Self Employed in Spain

If you’re an immigrant who’d like to start up a business in Spain, what are your options? Can you sign up as self-employed?

If you’re from the EU (“intracomunitario”, as it’s known in legalese), this is relatively simple (or at least, as simple as working for yourself in Spain can ever be). EU laws mean that everyone has the right to freelance in any of the member states.

But what if you’re from the States, Canada, South America or anywhere else in the world (“extracomunitario“)? What possibility do you have of working as self-employed then?

If you’re only planning on being away from your home country for a short period of time, you could sign up as self-employed and pay tax there. In the long term, however, you’ll probably want to be on the system in order to be able to use the healthcare and benefits system, and not signing up could actually be illegal. Do not fear, however – it is possible to work for yourself in Spain, even if you’re from another country – you’ll just need to show that you have the necessary resources to do so.

Process for foreign self-employed workers

If you’re coming from outside the European Union, in order to legally work for yourself in Spain, you’ll need to obtain a temporary work permit for those working for “cuenta propia” (for themselves). To do this, fill in Modelo EX07 and take it to the Spanish Consulate’s office in your own country of residence. Along with this, you’ll need to present:

• Your passport or equivalent (you must be over 16)
• Any criminal certification
• Bill of clean health (to show you don’t suffer from any of the IHR’s diseases subject to quarantine)
• Any professional qualifications you would need to carry out the business activity you propose (university degress, diplomas, etc.)
• Proof that you possess the economic capital needed to put your business idea in action
• Your business plan
• Any information about any authorisations or licenses you’ll need, and where in the process you are in obtaining these

Your application will be sent onto the Spanish Ministry of Foreign Affairs, who will process it and update you on the results. If successful, you’ll be required to move to Spain in a period of under three months, where you’ll then be able to properly sign up as self-employed with the Hacienda and Social Security (which you should also do in under three months). Your permit lasts for a year.

Your local Spanish Consulate should also be able to advise you (hopefully in your local language, too), so it might be wise to ask them to check you’re covering all your bases.

Finally, it’s also worth pointing out that foreign self-employed workers in Spain are a growing number. One would hope this will eventually pressure the authorities to reduce the amount of bureaucracy involved.

Next: signing up to do your tax online.

Source: Ministry of Employment and Social Security.

Despite my copious advice on how to fill in your tax modelos, there is one question that seems to be burning in your collective minds this month: do I really need to sign up to pay tax to work for myself at all?

Yes, tax evasion is the name of today’s article, and I’m going to try to write it in a way that is as objective as possible without incriminating myself.

As the law stands, you don’t have any choice in the matter – not paying your tax is against the rules and you are under legal obligation to do so. As such, bear in mind that this article is a hypothetical exercise only, and should not be misconstrued as anything to the contrary.

I just give some language classes, do I really need to be self-employed?

Let’s break down this particular example.

If you do pay tax…

• Means you are contributing to social security system and therefore have right to use the health system. Contributes to your pension fund.
• Entitles you to maternity leave and (I think) sick pay (although I suspect only if you are very sick indeed).
• Allow you to emit official “facturas” (invoices) when these are requested by companies
• Incurs the following costs.
• Incurs the administrative cost of filling in all those tax forms (see this article for more info on which forms you’ll need to fill in).
• Puts you on the “radar”, and as such triggers late-night fear that you’ve filled in your tax forms wrong and the Hacienda will be after you.
• If you’re self-employed, paying tax will probably not entitle you to unemployment benefit (see this article).

…and what if you don’t pay tax?

• Allows you to offer cheaper prices – you will be more competitive.
• Means you do not have to think about bureaucracy.
• Takes you off the Hacienda’s “radar”, unless you leave a paper trail behind.
• Someone you work with could rat you out to the Hacienda, resulting in disastrous and expensive consequences. They do sometimes perform workplace inspections to check everyone is legal, too.
• You will not have the same rights to use the benefit system as someone who has been “cotizando” (paying in their social security payments).
• Some companies require that you emit a proper invoice, for which you need to declare everything.
• May raise suspicion if you are not registered as employed for a significant period of time (bear in mind that, with the crisis, it’s not completely unusual for young Spaniards to go years without finding work).

You do the maths. In practice, the complications and expense of the system mean that Spain has a huge black economy, especially when it comes to casual work.

I’ve explained my own take on paying tax in the article “Why I avoid working “en negro””. That said, this only reflects my own decision, given the business model and personal philosophies under which I operate. The decision you ultimately choose to make is up to you (and the law).

What’s your take on paying your tax in Spain?

Next:

• Read this if you’re just looking to do occasional work in addition to your day job.

A combination of WordPress stats and my spider sense tells me that a lot of my readers probably work offering digital services. If this is the case for you, listen up – the laws are about to change for any trading you do within Europe.

Time was, when trading digital services with other Europeans (say, for example, you are a freelancer in Spain selling eBooks in France), you didn’t have to charge VAT. All that’s about to change.

As of 01/01/2015, new regulation dictates that digital service providers now have to charge VAT at the rate of the country they’re selling to. In the example above, you’d have to charge 20% VAT, as this reflects current French levels. Note that this only applies to B2C models – if you’re selling to businesses, tax is payable in their country and not yours.

How do I declare VAT for digital services in Spain?

• First of all, you need to sign up to the MOSS (Mini One-Stop Shop, or “Mini Ventanilla Única”). You do this by filling in the Formulario 034.

• Secondly, when the moment to pay in tax comes (at the beginning of April, July, October and January), you’ll need to fill in a special VAT declaration form. As of date of writing, this is still being finalised, but according to the Hacienda it will “probably” be Modelo 368. They have “reassured” me that they believe this will be approved before it is due in the beginning of April.

Am I selling a Digital Service?

The UK Government gives the most sensible answer to this:

‘Digital services’ includes:

• Broadcasting – the supply of television or radio programs
• Telecommunications – fixed and mobile telephony, fax and connection to the internet
• E-services – video on demand, downloaded applications (or ‘apps’), music downloads, gaming, e-books, anti-virus software and online auctions

This is a fast-changing area. These are examples rather than a complete list of digital services.

(i.e. no-one really knows)

Why were this laws introduced?

Reading between the lines, the news laws were introduced to stop e-commerce tax evaders creating a base in low-VAT countries such as Luxembourg and operating from there. Arguably, introducing the new rules means all suppliers are on a level playing field, and that you can’t be undercut when supplying to your own country by someone from outside the EU who doesn’t have to charge VAT.

As well as worrying that they’ll make their business less competitive than before, those against the new laws mainly point to the administrative headache they’ll create. In response to the question “Will the taxation of e-commerce supplies not give rise to administrative red tape”, the European Union replies with a definite “No.” We’re not so sure…

 

For more information about upcoming VAT changes for digital services sold within the European Union, please refer to the UK Gov, European Union and Spanish Government’s websites.

Text and photos by Penelope

Income tax for employees in Spain, although not directly relevant to freelancers (for whom this is a whole other story), is something lots of you come to this blog looking for, so today I thought I’d take the time to take a mini-diversion and write about it.

How much income tax do Spanish workers have to pay?

The closest Spain has to income tax is the IRPF, Impuesto Sobre la Renta de Personas Físicas or Tax on Earning of Physical People (as opposed to entities). As well as IRPF, employees in Spanish companies also pay, along with their employers, Social Seguridad (National Insurance Contributions).

The new Reforma Fiscal (Fiscal Reform) introduced in 2015 maps out changes to income tax levels in Spain in 2015-16. There are national elections in 2015, so in theory the new government could change income tax bands when they are elected, but in practice this would take too long to pass through and is unlikely.

The table at the bottom shows income tax rates as they will be over the next couple of years (full credit and many thanks to www.elblogsalmon.com for producing this). “Base imponible” refers to base yearly salary. As you can see, the main difference is that IRPF rates will be lowered – not just for those earning the lower wage brackets, but also those earning over €600,000 per year. So in real terms, while someone on a salary of €12,000 will have to pay €570 less in income tax in 2015 (presumably, the government expects that they will be able to use the extra money to buy some more logs to heat their hovel with), someone earning €600,000 will have to pay €22,487.25 less.

Photos and text by Penelope. Table showing tax rates by El Blog Salmón.

For Spain’s autonomos, a hangover may not be the worst of your worries this January 1^st. Yes, January means having to fill in your annual IVA (VAT) declaration, also known as Modelo 390.

Filling in Modelo 390 can be more than a little intimidating, due to the large amount of specialist vocabulary used within. That said, it’s an “informative” declaration only – meaning this is just for records and you don’t have to pay anything at the end.

Bear in mind that everyone in Spain who collects VAT to pay in to the Inland Revenue must fill in Modelo 390. That means more or less all autonomos. It’s paid once a year, between the 1^st – 30^th January.

Underneath is a quick description of how to fill in Modelo 390. You can also find attached an uploaded PDF with screenshots showing exactly which boxes you have to fill in (coming soon).

Filling in Modelo 390

• Preparation and accessing the declaration form

Before you begin, make sure you have a digital signature on your computer if you don’t already (instructions here).

You must first download a special programme to complete Modelo 390 with (yes, it’s that complicated!). Head to the Hacienda’s website, and click “Descarga del programa de ayuda de modelo 390”. Follow the download instructions and open the programme once downloaded to your desktop. On the screen that appears, click “Dar de alta una nueva declaración > Modelo 390 IVA”. Write your name and give a description (I chose “Declaración Anual IVA 2014”). You’re ready to go!

• Selección de Actividad

The first screen asks for your Epigrafe code. If you can’t remember what this is, you can find it in the form you originally filled in when signing up as self-employed in Spain. I found my code (899 – Profesional Genérico) by clicking on the second box (“Actividades profesionales…”) and going down to the table at the bottom.

On the next page, fill in your details. Type “NO” in the boxes asking you about concursos de acreedores (filing for bankruptcy) and criterio de caja (a special system that means you do not have to pay VAT until you receive payment from your clients), unless you have applied for either of these.

• Section 5 – Operaciones realizadas en Regimen General

We now jump to Section 5. If you’re working under the Regimen General (as opposed to the Regimen Simplificado), you’ll need to fill this in. If in doubt, this is likely – the Regimen Simplificado is mostly for fishers, farmers, etc.

In the box “Regimen Ordinario”, fill in the total amount of earnings you were taxed VAT on, and how much tax was calculated (“Cuota Devengada”). Do not take of any tax you were able to claim back at this stage. Use the base amount of your earnings – do not include any VAT to be added or any other taxes taken off. Unless any of the other boxes ring a bell, skip over to next page.

In “IVA deducible en operaciones interiors de bienes y servicios corrientes”, write down any VAT you were able to claim back off work-related puchases in Spain.

Section 6 is for the Regimen Simplificado – you’ll probably want to skip this.

• Sections 7 and 8 – Resultado and Territorio-specific

Section 7 is automatically calculated. If the Government owed you VAT from the previous year that was taken off your account (say, in the previous year you had claimed back more than you put in), put it in box 85.

Section 8 is only applicable if you live in one of the territories listed.

• Section 9 – Resultado #2

In box 96, fill in (again) the amount of VAT you paid in, this time by quarter.

• Section 10 – Volumen

In box 99, repeat the amount of taxable earnings you generated. Other boxes are related to non-VAT generating income you’ve had. For example, I filled in box 105 as I had earnings from other countries (such as the US) who I do not collect VAT for.

• Section 11 – Operaciones especificas

“Special operations” is, as the name mentions, a bit special. You probably won’t need to fill it in unless you’re up to anything funny, like acquiring other companies or goods.

• Finishing up

Save your document and go to (top left) “Archivo > Presentación de declaraciones”. Normally at this stage various alarming-looking boxes will come up with all the mistakes you’ve made. Correct these (easier than it looks) and proceed. Select your digital certificate and hit “Realizar Presentación”.

 

If you’ve managed to complete all of the previous steps correctly, you’ll be taken to a screen with a link to a PDF of your declaración (save for your records!) and the gratifying “finalizar” button.

Well done – you’ve just correctly filled in Modelo 390. Now go and celebrate the New Year!

 

Text and photos by Penelope

It’s a situation that many will recognise… You already have a day job, but someone has asked you to do a one-off task for them. Signing up for the monthly autonomo’s quota of over 270€ seems a little steep, especially as the job in question might even pay less than this! As you’re currently paying your monthly seguridad social in any case, it seems odd that you should have to pay them twice. What options do you have if you want to emit a proper invoice (“factura”) without signing up as self-employed?

According to the way the Spanish tax system works, one thing are social security payments and another thing are tax payments. The two are very different systems with limited communication between them, and it’s technically possible to sign up to pay tax without signing up to pay social security contributions.

Is this legal? This is where Spanish law gets a little hazy. At the moment, there’s currently no proper set of norms regulating this kind of activity, although this is being debated for 2017. If you are already working full-time and paying your social security, and can prove that the work is a one-off job rather than a long-term contribution to your living standards, you have arguments for showing that what you are doing is “alegal” rather than “illegal”. In practice, many people do work odd jobs without signing up to pay the self-employed quota.

Many people cite the “limit” for the amount you can earn without being officially self-employed as 3000€, as above this limit there’s other taxes and forms you’d have to sort out in any case. If you’re earning more than the minimum wage (some 9000€ yearly) from your “odd job”, you might also have some explaining to do. There is some legal precedent of people being let off fines when earning below this level, but no guarantees.

Social security aside, not paying your taxes (VAT/income tax) is definitely illegal and can get you into serious trouble. To make sure you’ve got this covered, you will need to:

• Sign up in the Hacienda as an autonomo
• Declare VAT contributions from what you’ve earned at the end of the trimestre
• Declare IRPF (income tax) in the annual Declaración de la Renta
• Sign off as an autonomo in the Hacienda when you’ve finished (important to remember this!)

There’s been a lot of controversy in the news recently about the Infanta Cristina (Spanish royal family) claiming back salsa and merengue classes at the expense of Spanish taxpayers. So, as a freelance worker in Spain, when it came to claiming a course I’d done as a cost, I was naturally somewhat nervous.

Which expenses can freelance workers justify?

A call to the Hacienda (Spanish Inland Revenue) revealed the following:

1. No, I couldn’t claim back VAT, as the course I had studied was a language course, and language courses don’t pay VAT (actually, I’m not sure any kind of course pays VAT).

2. I could list it as an expense (and thus be susceptible to a lower IRPF rate, which, under the system I fall into, is paid in function of your profits), if and only if I could suitably justify the correlation between the expense and increased profits.

Let’s take a (real – it’s mine!) example of how you might do this.

Say you want to learn French. If you’re already earning something for services rendered in French, and speak relatively good French, it the expense of something like becoming an official translator, or a language perfection course, could credibly be justified. If you have things like letters from clients asking you to learn this skill, it will help your case. Above all, your earnings from using this skill should increase after having done the course.

If you’re in doubt, I’d play on the side of caution. However, this is something that’s worth looking into, as even if you can’t claim back VAT, showing a decreased level of profit could require you to pay less IRPF.

How do I claim expenses?

In the majority of cases, IRPF is calculated via Modelo 130 and the formidable end-of-year Declaración de la Renta. So to claim the expense, all you need to do is include these costs along with your other expenses on these forms (follow the links to see exactly how to do this).

Text and photos by Penelope

This article has been updated here.

The Declaración de la Renta: what is it? Do you need to do one? If so, how do you do it? This article covers all the basics you need.

This is the simple version of the Declaración de la Renta. If you’re a freelancer in Spain, go to the longer version: how to do the Declaración de la Renta if you’re self-employed.

I should warn you that filling in the Declaración de la Renta can be frustrating. Bad software, impenetrable government vocabulary and illogical systems are all problems you will face. As I always say, if you have any doubts it’s best to hire a professional to help. You can also call the Hacienda (Inland Revenue)’s helpline, but they will only be able to assist you in Spanish.

Timescales for filling in the Declaración de la Renta run from around April – end of June.

What is the Declaración de la Renta?

The Declaración de la Renta is the annual income tax statement for Spanish citizens.

Who needs to fill in the Declaración de la Renta?

Everyone who is a Spanish resident and earns (or is donated) money in Spain needs to do the Declaración de la Renta. Anyone who earns less than 22,000€/year from just one source of income (one employer, client, etc…) is exempt. If you have more than one source of income, you may still be exempt but the pay threshold is lower.

How do I fill in the Declaración de la Renta?

I already wrote about some of this when I covered the Declaración for the self-employed. Here’s an adapted version:

Step 1: Download the programme

• Download the PADRE programme  here. You will use this to do your Declaración de la Renta.
• Now, start a new draft. If you have an electronic signature, you can import any tax data you already have.

Note: if you do not have an electronic signature (which, if you’re not self-employed, you probably don’t), you’ll need to get a reference number from the page you downloaded the programme from. Look for “OBTENGA YA > RENO”. Type in your reference number from last year, or check the “No declarante” box if this is the first time you’ve done the Declaración de la Renta.

Step 2: Fill in the Declaración de la Renta

1.1 Datos identificativos

• Declarante – your details.
• Representante – fill in if someone else (like an accountant) is doing the declaration for you.

1.2 Domicilio

• Actual – your address.
• Datos adicionales
  • “Titularidad”: if you own your accommodation, select option 1. Otherwise, select option 3 if you rent
    • If you rent, you must have a contract that proves this
  • “Referencia Catastral”: the government reference number of your home. You can find this here.

2.1 Situación Familiar

Any family members (partner, children…).

2.2 Devengo, etc.

If you’ve chosen to import all your work history, the Declaration de la Renta should complete this automatically. If you don’t see it, fill in your total yearly income (AFTER tax has been deducted) in box 1, and how much you’ve paid in social security in box 10. Check your payslips if unsure.

2.3 Asignación Tributaria

In box 105-106, tick whether you’d prefer a portion of your earnings to go to the Church (!) or social projects.

2.4 Declaración Complementaria

Leave blank unless you have an additional declaration to submit.

3.1 Rendimientos de Trabajo

Fill in anything you’ve earned in box one, and what they’ve paid you in social security in “Gastos Deducibles”.

3.2/3 Capital Mobilario

For property owners.

4.1/2

For property owners.

Sections five to fifteen are full of items for freelancers, investors, or anyone who has other income like winning a prize (would be nice!). In the majority of cases, if your only earnings have been what you’ve got from your job and you don’t receive any benefits, you can skip to the final sections.

14 Cálculo y resultado

The programme does some calculations for you. Box 14.2, which is for earnings you’ve paid tax on overseas, could also be useful.

15.1 Cálculo y resultado

15.2 Cálculo y resultado

Add any deductions for maternity leave.

Annex A.1

• This section includes deductions for buying or renovating your property, as well as adapting properties for disabled tenants.
• The next section includes deductions for money invested in starting new businesses.
• The next section involves donations.

Annexes A.2 and A.3

Some random items like earnings from Ceuta, Melilla and the Canary Islands and information for business investors. I left blank.

Annex B

Deductions for autonomous regions.

• Depending on which region you live in, you might be entitled to a deduction.
• Example: As a resident of Catalonia, I am entitled to a reduction of 10% on the rent I pay (up to max. 300€), so I fill 300 in box 842 and the details of my landlord in 841. Check through the list and Google anything you don’t recognise. You can find a guide to how much you’re entitled to claim back on rent in the various regions here.

Finally, add in your bank details, place and date.

If you’re not sure what you’re doing, this might be a particularly good opportunity to check with a professional gestor. You don’t want to miss out on anything you can claim back!

Step 3: Sending

Click on File > Presentación Telematica.

• Already got an electronic signature? Click on “certificado” and send.
• No signature? Use the RENO reference number you located at the beginning.

Hope that was not too complicated! Best of luck filling in your Declaración de la Renta.