Small-scale freelancers in Spain are stuck between a rock and a hard place when it comes to declaring tax. Generally, if you’re setting up business, it comes down to a choice between declaring everything as legally required (including full social security payments, VAT and IRPF) and bearing a heavy tax burden or declaring nothing and working “en negro”.
However, not many small business owners are aware that there is actually a third option when it comes to making tax declarations in Spain. A “cooperativa” (or co-op) is a legal way to join up with others and pay a slightly smaller amount of your earnings as tax. The rise of internet-based working and increased amounts of Spanish freelancers have lead to an explosion of this sort of business. Legislation hasn’t quite caught up, meaning that although things are liable to change quickly they are currently legal.
How do Spanish “cooperativas” work?
Essentially, rather than being signed up as self-employed, you are legally a partner in the cooperative. This means:
- You can generate invoices for clients without having to sign up as self-employed
- You pay standard (variable) levels of IRPF (income tax) retention, rather than the flat rates freelancers pay. These are far lower for low earners.
- You only have to make social security payments for the days you actually work – i.e. if you only work 3 days in a month, you only pay for these days. “Officially” self-employed workers need to pay social security for the whole month.
Depending on the cooperative, there’s also frequently other non-monetary benefits, including legal support, help making declarations and access to the cooperative’s network of contacts.
You do normally need to pay a subscription fee, so if you’re earning higher amounts and doing paid work on a more regular basis, the benefits start to even out and being signed up to a cooperative is no longer profitable. The sweet spot seems to be if you’re earning just slightly over the Spanish minimum wage (those earning less should take a look at this article), which is a reality for many small business owners.
You can also sign up to a cooperative if you have another job and are just doing some extra work on the side, making this a very viable option for those looking to supplement their daytime earnings and still be able to generate legal invoices.
Text and photos by Penelope