A path taken by many residents in Spain, freelancing is definitely a work/living option worth considering due to several factors, some of them exposed in my Labour Market in Spain (I) post related to the high unemployment and negative circumstances originated from it. In this first article about this topic, we will review how freelancers must deal with Social Security, and provide an overview of tax-related aspects.
In eligibility and Social Security terms, the activity of freelancers (“autónomos”) is regulated by the Special Regime/Scheme of Freelance Workers (“Régimen Especial de Trabajadores Autónomos”) of Social Security. There is a monthly fee that must be paid to this institution to be eligible for a pension and its medical and social benefits. The main factor determining that amount is a percentage of the estimation of the revenues you expect to generate as of your working activity. The monthly estimated revenue range in 2017 lies between 919 and 3642 euros.
A practical and basic example of the minimum fee a self-employed worker would contribute, considering that 80% of them opt for that: 29.9% of 919.9 euros (percentage corresponding to the minimum allowed revenue to be considered) which equals to 275 euros per month (and is including assistance for stopping your work temporally for medical reasons derivated from your working activity (“Incapacidad Temporal”)). If you opt to be covered in case of stopping your activity as a freelancer (and therefore are entitled to social benefits as unemployed), the percentage for that estimation would be adjusted to 31.6%, resulting in a Social Security monthly fee of 281.05 euros (in the links of interest section at the end of this article you can find a link to a calculate what you should contribute to the Social Security from this simplified perspective).
In some circumstances, this quote can be lower. For instance, if you are new to freelancing, you will have a flat rate of 50 euros per month during the first six months (and for 12 months as of 2018), a 50% reduction on the minimum fee the next six months, a 30% reduction of the next and last six months (same timing as of 2018 considering the initial 12-month period). Other collectives that can obtain reductions in their contributions include disabled persons, collaborators and family members, pluri-employed, or older than 65 years. From the legal terminology, those decreases in the contributions are also named as “bonificaciones” (credits).
The fees you contribute will impact what you receive in terms of pension and social assistance when, for example, you are ill (as a result of your working activity) or discontinue your self-employed status and become unemployed.
In relation to the Tax Office, self-employed workers must pay the Personal Income Tax (“IRPF”). There are several ways to calculate what your final revenues have been, deducting then certain work-related expenses from that calculation to determine what the final amount of that tax is.
The activity of freelancing also requires to present a Value-Added Tax (“Impuesto sobre el Valor Añadido” (IVA)) statement, that contains the VAT that must be paid (“IVA a Pagar”), primarily calculated by deducting the VAT that is being paid (“IVA devengado”) when buying/contracting products/services related to work from the VAT of the products/services that are sold (“IVA repercutido”).
Depending on the product or service, there are different percentages that are applied to the value added to calculate VAT. Also, activities such as medical services, training or house renting are exempted from this tax.
In future articles, we will explore in more detail the Personal Income Tax and the VAT, together with further analysis around what life is like for self-employed workers. Meanwhile, please bear in mind that this is a high-level overview and that depending on your situation all those estimations/scenarios might change. Double-checking everything is as usual recommended.
Are you a freelancing? What is the toughest part when dealing with Social Security? In which contribution range are you? Any additional remarks to share?
Links of Interest
Cinco Días, Tarifa plana autónomos (Flat rate for freelancers)
El Economista, Cuota de autónomos 2017: ¿Cuánto se paga? (Freelancers fees in 2017: How much must be paid?)
El Economista, El IVA para autónomos (VAT for freelancers)
Fremap, Calculate your contribution as a self-employed worker
Gestron, Descuentos y bonificaciones disponibles para la cuota de autónomos en 2017 (Discounts and supplements for freelancers’ quote in 2017)
Seguridad Social (Social Security), Régimen Especial de Trabajadores Autónomos (Special Regime of Freelance Workers)
Serautonomo.net, IRPF Autonomos (Personal Income Tax for Freelancers)