General Treasury of Social Security. This registration can be carried out online through the Social Security Portal Importass.

If you have a variation in your net earnings throughout the year, it will be possible to select a new contribution fee every two months with a maximum of six changes per year.

The fee for social security, or monthly cuota as they refer to it in Spain, ranges from €230 per month to €500 per month. However, there are significant discounts available for new autónomos, particularly during their first year of operation. You are eligible for a flat rate (tarifa plana) of €80 per month for the first 12 months. In the following 12 months, you will be able to continue paying the 80 euro monthly fee as long as your net income is below the Minimum Interprofessional Wage (SMI). Once the 80 euro flat-rate period has elapsed, you will join the new tiered contribution system based on your actual income. In the table below you can see the progressive fees for 2023. However, if you would like to calculate your monthly fee or get an up-to-date estimate, you can use this calculator provided by the Spanish Social Security.

Other Costs of Being Self-Employed in Spain

Taxes and fees are the expenses shared by all self-employed individuals, but there are other common costs as well.

Accounting or Management Services

This expense can be considered almost a fixed cost, since few self-employed individuals handle their own accounting. It's essential to have a team of licensed and certified professionals managing your business. Choosing the wrong agency may lead to fines and penalties, and even loss of grants and incentives. Their main job is to advise all types of businesses, analyse their accounts, and evaluate their performance. These services can also extend to legal services depending on your industry.

Renting a Workspace

If you plan to open a physical business, you'll need a workspace, so this cost should be factored into the overall expenses of being self-employed. The rent depends on the city and the area. If you're seeking alternatives, consider coworking spaces or starting your business from home.

If you work from home, household utilities can be deducted at the rate of 30% of the proportion of your home used for work. It's necessary to report in an 037 form that you work from home and to have an invoice from the utilities company with your information on it.

In the case of working from home, property ownership expenses (such as loan amortization, property tax, and other fees) are deductible in proportion to the part of the property used for your business activities and the percentage ownership of the property you have as a self-employed individual. In other words, if you own 50% of the property and allocate 40% to your home-based business, the deductible expenses are 40% of 50%.

Liability Insurance

Liability insurance, also known as RC (Responsabilidad Civil), covers self-employed individuals against third-party liability arising from professional activities. It is impossible to control everything that happens; unexpected events, negligent actions, or accidents may lead to having to pay a large sum of money to a third party. This is where liability insurance comes in. The price varies depending on the type of work.

Banking Fees

Banking fees are another expense to consider. These include account maintenance fees, transaction fees, and point-of-sale (POS) device fees, both physical and online. Each bank offers different conditions, so it's worth analysing them to select the one that best suits your needs.

Telecommunications and Internet

In order to deduct these expenses, they must be used exclusively for business purposes. Generally, self-employed individuals are required to have two phone lines: one for personal use and one for work.

Employees

If you need help, you will have to hire another person. The cost of hiring a worker varies greatly depending on salary and other variable factors, so it is best to consult a labour expert, known as a gestor in Spain, to assess the exact cost of hiring a worker for your business.

Licenses and Permits

Some business activities require specific permits or licenses which need to be applied for at your local council or Ayuntamiento as it is called in Spain. The cost of obtaining these may differ based on the nature of your work.

In summary, all expenses related to your business activities are deductible, although some are easier to deduct than others. Being self-employed in Spain can be a fulfilling choice, but it does come with its own set of financial responsibilities. Understanding these financial implications – from tax obligations to other additional costs – is key to successfully navigating the world of self-employment. If you feel you are ready to embark on a business venture in Spain or relocate as a digital nomad, why not start looking for your new home now?