Taxes, process, practical knowledge for Sole Proprietors/Self-employed in Spain
I am a Spanish “Autónomo” (sole proprietor, self-employed, private entrepreneur, independent contractor, freelancer, etc.) at the moment.
So, if you’ve read my other posts, you know that my job is to move in tax competent jurisdictions and publish the practical information on finance, banking, and immigration. Now, it is good to know, that Spain is not a tax paradise, but a tax hell for sole proprietors (and for the others too). There are available tax optimisation solutions in Spain, but the famous Tenerife-structure is not for everyone.
Why does it worth to become a sole proprietor in Spain?
It is not worth it, but sometimes it is the only and right choice. Forming a Spanish company is free and automatic, but the corporate tax is so high (35%), that it is just too expensive for some businesses. However, somehow you must legalise your status, during your stay in Spain as a resident. It means that you need a reason to live in Spain. You can buy real estate, or become employed or start your own business.
“Autónomo! You are a HERO” says the beer brand on my computer’s screen.
It is not a hard task to become self-employed in Spain. Still, it is much better to ask for professional help, because you can be natural born genius of official processes, but in Spain, you would quickly destroy your business if you don’t have the local know-how. Any accountant or lawyer can help you to set up your self-employed status.
Formation of sole proprietorship in Spain
I suggest that you should open a straightforward bank account in one bank. If you have an EU passport, the process is simple and straightforward. You can also open a non-resident account, even tourists can open Spanish bank accounts, but usually, the holder will need the NIE number (Número de Identificación de Extranjero), which is your Spanish tax identification number. You can get this number without any problem if you, for example, rent an apartment. I will write about the Spanish immigration process, and the “Autónomo” status helps a lot to become resident. The NIE number is inevitable; you will need it for all official procedures.
Obtaining the NIE number
You book a date on the site of the Immigration Authority. For example in Alicante here. You can find there the list of the necessary documents. You go, you get it and come out.
You should also find a good accountant, who speaks English. It won’t be easy, or the accountant will work one of those excellent international firms which will charge you a lot of money. A good accountant asks 30-120 euro/months. You should consult the scope of activities and fill in all necessary application forms.
Now, you can continue the process alone, but you will need a little Spanish knowledge, at least you should understand the language.
The next step is to open a business account, which takes app. 10 minutes in your bank.
The process of the issuing the documents of the Spanish sole proprietorship happens in two places. The first is the “Agencia Estatal de Administración Tributaria“, which is in the “Ministerio de Economía y Hacienda“. This is the Tax Department of the Ministry of Economy.
The other office is the Social Security in the Treasury (Tesorería General de la Seguridad Social). You will need to book a date for the Hacienda. The registration was fast for me; it took another 10 minutes. After all your documents got their stamps, you can continue. I managed to set up my business on the last day of the month, but they took off the amount of my social security contribution for the whole month immediately.
This was the process. However, you will also need a doctor.
Invoices of the self-employed entrepreneurs in Spain
Of course, you will need multiple invoices, depending on the concerned activities or to whom is issued. There are three basic types of invoices:
- for business within Spain with VAT
- for business in the EU without VAT
- for business outside of the EU without VAT. I asked the accountant for model invoices; it is easy to issue yours.
Taxation of the self-employed in Spain
Let’s start with the Social Security contribution. This feature is the secret appeal of being an “Autonomo”. This contribution starts with an acceptable fee, and it reaches its whole brutal amount after almost two years. It is only about 54 euros in the first six months; this amount is likeable. Then the monthly cost of the social security goes above 100 euros for another half year. After this period it reaches the monthly total of 264 if you pay the minimum.
The men entrepreneurs younger than 30 years and the women younger than 35 receive more 30% discount from the minimum amount for the first 30 months.
The new “Autonomo”, who have not previously applied for such status may request a rebate of 80% for the first six months, 50% in the next half year and another 30% during the following three months. Younger (-30 and -35) applicants should apply for the discount for more 15 months.
There are incentives for market traders and agricultural workers. I have no idea about these benefits, but I look forward to hearing your experiences.
If you pay your social security contribution only one they later than the limit, you will have to pay the whole amount, so you lose the discount immediately.
Paying the VAT is something severe in Spain. It must be reported on a quarterly basis as in the other EU jurisdictions, and if you don’t pay your burden in the 20 day period, you can count on a nasty punishment.
Classically-deductible expenses for tax purposes in the case of a self-employed in Spain
Well, it’s not that simple, you should seek advice from your accountant, before decreasing your taxes in Spain.
Some deductible expenses:
- social security contribution
- accounting fee
- membership in professional organisations
- part of your rent
- part of your utility bills
- office furniture
- software and Internet services,
- advertising and promotion,
- car or van
Income tax of the sole proprietors in Spain
This is a fixed flat tax of 20% after deducting the costs. You have to pay income tax in Spain quarterly, and it will be withdrawn from your business account.
Interestingly, most of the Spanish banks offer “pre-income tax loans“. It means that they lend you money to pay your taxes because the end of the year you can easily pay it back from your tax refund.
Practical example of the monthly finances of an average Spanish self-employed
Of course, all cases are different, but something like this will happen:
A family of four (two parents, two children), only one person works, who is the Autonomo. He receives 3000 euros on his business account for his work. He deducts some expenses, let’s say a total of 300 euros. He has now 2700 euros. Now he pays the social security contribution, at least 264 euros. He has 2436 euros and now comes the 20% income tax. The remaining amount for his family is 1949 euros to survive this month.
There is an elaborate tax refund system in Spain, after settling the last quarter.
After all deductions and refunds, the total tax burden of the average Spanish sole proprietor is 22,5%.
The Spanish Autónomo is entitled to several subsidies and financial assistance on state, national and EU levels. These solutions depend on the place of your business, but all communities have official pages for these programs, for example, there are these possibilities in Valencia.
Are you interested in moving to Spain? Setting up a business or buying real estate? Let me know your questions!