Do I have to sign up and pay tax to work as self-employed in Spain?

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?


Posted in Tax

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