If you are self-employed in Spain or are thinking about it, this page has some useful information that we are gradually adding to. For the prices and details of our services for the self employed in Spain clickhere.
The Spanish Tax Office, Agencia Tributaria, make a broad distinction between sole traders or "empresarios individuales" and independent professional practioners or "profesionales autonomos". The distinction is important when it comes to the "retencion" system of advanced income tax (see below).
The social security office (see their website here) and the Agencia Tributaria both require registrants to put themselves into a detailed category of autonomo when registering. Each category describes a type of work, profession or commercial activity and has a code number.
There are actually two lists of economic activities with differing code numbers. The social security office use the CNAE list issued by the Instituto Nacional de Estadisticos (INE):
The Agencia Tributaria use the activity categories and codes set up for business tax IAE (Impuesto sobre Actividades Econimicas) purposes. This site allows you to find the code most relevant to you by selecting the division, sub-division and grouping that you belong to:
Most people starting a small business or setting themselves up in private practice opt to go autonomo because it is the quickest, simplest and cheapest way of making a business legal. The most common alternative is the limited company ("Sociedad Limitada" or SL). The pros and cons to setting up an SL are discussed on our "Starting a Business in Spain" page.
A less common alternative is a "CB" or "Comunidad de Bienes" which is similar legally to autonomo but is a partnership of more than one individual. Like autonomo the CB is not a legal entity separate from the participants i.e. the owners are fully liable for its debts.
Retenciones or retentions of income
If a profesional autonomo invoices a business, then that business must retain 15% of the invoice value to pay to the Agencia Tributaria as advance income tax for the autonomo. Note that the sole trader type of autonomos (empresarios individuales) don't have retentions. Also if the autonomo is invoicing an individual customer (not a company) no retention is applicable. The retention rate falls to 7% for autonomos in their first calendar year and the two years after that.
Note that these retained amounts are not "lost" to the autonomo forever. They are recredited back when the quarterly returns of income tax are made: 20% of an autonomo's net income for the quarter must be paid to the Agencia Tributaria but credit is given for retentions suffered.
In fact if an autonomo's income is mainly (70%+) made up of sources which are subject to retention payments they are exempt from the requirement to report their profits quarterly and pay the 20% income tax on them.
Different uses of the autonomo structure
It is fair to say that the autonomo system is not well-loved by foreigners in Spain who are put off by the social security payment being at a flat rate regardless of income/profit. However it is quite a flexible option and can often be the solution to business problems:
Employment: Many businesses abroad (or in Spain) want to employ staff in Spain but do not want to have to register as employers with social security or give contracts which bind them into expensive commitments. If the "employee" is happy to go autonomo then this problem is circumvented although it should be noted that there are risks associated with this approach. Spanish law since 2007 has forbidden the use of autonomo contracts as a way of employing people by the back door. The Tax Office has treated some autonomo arrangements (called autonomo falso) as if they were employment contracts and retrospectively hit employers with social security and other costs. Take advice.
Operating overseas business from Spain: many residents of Spain are economically active but with some or all of their business interests abroad. For example they return to the UK for some consultancy work, they have a company in the UK which they run from Spain or they have a home business in Spain with all the customers being from abroad. Autonomo can be a useful part of ensuring that these interests are legalised and properly constituted but tax efficient at the same time.
Autonomo social security
One of the main criticisms of the autonomo system is that all autonomos, regardless of the their income, are required to join the social security system under the Special Regime for Autonomous Workers ("RETA"). The government site in connection with this is here:
There are various rates and options open to autonomous depending on their circumstances and economic activity classification. Unfortunately though they all cost a minimum of approximately 250€ a month (but see exception below).
Employees do not have a minimum and if they are low paid or part time they will pay much less than this. Thus some people have hit upon the idea of setting up a company ("SL") to employ themselves and thus avoid the high social security minimum. The problem with this approach is that companies cannot just have employees; they are required to have at least one director ("administrador") who is obliged to join the RETA and thus pay the minimum. Setting up a "one man company" is a not an option for reducing social security costs.
When you join social security you are offered extra cover to augment the basic minimum. For example if you so choose you can pay more than the minimum to secure a higher pension or pay additional amounts to get extra insurance cover in case of accident or illness at work. Most people decline the extras - the accident cover for example only covers accidents at work (not while for example skiing) and provides only limited benefits.
The only people who are exempt from paying social security are those that the law recognises as not employed nor self-employed, in the sense of regularly offering their services as a main occupation. Â These are people paid for some irregular, occasional activity or even one off events. Â An example might be an academic on a salary paid for occasional speaking engagements outside the university.
No one earning more than the Spanish minimum wage or Salario Minimo Interprofesional or "SMI" which is currently set at €641,50 a month can avoid paying social security and it should be noted that:
- if you don't pay into the system you won't get the benefits
- the key point is irregular :Â if you are demonstrably not an "occasional" autonomo (e.g. you open a shop or office or your service is permanently on offer) it will be hard or impossible to claim the exemption however low your income
Lower rates of autonomo social security
While exemption from social security is very rare, there are some autonomos who pay less than the normal minimum of 250€
At present newly registering autonomos who are less than 30 years old in the case of men and 35 in the case of women, get an automatic discount of 30% on their contributions for the first fifteen months. They don't need to apply, it is just given to them at the point of signing up for social security.
A similar deduction, this time for a year but for a 100% deduction on their social security, is for women returning to self employment within two years of maternity leave.
People who work "venta ambulante" (literally means peddling, but in reality normally refers to people who work on market stalls and similar) can chose to pay a lower rate of social security, 55% of the full amount. These are categories included in this system:
4781/2/9 Retail sale by stalls or markets of tabacco, food, beverages, textiles, clothing and other goods
4799 Other retail sale not in stores, stalls or markets
There is a regime for people who work on their own account in agriculture who pay a specially reduced rate. You have to be registered as such and show you have been working and been paid by official agricultural employers to get this. You can't just claim to be an agricultural worker by virtue of working on your own land.
Spanish invoice requirements
Autonomos must issue and retain copies of invoices for the work they have done. Additionally, if they want to offset expenses against income for tax purposes they must show copies of a properly constituted receipt.
A "proper" receipt always has the name of the autonomo or business, the identification number of the business (CIF if incorporated, the NIE or DNI if an autonomo), date, description of product/service, invoice amount and VAT (IVA) applicable.
It is normal when issuing an invoice to put your address as well and perhaps contact details like website, phone number and email address. It is also a good idea to put the terms of payment and how the invoice can be settled (for example "bank transfer" with your account details).
Being in English does not invalidate an invoice. Many British businesses in Spain issue dual language invoices.
IVA (VAT) requirements for autonomos
There are no IVA exemptions in Spain for small companies: the general rule is that everyone must charge IVA however low their turnover is. However some autonomos only offer goods or services which are free from VAT (exenta or exempt). Examples would be educational, cultural or insurance related supplies which are exempt. Also autonomos who only invoice businesses abroad may not have any IVA to charge (see new VAT rules)
Businesses that don't charge IVA at all don't have to do the quarterly returns (see below) and they cannot recover IVA on their costs.
To offset IVA charged on your outgoing invoices with IVA paid on your costs then proper VAT invoices are essential (see below).
VAT is reported every quarter using form or "modelo" 303 (390 for the year end). Just as in the UK the Spanish tax authorities play it pretty tough when it comes to IVA. When you issue an invoice and charge IVA you are merely collecting the government's money and must pass it onto them - minus any IVA on allowable expenses - within 20 days of the month end. Letting unpaid IVA build up can open you up to fines and penalties. The authorities can and will go after your personal assets, including your home, if debts remain unpaid. See Late Reporting Requirements and Penalties here.
IVA rebates for autonomos in Spain are possible if the amount of IVA on your expenses exceeds the IVA you have collected on your income i.e. normally when you have made a loss. However the rebate amount is calculated annually not quarterly. EG if you have a lot of expenses in the first quarter ("trimestre") so that the Tax Office owes you IVA then you will not get anything back. They will accumulate the rebate with subsequent quarters when maybe you will owe them money to offset the rebate. If, by the end of the year, you are still in deficit and are due a rebate it will be made.
IVA on capital purchases like buying office equipment or a vehicle is reclaimable if the purchase is exclusively for use in the business.
IVA or VAT on crossborder purchases and sales. This is quite a large and complex topic and the rules for cross-border VAT on services within the EU have changed this year (see HM Revenue & Customs guide here). As a rough rule of thumb you don't charge VAT on exports of goods and shouldn't be charged it on imports. In terms of services you will mostly not put VAT on "exported" services if the customer is a VAT-registered business in Europe but will if the service is provided to an individual consumer. If you buy a service from a European business and have not been charged VAT you may still have to account for IVA on it under the "reverse charge" mechanism. There are special rules for certain types of service like hotels, transport and communications.
This gets a bit complicated and you may wish to take advice on your particular situation, if you're an autonomo with cross-border transactions.
Allowable autonomo expenses
Keeping complete and accurate records of all your autonomo expenses is vital for two reasons: to feed into your IVA returns and get the IVA back and also to calculate your net profit for income tax purposes.
We have produced a separate guide to autonomo expenses - what is and what is not allowable, under each of the main categories. Essentially an expense is allowable if it is necessary to carry out the business or profession but take a look at the item by item guide.
The golden rule is KEEP YOUR INVOICES. This might seem patronising particularly if you are not new to business but it is worth emphasising. Even if you are not sure whether something is allowable or not it is worth retaining an invoice and asking.
Nothing can be claimed without a proper VAT invoice with your name and NIE on it. A shop receipt or a delivery note, even if it has the correct amount on it and VAT will not do, it has to have your details and NIE on it. If you are buying from a shop such as IKEA or Carrefour it is necessary to take your till receipt to Customer Service and ask for a proper invoice in your name.
Subsidies for autonomos
It is not possible to be definitive about the subsidies available for autonomos starting out because there are so many programs, they change all the time and are usually timing and funding limited (meaning that programs are available for limited periods and even then can be withdrawn because the funds allocated to them have been exhausted). In addition much of the funding is at least in part local or regional so what's available depends where you.
Often business subsidies have an angle to them e.g. encouraging businesses that employ people or advance some cause or other (female participation in business, technology, the environment). Often there is a requirement that the business has to stay open for a set period, say three years, or else the subsidy has to be repaid. There is a lot of bureaucracy and applications can be time-consuming with no guarantee of success at the end of it.
For these reasons there are companies that specialise in subsidy applications either for a fee or for a percentage of the subsidy they get. It may be better to go to the local business advice centre. These are government sponsored, free and objective in their advice. They may have other assistance and advice available besides grants and will know what's available in your area.
In Andalucia these are called Centro de Apoyo al Desarollo Empresarial ("CADE") and this is a link to all the CADE offices:
