How much tax does an autonomo in Spain pay?
For most people considering moving to Spain and registering as autonomo a common question will be: How much tax will I pay? The short answer is that they pay tax on their profit according to the regular income tax scales that apply in Spain for that year, after taking their other income and personal allowances into account. The tax 2015 rates are detailed in this article:
Spanish income tax rates 2015
But to be a bit more helpful we have put together a short example of how the income tax rates apply in practice, and added some information about social security to give the full cost timing of a typical autonomo's tax payments.
Bill set up in Barcelona as an IT consultant on 1st January 2015. He earns fees of â‚¬3,000 on average each month (before IVA which is out of the scope of this example). He works from home but has expenses of internet, computer equipment and supplies, and accounting fees. In total, and again excluding IVA, he has allowable expenses of around â‚¬300 a month. He lives with his wife who doesn't work and their 13 year old son.
His first expense of a tax nature will be social security, payable at the end of January. Currently the minimum social security is â‚¬264 a month but it can be more if you choose optional extras (e.g. for unemployment) or because you opt to pay more to increase the size of your state pension. There is also currently a low start tariff which allows him to pay at a lower rate for the first 15 months if he has not been registered as an autonomo in the last five years. The cost of social security and the benefits received from it are discussed in these articles:
Autonomo social security exceptions and discounts
What do you get in return for autonomo social security payments?
For our example, Bill pays â‚¬264 a month. This covers him and his family. If his wife were to work, whether self-employed or employed, she too would have to pay social security.
Quarterly income tax
His second tax expense would be in April, when his first quarterly autonomo tax return is due. At this time he pays an amount of advance income tax on his net income for the quarter. His total billings were â‚¬9,000 (3 x â‚¬3,000). His costs every month are around â‚¬300. He can also claim the cost of his social security, increasing the allowable expenses to around â‚¬600 a month, or â‚¬1,800 for the quarter. This gives a net income of â‚¬7,200 (9000 - 1800).
He files a "simplified" autonomo declaration (modelo 130) which is an option available to all businesses with a turnover less than â‚¬600,000 annually and which allows him to claim a 5% allowance for "difficult to justify" expenses (up to a maximum of â‚¬2,000 per year). Bill can deduct 5% of his net income Â (7200 x 5% = 360) automatically and without producing invoices to prove expenditure.
The taxable income for the quarter is thus â‚¬6,840 (7200 - 360). The advance income tax rate is fixed at 20% for everyone, giving a bill of â‚¬1,368. The tax is drawn directly from his bank account by the tax office on the 20th of the month following the quarter end (although extensions can be applied for if necessary).
Spanish businesses and autonomos have to operate a system of retenciones which has no equivalent in the UK. If Bill invoices a Spanish autonomo or company for his services they are obliged to retain a proportion of the amount due to him and to pay it over to the tax office. The standard retention rate is 19% (2015) but it is reduced to 9% for the first three calendar years. The retentions are not additional tax but instead they count toward the quarterly tax bill. If Bill had suffered retentions of 9% on half his invoicing (being work he did for Spanish businesses) this would amount to â‚¬405 over the quarter. This would be deducted from the quarterly tax bill making it â‚¬963 instead of â‚¬1,368. So he pays the same tax but the timing of payment is different.
Only autonomos registered as "profesional" pay retentions, those registered "empresarial" don't. (Professional autonomos are generally those that provide only services, whereas empresarios are traders selling goods, or those selling a mixture of both services and goods.) Professional autonomos with 70% or more of their income subject to retentions can elect not to submit a quarterly income tax return (although quarterly IVA returns will still be required).
in January 2016 Bill will pay his final quarterly advance tax payment for the year of â‚¬963. In May 2016 Advoco will prepare his annual tax return (DeclaraciÃ³n de la Renta - Modelo 100). This is where the tax rates and allowances mentioned earlier come into play. Bill must declare his autonomo income for 2015 at this time, which was â‚¬6,840 per quarter so â‚¬27,360 for the year. He also declares any income from other sources, such as bank interest or capital gains. Assuming he has no such income (and neither does his wife) he will pay tax on â‚¬27,360 less personal allowances. He can claim the basic allowance â‚¬5,550 and - assuming his wife has no income - file a joint declaration with an additional allowance for her of â‚¬3,400. (See taxation of married couples in Spain for more details.) They also receive an allowance of â‚¬2,400 for their child.
You may have noticed an "earned income" allowance of Â â‚¬2,000 on the tax rates page. This allowance applies only to income from employment or pensions, not self-employment, so Bill would not be able to claim this. But he has instead been able to claim an allowance of up to â‚¬2000 for expenses without receipts.
BillÂ´s tax liability on net income of â‚¬27,360, after deducting allowances, will amount to â‚¬4,047. But Bill does not actually pay over this amount to the tax office because his quarterly payments and retentions during the year totalled â‚¬5,472. Since this is more than his liability, he will receive a refund of â‚¬1,424.
So the quarterly autonomo payments of tax have done their job of paying Bill's tax liability during the year, and when he comes to submit his annual tax return (in May/June of the following year) he will be due a refund. For autonomos with earnings that take them into the higher tax brackets (see the rates table) or who have less in the way of personal allowances, this will not always be the case and they will have more tax to pay.
Effective tax rate
If you count monthly social security as a tax then the total tax paid by Bill has been â‚¬3,168 (social security) plus â‚¬5,472 (quarterly tax) less â‚¬1,424 (tax refund). That is â‚¬7,216 in total from a gross income of â‚¬36,000 less expenses of â‚¬4,000 (excluding social security) giving an effective rate of aroundÂ 22.5%.
If you have any questions about autonomo matters then feel free toÂ contact us
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