Autonomo (Self Employed)

The autonomo system is generally not well received by foreigners in Spain. Unlike other countries where a sliding scale is used dependent on income or profit many are are put off by the social security payment being at a flat rate regardless of income or profit. 

It is not only used for running your own entity,  many businesses here want to employ staff but do not want to have to register as employers with social security or give contracts which bind them into expensive commitments. Many businesses in Spain come to an agreement with staff to contract on a self employed basis to circumvent the problem.

Employers should be aware that there are risks associated with this approach. Spanish law now forbids the use of autonomo contracts as a way of employing people by the back door. The Tax Office has treated some arrangements, as if they were employment contracts and retrospectively hit employers with social security and other costs. 

Autonomo Social Security

The biggest criticism of the Spanish system is that all self employed regardless of the their income, are required to join the social security system under the Special Regime for Autonomous Workers ("RETA"). 

There are various rates and options open to autonomous depending on their circumstances and economic activity classification. The cost of the standard social security is high at €265 a month at the time of writing. Fortunately in recent years some reduced payments have been introduced to help new starts and certain categories of business.

Some people think that setting up a company ("SL") to employ themselves will avoid the high social security minimum. The problem with this approach is that companies are required to have at least one director ("administrador") who is obliged to join the RETA and thus pay a fixed social security contribution. Setting up a one-man company is therefore not an option for reducing social security cost.

When you join social security 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 although most decline as the additional insurance benefits are limited to work only.

Lower Rates Of Social Security

While exemption from social security is very rare, there are some self employed who pay less than the normal minimum as follows.

  • Person's that are less than 30 years old (men) or 35 years old (women), receive a discount of 30% on the minimum contribution for the first thirty months.
  • Person's that have not been registered as autonomo in the past five years may alternatively apply for a discount of 80% for six months, followed by 50% for six months, followed by 30% for three months. For those below the age of 30 (men) or 35 (women) the 30% discount is also extended for a further 15 months.
  • Women returning to autonomo following a maternity break are be entitled to a 100% deduction of the minimum social security payment for 12 months.
  • 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.
  •  There is a also 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 cannot just claim to be an agricultural worker by virtue of working on your own land.

Retentions 

If a profesional autonomo invoices another or a business for their services then that business must retain a tax retention of 18% to pay to the Agencia Tributaria as advance income tax on behalf of the other. The rate is reduced to 9% for autonomos in their first three calendar years. The monies retained are credited 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.

IVA (VAT) 

There are no minimum threshold in Spain for small businesses to not charge IVA registration is required from day 1 and Euro 1 unless you  offer goods or services which are exempt from VAT (exento). Examples would be educational or insurance-related supplies, which are often exempt. 

To reclaim IVA charged on your costs, proper VAT invoices are a legal requirement.

IVA is reported every quarter. When you issue an invoice and charge IVA you are merely collecting the government's money and must pass it on to them. Of course there are expenses that you will incur of which the IVA can be credit against the amount you pay. 

Employ A Professional

This guide has been written using my own experience and not as legal advice. You will need the services of a professional accountant to complete your regular returns so my advice is get them involved from the beginning! They will arrange the correct registrations on your behalf as well as submitting your annual tax returns. Accountants will charge a fixed fee for carrying out registrations and completing annual tax returns plus a monthly fee to complete your regular tax returns.

Make sure you shop around and get some quotes and wherever possible get some recommendations from people you know, this will be a long relationship!

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