The IRPF (“Impuesto sobre la Renta de Personas Físicas“) is an earnings tax for all “physical people” (i.e. not companies, associations or other entities). It is the equivalent of income tax in Spain. If you freelance, the rules are particularly complicated. Some help is below.
If you’re not self-employed, check out my article on Spanish income tax for employees.
IRPF for freelancers
1. Calculating IRPF
To calculate IRPF, Spain’s income tax law differentiates between the Estimación Directa and Estimación Objectiva. The majority of businesses are in the Estimación Directa – this is definitely the default when you sign up at the Hacienda (Inland Revenue). The Estimación Objectiva (also called the “modular system”) only applies to a few kinds of business and is now being phased out. So if you don’t know, you are probably Estimación Directa.
For businesses in the Estimación Directa, IRPF is a percentage of your profits. Businesses in the “Estimación Objectiva” pay IRPF according to standard industry profits.
2. How much IRPF do you pay? How do you pay it?
An important question is whether you will be doing “professional” or “business” activity (“actividades “profesionales” or “empresariales”). “Professionals” include knowledge workers who generally have specialist training or qualifications -lawyers, translators, teachers, consultants. Business activities are more general -commerce, hospitality, etc. They are very similar, so if you’re not sure which type of service you offer, check which Epigrafe IAE you were given when you signed up with the Hacienda.
- All categories have to advance 20% of their profits (incomings less costs) in IRPF. You do this every three months at the end of the trimestre using the “Modelo 130” form.
- If you offer professional, forestry or agricultural services, your clients must also pay IRPF for you (known as “practicando retenciones”).
- When you charge your clients, you deduce IRPF from the final bill (see my article on how to write an invoice for clients).
- In your first couple of years as a self-employed person, you bill 7%. From then on, it’s 15% (if you’re offering forestry or agricultural services, this will be less).
- If in the previous year clients paid IRPF “retenciones” on more than 70% of your earnings you do not have also to collect the original 20%.
Pedro produces and sells natural beard care products. He deducts expenses from total income and pays in 20% of the remainder to the government (using Modelo 130).
Sara has been a translator for several years. Over 70% of her clients pay in IRPF for her. So she does not collect herself, but includes 15% IRPF in her invoices.
Ling is also a translator. However, as her clients are mostly from abroad, they do not pay IRPF. So she pays in 20% of her earnings each quarter using Modelo 130. Her single Spanish client also collects and pays in IRPF on the work she does with them. She includes this when she bills them.
It’s important to note that all of these payments are considered advances. In May/June, you will have to declare all of your earnings in the dreaded annual “Declaración de la Renta” (modelo 100). The government will take into account how much you earn, and how much IRPF you’ve paid in over the last year, as well as other variables (…are you a single parent? under 25?), and will decide on a suitable portion to send back to you.
What do you think about IRPF? Share your experiences in the comments section below.