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Many businesses in Spain operate as 'autonomos' or 'sole traders' and below you will find a quick guide to the typical tax and other fiscal obligations that you will be required to comply with in order to avoid any problems with the taxman or the Social Security office.
Virtually all self-employed people in Spain, especially if they do not have an excellent command of Spanish (and even if they do) hire a professional to manage their fiscal affairs. They will normally handle registration with the relevant government agencies and then manage ongoing fiscal obligations.
There is normally a charge for handling initial registration and then a monthly charge for handling ongoing income tax and VAT returns.
1. Autonomo spain - tax returns
Autonomos (sole-traders) in Spain must make quarterly and annual income tax and VAT (known as IVA in Spain) returns. This will require the maintenance of records of all bills and invoices, with VAT receipts and payments noted separately.
A Spanish accountant will then use this information to fill in the relevant tax and VAT forms before submitting them to the local offices of Hacienda (tax office).
As well as the quarterly income tax and VAT returns, an annual return must be made in respect of both - in the case of VAT at the beginning of the year, before January 31st and in the case of income tax, at the end of June.
For those who are self-employed (as opposed to those who own limited companies) this is the same as the annual personal income tax return that most individuals in Spain must make. If your personal financial circumstances are complex e.g. multiple properties, stocks, shares and other investments then your accountant may charge additionally for assisting you with this annual tax return.
2. Autonomo spain - tax deductions
Those costs and bills that give rise to legitimate tax deductions against income in Spain - as opposed to those which do not - is a subject worthy of a fairly lengthy book. However, as a broad rule, those bills that are necessarily incurred in the operation of a business may typically be deducted.
So, the rental of offices, any employee related costs as well as the purchase and operation of office equipment (assuming that they are related to the operation of the business) may legitimately be deducted from any income before the payment of taxes.
More complex questions can sometimes arise where a telephone or vehicle are used partially for work and partially for personal use. Normally the percentage of the cost relating to work can be deducted but great care must be taken as in some cases the use of a vehicle may not be considered as a suitable deduction.
3. Social security obligations
This will cost the typical autonomo or sole-trader around €250 per month. This will entitle a self-employed person to receive health care from the Spanish national health service as well as a pension upon reaching the statutory pensionable age.
Depending on the amount paid, a sole-trader may also receive unemployment benefits should their business become unsustainable. However, this is a complex issue and eligibility will depend on how the business became unsustainable. The amount and quantity of unemployment payments will depend on the number and amount of social security contributions that have been made.
If you are under 30 years of age or have been long term unemployed or are a woman over the prescribed age you may be entitled to a reduction in the monthly payments. This needs to be checked in each particular case.
The payment falls due regardless of whether or how much you are earning from your business. It is paid monthly and so it is not sensible to register on the last day of the month as you will be liable for that months social security contributions even though you are only registered for a single day.
4. Invoicing for autónomos in spain
Most people that move to Spain have previously only ever worked as employees which means they have never had experience of having to invoice a client before.
For those starting a business in Spain, and who have never issued them before, an invoice is an important document for fiscal purposes and is it may be used in investigations carried out by the revenue officials of Hacienda there are certain legal minimum requirements regarding the information that the invoice must contain:
The invoice must be identified as such and clearly contain the word 'Factura' (Invoice in Spanish) without any additions. It must contain the date of emission and the date of carrying-out the activity if different from the date of emission.
The invoices must be numbered consecutively but the starting place or space between each number is irrelevant (001, 002, 003 or 1000, 1005, 1010).
Your fiscal details must be included - NIE number (or CIF if a company), registered address of the business.
Details of the Client - NIE or CIF and registered address. This is unnecessary if the client is not a business or other professional but an end consumer.
Discounts - if any, should be identified.
Base Amount charged - the net amount charged plus the IVA (VAT) including the rate charged.
Total Amount Charged - the previous quantities added together.
Any currency may be used but there must be a conversion into Euros. The invoice may be emitted in any form and there is no requirement for it to be stamped.
So as an example, if you are charging €1000 for a service, you would in fact invoice 1000€ + 18% IVA (VAT) - 15% IRPF (income tax) and therefore expect to receive €1030 (€1000 + €180 - €150 = €1030).
This means that you are effectively paying your tax as you go. At the end of each quarter your tax bill is calculated and any retentions you have already made are deducted from your final tax bill.
You will need also to keep any VAT you charge apart as you are responsible for paying this to the government at the end of each quarter. VAT received is balanced against any VAT paid on products and services required for the running of the business and any positive balance is payable.
5. Pay local rates for quality local services
Advocate Abroad is a network of English-speaking professional service providers that have been selected on the basis that they not only have the required experience to provide excellent fiscal support - in English of course - but also because they represent real value for money.
While the service providers at Advocate Abroad all speak excellent English they are typically working with local clients, (rather than exclusively with English-speaking customers) and therefore need to be truly competitive in order to succeed.
This means that when you use a Advocate Abroad accountant or lawyer you will quickly notice that you are paying local rates rather than the premium rates charged to 'foreigners' who usually aren't aware that they are paying premium rates.
6. Review our services
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With 60 individual office locations throughout the Iberian peninsula and the islands, and 6 specialist tax centres we are able to offer a truly nationwide service to English-speakers wherever they are located in Spain.