Dreaming of life as a freelancer in Spain? If you’re reading this you’re likely self-employed and you’ve probably applied for or are about to apply for the new Digital Nomad Visa. As of 2023, Spain is fast becoming a magnet for digital nomads and entrepreneurs alike, thanks to its fantastic weather, attractive lifestyle and fairly low cost of living. However, you may be left wondering, what is it actually like to be self-employed in Spain?
Navigating the Spanish tax system can be a bit of a challenge, especially if you're new to the landscape. This country is undeniably known for being a bureaucratic maze and for good reason.
In this post, we'll answer some of the most common questions about self-employment in Spain (in Spanish, autónomo), including taxes, Social Security, the role of a gestor, VAT, and expense deductions.
What taxes will I have to pay as self-employed in Spain?
1. Income Tax
As an autónomo in Spain, you'll be required to pay income tax, known as IRPF (Impuesto sobre la Renta de las Personas Físicas). You’ve probably read lots of headlines making bold claims about Spain being a new tax haven for digital nomads and flat-rate taxes. Click here to read our blog on why, despite the headlines, this is not exactly the case for most applicants.
The reality is that for most people making fairly “average” earnings, i.e close to the minimum salary necessary to get the visa, they will likely be on the same tax setup as all other self-employed people in Spain. The tax rate is progressive, ranging from 19% to 47% based on your income.
Spain's tax year runs from January to December. You'll need to submit a quarterly tax return and a summary at the end of the year (in Spanish, la declaración de la renta). These are known as Modelos 130 and 100, respectively. Remember, they are mandatory and you need to submit them even if you haven't made any income during a particular quarter.
2. Social Security
Social security contributions are mandatory for freelancing individuals in Spain. These payments provide you with access to healthcare and a state pension in the future.
There are discounts available for new self-employed, such as a flat rate of €80 per month for your first 12 months. From month 13 onwards, as of 2023, there is now a sliding scale for contributions directly relating to how much you earn on a monthly basis. You will need to predict how much you are going to make and inform the General Treasury of Social Security of this to determine how much you pay in social security. You or your gestor can change this amount up to 6 times a year with the Treasury.
The minimum contribution in 2024 is €230 per month, based on a monthly net profit of up to €670, while the maximum is €530 per month for earners with a monthly net profit of €6000 or more.
Do I need to hire someone to help with taxes?
While you may be used to doing your own taxes in your home country, in Spain the majority of autónomos hire a gestor, a professional who can help you navigate Spain's administrative and bureaucratic processes. While hiring a gestor isn't mandatory, it can be incredibly helpful, especially if your Spanish isn't fluent or you're unfamiliar with Spain's tax system.
The cost of hiring a gestor can vary, but on average, you can expect to pay between €50 to €150 per month.
Will I need to charge VAT (IVA)?
Just like any other business, freelancers must charge 21% Impuesto sobre el Valor Añadido (IVA), or value-added tax, on top of the value of each invoice.. The standard IVA rate is 21%, but reduced rates of 10% and 4% apply to certain goods and services.
If you're providing digital services to consumers in other EU countries, the VAT rules can be more complex due to the 'place of supply' rules. In such cases, you might need to apply the VAT rate of the customer's country.
The good news: If you are providing services to customers outside of the EU, you won’t need to apply VAT to any invoices. This will be great for those on the Digital Nomad visa, the majority of whom will have clients located outside the EU.
Can I deduct expenses?
As an autónomo, you're allowed to deduct business-related expenses and VAT already paid from your taxable income.
Most self-employed workers are entitled to an annual flat allowance of the lower of 7% of profit and 2,000€ for expenses which are difficult to justify, e.g. the proportion of electricity or internet bills used in a home office.
Apart from this, all deductible expenses need to be directly related to your business activity and they must be appropriately documented with invoices and receipts.
Typical deductible expenses for self-employed digital nomads include office supplies, business travel, professional services, utilities for your home office (a proportion based on its size), and even meals with clients (under certain conditions).
What other deductions are available?
Every Spanish tax resident has a basic personal allowance of at least 5,550 euros and this can increase even more if the taxpayer has a dependent spouse, children, is over 65 or has a disability.
There are also numerous other deductions that autónomos can use to reduce the amount of tax they pay. Here are some examples:
Social security payments
Unlike in countries such as the UK, social security contributions are tax deductible.
Private health insurance
There's a deduction for both the autónomo, their partner and any children aged below 25 who live in the family home of up to a maximum of 500 euros per person.
Deduction of 20% of profit for new autónomos
This can be applied during the first two years of making a profit. There are two conditions:
- The reduction will only apply to the first 100,000 euros of profit. In other words, if you make more than 100,000 profit, you cannot apply the reduction to the excess.
- Over 50% of your income cannot come from an employer whom you worked for before becoming autónomo.
Contact us now to apply for the Digital Nomad Visa.
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