In addition to social security contributions, there are three common types of tax self-employed people/anyone setting up business in Spain pays.
Which taxes do self-employed people in Spain pay?
IAE
The first is the IAE (“Impuesto sobre Actividades Económicas”). Relax! As of quite recently, “physical people”, a category which covers self-employed people, don’t have to pay this. It only applies to businesses, associations and societies. Even businesses are exempt unless they’re earning more than €1,000,000 per year, by which point presumably you can afford an accountant anyway. In any case, you’ll still hear the name thrown around from time to time.
IVA
The second is “IVA” (“Impuesto sobre el Valor Añadido“), which is the direct equivalent of the UK0s VAT. VAT in Spain is currently at 21%. You might pay a lower rate depending on the kind of service or product you sell.
IRPF
The third tax is the “IRPF”, or “Impuesto sobre la Renta de Personas Físicas” (“physical people” here is the opposite of entities like companies and associations). Literally, the IRPF in the UK would be something like the poll tax (or “head tax”). Alternatively, you could say it’s the equivalent of income tax in Spain.
The IRPF is a pretty complicated topic which we’ll go into detail on elsewhere. For now, bear in mind for now that it’s something that everyone in Spain, self-employed or not, has to declare their earnings and is told accordingly what IRPF rates they need to pay in the annual Declaración de la Renta in May/June. In the first couple of years of business, you pay around 7% IRPF, and then it goes up to 15%.
If you have lived in Spain for a while and have never done the Declaración de la Renta, you should look into this. I must confess it was only in my fourth year in the country that I realised this. Fortunately, as a young person earning very little, no-one seemed to be too bothered.
You will spend around 40% of your net income on taxes in the first six months of being self-employed in Spain. You can read more extensive information on tax amounts here. Make sure you don’t undercharge for your products or services, or you’ll find it difficult to stay afloat.
Next: what is the IRPF?
