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