How much tax do the self-employed (AUTONOMO) pay in Spain?

A lot of people considering setting up a small business or taking a contract contact Advoco with their questions (we're fine with that, see email details at the foot of the article) and most common among them is how much will it cost? The short answer is that they pay tax on their profits according to the regular income tax scales that apply in Spain after taking their other income and personal allowances into account. The 2012 rates are detailed in this article:

Spanish income tax rates 2012

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 and details of the timing of a typical autonomo's tax payments.

Example

Bill set up in Marbella as a plumber on 1st January 2012.  He earns fees of 3.000€ on average each month (before IVA which is out of the scope of this example). He doesn't have an office but does have a van which he runs exclusively for the business,  has various tools and materials to buy and advertises online and in the press: in total, and again excluding IVA, he has allowable expenses of 500€ a month. He pays Advoco 59€ to do his books and taxes for him, and 80€ to set him up as autonomo.  He lives with his wife who doesn't work and a 13 year old son.

Social security

His first expense of a tax nature at least will be social security payable at the end of January.  Currently the minimum social security is 254€ a month but it can be more if you take optional cover (e.g. for unemployment) or because you opt to pay more to increase the size of your state pension.  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?

Bill pays 254€ 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 bill comes due. This is a form of advanced income tax on his net earnings. His total billings were 9.000€ (3 x 3.000).  His costs every month are 500€, plus Advoco fees of 59€, thus in total 559€. However he can also claim the cost of his social security, increasing the allowable expenses to around 800€ a month, or 2.400€ for the quarter. This gives a net income of 6.600€ (9.000 - 2.400).

In addition Advoco advise him to file a "simplified" autonomo declaration (modelo 130) which is an option available to all businesses with a turnover less than 600.000€ annually and which allows the business to claim a 5% allowance for "difficult to justify" expenses. Bill can deduct 5% of his net income  (6.600 x 0.05 = 330€) automatically and without producing invoices to prove the expense.

The taxable income for the quarter is thus 6.270€ (6.600-330).  The tax rate is 20% giving a bill of 1,254€ on top of the 762€ social security he has paid out. The tax is paid directly from his bank account on the 20th of the month following the quarter end (although extensions can be obtained relatively easily).

Retenciones

Spanish businesses and autonomos have to contend with a system of retenciones which has no equivalent in the UK.  If Bill invoices another autonomo or company for his services they are obliged to retain a proprtion of the amount due to him and to pay it over to the tax office. The rate of retencion starts at 7% for new businesses rising to 15% in their third year. The retentions are not additional taxes but count towards the quarterly tax bill. If Bill had suffered retentions of 7% on half his invoicing (being work he did for businesses) this would amount to 315€ over the quarter. This would be deducted from the quarterly tax bill making it 939€ instead of 1.254€ i.e. he pays the same tax but the timing is altered.

A couple of other things to note about retenciones and quarterly taxes: only autonomos registered as "profesional" pay them ("empresarial" autonomos don't). Also professionals with 70% or more of their income subject to retenciones don't have to submit or pay a quarterly tax return.

Annual taxes

in January 2012 Bill will pay his final quarterly tax demand of 1,254€  In May 2011 Advoco will begin preparing his annual tax return (La Renta modelo 100). This is where the tax rates and allowances alluded to earlier come into play. Bill's must declare his autonomo net income for 2010 at this time, which was 6.270€ per quarter so 25,080€ for the year. He has to add any other income from other sources e.g. bank interest or capital gains. Assuming he has no such income (and nor does his wife) he will pay tax on 25.080€ less personal allowances. He can claim the basic allowance 5.151€ and - assuming his wife has no income - file a joint declaration with an additional allowance for her. In simple terms this is 3.400€ but see Taxation of married couples in Spain for more details, because the calculation of taxes for couples is a bit more nuanced than this implies.

The child also attracts an allowance of 1.836€. In addition Bill may be able to deduct some of his housing costs whether that be rent or mortgage payments. We will assume no claim for the purpose of this exercise. You may have noticed an "earned income" allowance of between 4.080€ on the tax rates page. Unfortunately this applies only to income from employment and not self-employment so Bill would not be able to claim it.

His net income after allowances then would be 25.080 less 5.151€ and 1.836€ = 18.093€. The first 17,707 of this is taxed at 24,75% and the remainder (386€) at 30% giving a tax bill of 4,382€ + 116€= 4.498. However his wife's allowance has to be factored in (3.400€ at the basic rate of 24,75% = 842€), which reduces this further to 3.656€.

But Bill does not actually pay over this amount to the tax office. This is because his quarterly payments during the year totalled 5.016€ which is more than enough to cover this liability. In fact he will receive a refund equal to the amounts paid quarterly less the annual amount - 5.016 - 3.656 = 1.360€.

In essence the quarterly autonomo bills have done their job of paying Bill's tax liability for the year in advance so when it comes to annual tax return time (May/June of the following year) he gets a refund. For autonomos with higher earnings that bring 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 for Bill has been 3.048€ (social security), 5.016€ (quarterly tax) and -1,360€ (renta refund).  That is 6.704€ in total from a gross income of 36.000€ less expenses of 6.000€ (excluding social security and accountancy fees) or 30.000€ giving an effective rate of 22%.

If you have any more questions about business or self-employment matters then feel free to email Deborah at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . She is an English accountant practising in Spain and will be happy to assist you. For details of our low cost and convenient autonomo service see this page - Services of the self-employed in Spain. For more articles like this click on the ADVICE tab and select autonomo from the dropdown list.