What is the IRPF?

The IRPF (“Impuesto sobre la Renta de Personas Físicas“) is my least favourite of all the taxes. Given that there’s no income tax in Spain, this could be considered to be the equivalent. If you’re self-employed, it can be a little difficult to get your head around at first, but bear with me – you’ll be glad you did.

If you’re not self-employed, check out my article on Spanish income tax for employees.

IRPF can be calculated in two ways. For businesses who are a part of the “Estimación Directa“, this is done by assessing your profits. For those who are in the “Estimación Objectiva“, it’s calculated by comparison to standard profits for your industry and is paid in modules. The vast majority of businesses fall under the Estimación Directa, and this seems to be the default position when you sign up at the Hacienda (Inland Revenue).

There’s two types of IRPF. The first is that which companies hold back for you and pay into the government at the end of each trimestre (this practice is known as “practicando retenciones”). The second is that which you hold back and pay in each trimestre. Here’s some information about the two.


IRPF retained by your customers/clients

Here, the system splits into several parts. Those offering professional services, forestry or agricultual services need to listen up. Those offering “empresarial” (business) services can pass directly to the next section, as this doesn’t apply to them. To find out which you come under, check which Epigrafe IAE you are given when you sign up with the Hacienda. If in doubt, you’re probably offering professional services and have to pay full whack.

When you charge your clients, you deduce the IRPF from the final bill (see my article on how to write an invoice for clients if you have any doubts on how to do this). In your first couple of years as a self-employed person, this is 7%. From then on, it’s 15%. If you’re offering forestry or agricultural services, this will be less, but frankly I doubt you are. Surprise me in the comments box at the bottom.

I was told once by someone from the Hacienda that the “great” thing about this tax is that it’s paid by the company buying your services and not you, but I beg to differ – after all, whose paycheck is this coming out of, anyway?

IRPF you pay in

On top of this, if you’re self employed in Spain then every trimestre you’ll have to pay in 20% of your profits (incomings less costs) in tax. You’ll need to square up with the Hacienda every three months using the “Modelo 130” form. Note that many people are exempt from this. The law is that you don’t have to cough up if you offer professional services/forestry/agricultural services and in the previous natural year clients held back IRPF for more than 70% of your earnings for you. You only have to pay this if, for example, the majority of your clients come from abroad and don’t hold back IRPF for you. Your invoices for these clients will not include IRPF like Spanish clients.


It’s important to note that all of these payments are considered advances. In May/June, you will, as all good Spaniards do, 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? how much rent do you pay?), and will in its onmipotent wisdom and grace decide on a suitable portion to send back to you.

Good luck with paying your taxes!

Photos and text by Penelope

Posted in Tax

18 Replies to “What is the IRPF?”

  1. Hi,

    First of all, thanks very much for the info on his site, it’s been a big help to me here so far! I have one question you may be able to help me with – I am working as autonimo and this is the first yearly quarter which I’ve worked. I have contacted the local Hacienda but they did not give me a direct answer. I currently have two clients; for both of which 9% IRPF is deducted each month from my invoices. Do I still need to submit a modelo 130 every quarter or is it sufficient to submit my returns on an annual basis? I have received varying answers on this topic so I would be most grateful if you could clarify this for me!

    Thanks
    Eugene

    1. Hello Eugene.

      To give you the short answer, no you don’t 🙂

      In this official-looking document from the Hacienda, it says that “las personas físicas que desarrollen actividades profesionales no están obligadas a presentar declaración de pago fraccionado ni a efectuar ingreso alguno si, en el año natural inmediato anterior, al menos el 70 por 100 de los ingresos procedentes de dichas actividades hubieran sido objeto de retención o ingreso a cuenta“. I.e. if you’re offering professional services rather than working as an entrepreneur (which, if you have clients rather than customers, is most probably the case) and at least 70% of your clients deduct IRPF for you, you don’t have to fill in Modelo 130.

      As always when giving advice, I add my disclaimer here. I’m not a professional gestor, just someone who’s been through the same process. So do make sure you check anything I say against other sources and seek professional advice if you have doubts – no liability accepted and all that jazz.

      Hope this helps!
      Penelope

  2. This is useful info, but it would be nice if the post wasn’t peppered with strange anti-tax ideology. I can understand that you would rather not pay tax than pay tax, but that’s not a reasonable proposition. The government provides you many services and they cost money. Thus they must collect taxes. Your resentment of this is unjustified.

  3. Hello Eugene.

    My case is probably unusual. I am a missionary from the US, and all of my income comes from the US. I have a permanent residency, and I am in the process of bringing my new husband over. I also rent an apartment. And I have not filed taxes here in Spain. Am I going to run into trouble?

    1. Hey Rebecca. If you’ve been in Spain for more than 183 days per calendar year, you are a tax resident in the country. So if the US government ever communicated to the Spanish government that you were paying out on your earnings there, you’d most likely have to pay back all the tax you hadn’t paid over the time you’ve been here and then some. Given the unusualness of your situation, you might want to check with the people running the missionary programme what others’ experience has been – it could be that you’re entitled to rebates?

  4. Hi.
    I am a resident in Spain and I am self-employed and registered as autonomo. The company I work for is based in the Philippines. I am a teacher. Should I fill in the modelo 130? Also, how do I pay for my health insurance.

    1. Hello Natalie,

      Yes – you will need to fill in the 130: as the company you work for is based abroad, they will not be able to pay any of this tax in on your behalf. Healthcare in public hospitals is covered by your social security payments. You will need to request a healthcare card (“tarjeta sanitaria”) at your local CAP (Primary Attention Centre). Or you can look into private health insurance. You might also want to check out my article on tax for self-employed teachers in Spain for more info. Hope this helps!

  5. HI,

    My dad is retired resides in the USA, but has a retirement from when he lived in Spain. This year they started withholding IRPF from his retirement. Why do they take this from a retirement benefit ?
    If you are retired you are not supposed to do yearly taxes.

      1. Hi!

        First of all… I really like this blog! I have a meeting and I was looking for business vocabulary because I have to explain the difference between freelance and a “fake freelance” (falso autonomo)…anyway…… this is awesome Penelope… well-written!

        Regarding to Veronica’s question, as a consultant, my answer to this question is… it depends ;D… I need more information, because there may be different scenarios… but my first guess is that your dad is not a Spanish tax resident, so the social security must be applying the non-resident rate (24% or 19%) in his pension, because, this is a taxable income.

        I wanted to give you more information and I found a webpage (it is from the social security) and it says that the pension is taxed at the rate of 8%, 30% or 40%. It depends on the annual amount.

        Take into account that there is a double taxation agreement between Spain and the US so your dad can claim in the US the money that has been retained here in Spain.

        I hope it helps!

        http://www.empleo.gob.es/es/mundo/consejerias/eeuu/preguntas/contenidos/Pensiones.htm

        1. Many thanks for this! Really happy to know you like the blog (actually, I was thinking of doing a post on translations of common expressions… must get that done). I’m sure Veronica and others will find your response really helpful!

  6. Hello,
    I’m confused. I’m in the UK at the moment but I may move to Spain. My clients are not in Spain but in Belgium and US. Will I have to put the IRPF on my invoice? My clients will never agree to that.
    Thanks!
    Kind regards,
    Nathalie

    1. Hey Nathalie! No sweat – when you work with international clients, IRPF works a bit like when you work with consumers. You pay it in yourself at a rate of 20%. The forms you need to fill in to do so are the Modelo 130 every trimestre (more info here). For IRPF, you also need to do the Declaración de la Renta once a year to summarise. If you’d paid in a lot of IRPF during the year and your earnings are low, it’s likely you’ll get some of this back at this point. Hope this helps – always check my advice with other sources.

  7. I am being offered contractor status as a teacher ( teaching aeronautical subjects to students in a major flight school in Spain) and am looking at the various costs involved to help me make the decision. I have been working as an employee for the last 18 months for this company and now, due to working reduced hours, the contractor possibility has appeared.
    As this position is within the education sector, will I be forced to charge IVA ?
    Great site, by the way, very informative and up to date. Info much appreciated, thank you.

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