Always a concern for everyone, taxes are unfortunately one of the most important issues freelancers (“autónomos”) must confront. As anticipated in our Freelancers in Spain – Social Security and Taxes post, there are mainly two of them self-employed workers must deal with: Personal Income Tax and Value Added Tax (VAT).
With regards to the Personal Income Tax (“Impuesto Sobre la Renta de las Personas Físicas” (IRPF)), Self-employed workers categorised as ‘professionals’(doctors, lawyers, architects, etc.) must pay 15% of all the revenues they are generating.
For the ‘Non-professionals’ (plumbers, repairers, bar owners, etc.), the tax to be paid quarterly will represent 20% of their calculated profit of that period, being adjusted subsequently in the next quarters (i.e., in the second quarter of the year, the profit is calculated for the two first quarters, paying again a 20% of the estimated profit; for the third quarter, the first three ones are taken into consideration, and so on). When the year is finished, the total is calculated and, in case taxes have been paid in excess, the Tax Office will refund the difference (and vice versa, of course).
Monthly or quarterly payments that must be advanced aside, to calculate the final Personal Income Tax, there are several methods depending primarily on your activity and revenues. For most self-employed workers, the one to be followed is “Estimación Directa Simplificada” (Simplified Direct Estimation), valid for most of those with revenues below 600,000 euros per year. This method allows to deduct amortisations (of debt) related to the professional activity, as well as a certain figure (5% of the previous net income) of accruals and expenses difficult to justify per the professional activity.
For your reference, the other estimation methods are “Estimación Directa Normal” (revenues in excess of 600,000 euros per year or freelancers renouncing to follow the other estimation methods) and “Estimación Objetiva” (for certain business activities and with revenues not going over certain figures depending on the former; this method is becoming more and more infrequent).
Some ways to pay less Personal Income Tax include having a mortgage (signed before 2013) for your residency, contributing to your own retirement funds, presenting as a loss reductions in value that have occurred in certain assets of your patrimony, and investing in new businesses, and making donations to certain Non-Profit Organisations.
For those having to present quarterly payments (‘non-professionals’), the “Modelo 130 de IRPF” (130 Form of the Personal Income Tax) must be submitted in the first 20 days of following month to the end of each quarter (April, July, October, January). ‘Professionals’ (monthly payments) must submit the 111 Model in the same timeline.
Finishing with this simplified view of the paperwork, between April and June of the following year, freelancers must submit the “Modelo-D-100” to state their previous year Personal Income Tax. (in the links of interest section at the end of this article you find links to view those forms).
From the Value Added Tax (VAT) perspective, the only note that must be added to general overview from the Freelancers in Spain – Social Security and Taxes article is that, in a similar manner to the Personal Income Tax, its payments must be submitted in the first 20 days of following month to the end of each quarter (April, July, October, January), using the “Modelo 303” (Form 303) for the first three and the “Modelo 390” (Form 390) for the latter. Also, if the VAT a self-employed worker has paid when buying/contracting products/services (“IVA Soportado”) is higher than the VAT this person has received when selling products or services (“IVA Devengado”), the Tax Office will refund the difference between April and June of the following year.
Please bear in mind that this a high-level overview and that depending on your situation all those estimations/scenarios might change. Double-checking with a tax expert is recommended.
In future articles, we will analyse freelancers’ situation beyond taxes and social security obligations: demographics, activity industries, opportunities, challenges, associations, etc.
Are you a freelancing? What is the toughest part when dealing with the Tax Office? Are there actions you would recommend? Any additional remarks to share?
Links of Interest
Agencia Tributaria (Tax Office), Modelo 111 (Form 111)
Agencia Tributaria (Tax Office), Modelo 130 (Form 130)
Agencia Tributaria (Tax Office), Modelo 303 (Form 303)
Agencia Tributaria (Tax Office), Modelo 390 (Form 390)
Centro de Información y Red de Creación de Empresas (CIRCE), Tributación para autónomos (Taxes for freelancers)
Cinco Días, Autónomos: así queda el IRPF y los pagos a cuenta en 2017 (Freelancers: Personal Income Tax and payments to bear in mind in 2017)
El Economista, El IVA para autónomos (VAT for freelancers)
Sage Experience, Qué se puede hacer antes de fin de año para pagar menos IRPF (What can be done to pay less personal income tax at the end of the year)
Self Employed in Spain, The IRPF (Spain’s Income Tax) for freelancers