Let’s see a brief review of the two most important institutions for the self-employed worker in Spain and what to do to register.
1.1. Tax Agency
The Public Treasury is also called the Tax Agency. It is that part of the public administration that is responsible for obtaining the necessary financial resources to maintain the infrastructure of the state, which includes education, health, national defense and citizen security, infrastructures, etc.
In the case of the self-employed workers, the Tax Agency is the entity that collects taxes quarterly and to which the income statement is presented once a year.
To register as a self-employed worker in Spain, the first step is to register in the Census of Liable Taxpayers through Form 030 and next to register in the Census of Employers, Professionals and Withholders through Form 037 or 036.
1.2. Social Security
The Social Security of Spain is the main social protection system of the State. Its purpose is to guarantee specific and individualized social benefits, to face certain contingencies that can place the person (and those who depend on it) in a situation of need. You can learn more about the history and structure in this Wikipedia link.
The self-employed worker in Spain has to register to RETA once he has registered to the Tax Agency through Form 036 or 037. Next, the self-employed worker has to pay monthly the social security fee named in Spanish “cuota de autónomo” which starts from 60 €/month (see point 3 of this guide) if it is the first time you have registered as a self-employed worker.
2. What do I need to register as a freelancer in Spain?
Before registering as a self-employed worker in Spain, you must take the following steps: obtain the NIE and the Spanish residence, register for tax obligations and obtain the NAF in the Social Security. Below we will explain each one of the procedures.
2.1. NIE and Spanish Residence
The first step towards becoming a freelancer in Spain is to have a NIE. The NIE (Foreigner Identity Number) is a personal, unique and exclusive number that must be possessed, for the purpose of identification, by all foreigners: in whose favour a procedure is initiated to obtain a document that enables them to remain in the Spanish territory that is not a visa.
For that purpose, you have to obtain the Spanish residence and have an address in Spanish territory where the Tax Agency could send you notifications.
2.2. Register in the Census of Liable Taxpayers
Every individual, legal entity or entity without legal personality that carries out business or professional activities, that settle earnings subject to tax or on-account deposits, will form part of the Census of Liable Taxpayers and will have to apply for registration in the Census of Employers, Professionals and Withholders.
You can register going to an office of the Tax Agency or via online filling in Form 30 in this link. To fill in the form online you have to obtain the electronic ID or Cl@ve PIN or the electronic certificate previously.
The NAF is the Number of Affiliation to Social Security. This number accredits the situation of assurance of the holder, for which, only those who are included in the Social Security have NAF. To obtain your NAF you have to go to the Social Security office and ask for it by accrediting yourself with your NIE.
3. Bonuses in the Social Security payments
There are several bonuses for self-employed workers. Let’s see them in detail:
3.1. €60,00 flat rate for 12 months
The self-employed workers that register in RETA for the first time, or that were not registered the previous 2 years, will be entitled to a reduction in the quota which will be established at 60 euros per month for the 12 months immediately following the date of registration.
But what happens if you have already benefited from this reduction in a previous registration, can you benefit from the 60 euros flat rate again? The rule expressly contemplates this situation and indicates that in order to be entitled to this reduction in the event of a resumption of the activity, the deregistration period in RETA must be 3 years.
Prior to this regulation, since the resumption of activity was never discussed, the Administration interpreted that you could only enjoy these bonuses one time.
3.2. Bonuses for balancing professional and family life linked to recruitment
If an independent worker decides to hire someone because he/she needs help in his/her professional activity and thus be able to devote more time to his/her family, he/she will be entitled to a bonus of 100% of the independent workers’ quota for a period of up to 12 months (if the contract is part-time, the bonus will be 50%).
The assumptions that entitle you to take advantage of this measure are the following:
1. Taking care of children under twelve years old.
2. Having a relative by blood or kinship up to the second degree, in a situation of dependence, duly certified.
3. Being in charge of a relative, by blood or kinship up to the second degree, with cerebral palsy, mental illness or intellectual disability with a recognized disability level equal to or higher than 33 percent, or a physical or sensory disability with a recognized disability level equal to or higher than 65 percent, when this disability is duly certified, provided that this relative does not perform a paid activity.
The improvement included by the new regulation is that the minor’s age is increased from 7 to 12 years old.
3.3. Quota bonuses during maternity leave
In this bonus (100% of the independent worker’s quota) the conditions have been greatly improved. In the previous regulation, in order to benefit from this bonus during maternity, paternity and adoption leave, etc., it was necessary to hire someone to replace you through temporary contracts celebrated with unemployed individuals.
With the new regulation, this requirement is not necessary and 100% of the independent worker’s quota will be rewarded during resting periods for maternity, paternity, adoption, custody for adoption, fostering, risk during pregnancy or during breastfeeding, provided that this period lasts for at least one month.
3.4. Bonus for female self-employed who return to work in certain cases
Female self-employed workers who, having ceased their activity for maternity, adoption, custody for adoption, fostering and guardianship, restart performing a self-employed activity in the two years following the interruption date, will pay a self-employed fee of 50 euros per month during the 12 months immediately after the date they went back to work, provided they choose to contribute for the minimum base.
3.5. Inclusion of domestic spouses in bonuses for the discharge of family workers
Before the new Law, only the self-employed spouses and blood or kinship relatives up to the second degree could benefit.
The new rule also includes domestic spouses and establishes the following: will be considered a domestic couple the one constituted with similar relation of affection to that of a married couple, by those who, not being prevented from celebrating marriage, do not have a marriage bond with another and can certify, by related registration certificate, a stable and known coexistence and with uninterrupted of no less than five years.
The existence of a domestic couple will be certified via the registration certificate in any of the specific registries that exist in the autonomous communities or municipalities of the place of residence or by means of a public deed in which the constitution of the said couple is stated.
As a reminder, the bonus meant a reduction of the share of 50% for the first 18 months, and a reduction of 25% for the following 6 months, if and whenever they were not discharged in RETA during the previous 5 years and cooperate with the self-employed worker by performing tasks related to the activity in question.
4. Everything you should know about the VAT
Since childhood, we are used to buying things and pay VAT for them. In this part of the Freelance Guide, we will talk about everything you need to know about this tax: what does VAT tax, the activities that are exempt from this tax and the different taxation schemes.
4.1. General Concept
Deliveries of goods and supplies of services carried out in the territory of application of the tax (i.e., the peninsula and Balearic Islands) by businessmen and professionals in the development of their economic activities are subject to the tax. As a general rule, the taxable person of these operations is the entrepreneur or professional, although individuals, legal persons (companies) and entities with no legal personality (ONGs for example) are also considered taxable persons when they perform operations subject to the tax.
4.2. Exempt activities
However, there are operations that are exempt from the tax. This is the case of the following activities:
- teaching in public or private authorized centres,
• private classes,
• assistance to individuals by medical and health professionals for the diagnosis, prevention and treatment of diseases,
• insurance operations,
• mediation services and intervention by public notaries in financial operations,
• leasing of houses.
4.3. Types of VAT schemes
There are a general scheme and several special schemes, but we will focus on the most common: simplified, surcharge of equivalence and agriculture, livestock and fisheries.
4.4. General VAT Scheme
– Tax form to be submitted: form 303
– To whom it applies: VAT taxable persons when none of the special schemes is applied to them or who have waived said schemes.
– How is it calculated: by the difference between the VAT charged to the clients and the deductible VAT paid, that is, VAT from income minus VAT from expenses.
– Periodicity: quarterly as a general rule, or monthly in the case of large companies and those registered in REDEME (Monthly Returns Registry).
– Date of self-liquidation:
• Quarterly: April, July and October 1st-20th; and January 1st-30th.
• Monthly: 1st-20th of the following month.
– Formal obligations:
• Issue invoice to clients.
• Require invoice from suppliers.
• Carry books of received invoices, invoices issued, investment goods and community operations.
4.5. Simplified special scheme
First of all, you can only be taxed under the special scheme if you are taxed in IRPF (income tax) in the objective estimate format. Both schemes are perfectly coordinated, for which reason waiving the special VAT scheme implies waiving the objective estimate method in the IRPF, and vice-versa. Therefore, keep in mind that if in IRPF you are taxed under objective estimation, in VAT you can only be taxed under the special scheme, either in terms of equivalence, agriculture or simplified scheme.
And now we will see the key aspects of the simplified scheme:
– To whom it applies:
• Does not exceed the following limits:
Income from all activities < 450.000€ per year.
Agricultural income < 300.000€ per year.
Amount of acquisitions < 300.000€ per year.
• Have not renounced to its application.
• Have not renounced to objective estimate in the IRPF.
• That his activities are included in the Order that develops this scheme.
– Quota calculation: VAT is determined by modules, as with the objective estimate for the IRPF. You can deduct VAT paid for the acquisition of current goods and those assigned to the activity.
– Statements and forms:
• Quarterly statements:
Date of self-liquidation: April 1st-20th, July and October, January 1st-30th.
– Formal obligations:
• Keep the supporting documentation of the applied modules.
• Keep the invoices received, including imports and intra-Community acquisitions.
• Keep the invoices issued.
• Keep a register of invoices received.
4.6. Special scheme for equivalence surcharge
– To whom it applies: small individual merchants, and also civil partnerships, recumbent inheritances or joint properties when all partners are individuals and are dedicated to retail.
– How it works: besides the corresponding VAT, providers also pay the equivalency surcharge:
• VAT 21%: added a surcharge of 5,2%.
• VAT 10%: added a surcharge of 1,4%.
• VAT 4%: added a surcharge of 0,5%.
• Tobacco: surcharge of 0.75%.
For that reason, they do not have to submit VAT statements, since they are paying the equivalency surcharge.
– Form: 309. Only intra-community acquisitions are submitted, or those with inversion of the taxable person or transfer of real estate assigned to the activity.
– Formal obligations:
• Certify that you are under equivalence surcharge.
• Issue invoice when delivering real estate, when the recipient is an entrepreneur, professional, Public Administration or legal person, and when delivering to another state.
• Carry books of invoices received if activities are carried out in different schemes.
4.7. Special scheme for agriculture, livestock and fisheries (REAG and P)
– To whom it applies: owners of agricultural, livestock, forestry or fishery operations that have not waived their right to it.
– This scheme is for “total exemption”, not being necessary to reflect, nor pay, or accept VAT for products sold. On the other hand, you can retrieve VAT supported in purchases through the mechanism of agricultural offsets.
– If products are delivered to entrepreneurs under a different VAT scheme, you receive compensation, the same applies to intra-community supplies. The compensation is of:
• 12% of the sale price in products from agricultural and forestry holdings.
• 10.5% of the sale price in livestock or fishery products.
4.8. Intra-Community transactions
– To whom it applies: to those performing transactions (delivery of goods or rendering of services) to other European Union member states.
– It’s necessary to have Tax Identification Number-VAT: It is obtained by requesting activation in the Intra-Community operators’ registry with form 036. It’s basically NIF preceded by the letters “ES”.
– Form: 349.
– Submission of the statement:
• Monthly: is the general period. It’s submitted from the 1st-20th of the following month and it doesn’t have an annual summary.
• Quarterly: when neither during the reference quarter nor in each of the previous 4 quarters, the total amount of deliveries (goods and services rendered) that should be submitted to the summary statement are above 50.000€ (100.000€ for the fiscal years of 2010 and 2011), VAT excluded. It will be submitted from the 1st to the 20th of the following month to the corresponding quarter, except the 4th which will be from the 1st to January 31st and it doesn’t have an annual summary.
• If you opt for quarterly submission, but on the second month of the trimester (February, May, August or November) the amount to be entered exceeds the 50.000€ mentioned before, you must do the bi-monthly statement. In this case, the statements will be submitted until the 20th of the following month (March, June, September or December) for those two months, and you will submit them on a monthly basis.
• Annual: the MEH can authorise the summary statement referring to the previous calendar year if the volume of transactions of said previous year was under 35.000 euros, VAT excluded, and in addition, that intra-Community deliveries of assets exempt under art. 25 NF VAT (excluding new means of transport) does not exceed 15.000 euros; in this case, the statement should be submitted between the 1st and the 30th of January.
5. Everything you should know about the IRPF (Income tax)
In this point, we will see everything you need to know about the Income Tax for Individuals and Freelancers (IRPF).
One of the sections of this tax refers to economic activities. The incomes of these activities are the ones that, derived from personal labour and the joint capital, or from only one of these factors, imply on the taxpayer the management of production means and/ or human resources, for the purpose of intervening in the production or distribution of goods or services.
However, if in your case the activity is the rental of houses, you need to have an exclusive location and one employee fulltime in order for this to be an economic activity. In order to determine the income of the economic activity, we can use several types of estimates.
5.2. Normal direct estimate
The normal direct estimate is applied if the amount of the entrepreneur’s turnover exceeds 600.000€, or we could apply the simplified direct estimate or the objective one if he has waived use of this instrument. In order to proceed to the waive, we must submit form 036 or 037 in the month of December prior to the period we wish for it to take effect. Alternatively, indicate prior to starting the activity.
In this type of estimate, we must have accounting in accordance with the commercial code and the net income is calculated by the difference between accounting income and deductible expenses:
• Accounting income: the one derived from the sale/ rendering of services, self-consumption of the entrepreneur and subsidies.
• Deductible expenses: those required for the performance of your activity. These are, for example, the purchase of goods, personnel expenses, depreciation, etc.
5.3. Simplified direct estimate
The simplified direct estimate is applied to those entrepreneurs whose turnover of the previous year does not exceed 600.000 € and who have not waived the right to apply this method of estimate.
In this format, the net income is calculated the same way as in the normal direct format, but with certain differences:
• Deductible provisions are calculated as 5% of the positive net income excluding this concept.
• Depreciation on fixed assets will be deductible expenses if the linear depreciation tables are applied. You can consult them in the following link.
In addition, in this format, it is not mandatory to have official accounting, but only an income and expense book, investment assets and provisions for funds and supplements.
6. Most common tax forms
The tax forms (“modelos tributarios” in Spanish) are the forms through which the different taxes are presented. The most submitted forms by the self-employed workers are:
VAT form (“modelo IVA”) is submitted quarterly. The self-employed who develop any activity subject to VAT must submit this form. It can be positive (to be paid) or negative (to be compensated). If it occurs to compensate, it means that the amount is being compensated quarter by quarter and if in the last quarter of the year it came out negative, then you can ask for the refund or continue compensating it with the VAT during the following year.
Personal income tax return is submitted quarterly (“modelo IRPF”). It should be presented by the self-employed registered in any kind of business activity. It can be positive (to be paid) or with a negative amount (to be deducted in the following quarters of the same year). If you were to deduct it means that the amount can be deducted in the following quarters of the same year, but you can not ask for a refund.
Form of withholdings of workers and professionals. It is submitted by all those self-employed who have workers under their care or who have paid bills from professionals subject to withholding.
Form for rentals withholdings. If a self-employed person rents a premise and the withholding is reflected in the invoice (there are exceptions to this case), then he must register in and submit quarterly the form 115 which will always be positive (to be paid) or in any case 0, but never negative.
Intra-community operations form. This form should reflect all the intra-community transactions carried out during the quarter. They must be submitted quarterly by the self-employed registered in ROI (Registry of Intra-Community Operators) in case of having even a single operation. It is an informative statement for which taxes are not paid.
Annual summary VAT form. It is submitted in January of the following year. It is an informative statement, no taxes are paid.
Annual summary form for rental withholdings. In this form, not only all the rent recipients of the year are summarized, but the property must be indicated with its address and cadastral reference to submit the form. It is an informative statement.
Annual summary form for the withholdings to professionals and workers. It should indicate the workers and professionals with their names, surnames, ID, perceptions and withholdings. It is an informative statement.
It is an annual statement of operations with third parties. If you have had transactions with the same supplier or client for a value greater than € 3005.06, you will have to submit this form.
Form 100 (Renta)
Annual personal income tax return.
7. VIES Registration (ROI)
What is the ROI?
Purchase and sale operations of goods or services to individuals or companies of the European Union (EU) states are called acquisitions and intra-community deliveries. Purchases and sales of goods and services between EU companies are subject to a special system of VAT taxation. The acronym ROI means Register of intra-community operators and is where you should register your registration if you perform this type of operations.
Who should register in ROI?
The Registry of intra-community operators is formed by the persons or entities that have assigned a Spanish NIF-VAT. All those businessmen or professionals who:
• Are established or not in the territory of application of the Spanish VAT that deliver goods or intra-community acquisitions of goods subject to tax, even if the goods object of such intra-community acquisitions are used in carrying out business or professional activities abroad.
• Are recipients of services provided by companies not established in the Peninsula and the Balearic Islands, for which VAT liabilities are subject (investment of the taxpayer).
• That they provide services that, according to the location rules, are understood to have been made in another Member State other than Spain, when the taxpayer is the recipient of the same.
• Also, legal entities that do not act as entrepreneurs or professionals, when they make intra-community acquisitions of goods subject to VAT.
How to apply for registration in ROI?
To apply for registration in this Registry, it is sufficient to present the 036 form, requesting registration in the ROI. This model must be accepted by the Tax Agency, which may take up to 3 months to respond.
It is a normal practice for the Tax Agency to carry out checks before officially accepting the registration. To do this, they go to the tax domicile of the self-employed worker to verify that they actually live in the indicated place and they ask the company that wants to register a justification of why they want to be part of that registry.
Hacienda may accept or reject the request. Once you are registered, you will appear in the VIES census and this is where you can find all the companies that have the NIF-VAT.
Must a VAT-NIF be requested to carry out intra-community operations?
Yes. Not having a VAT-NIF implies not being included in the VIES census and, therefore, not being identified as an intra-community operator.
Does Hacienda know what money income I receive from intra-community operations?
If you are registered in ROI and you carry out this type of operations, you must present 349 form, which is informative for the Tax Agency. This model reflects what amounts you enter for intra-community operations and what amounts you spend on intra-community goods and/or services.
The 349 model is informative, which means that taxes are not paid for it, as is the case with forms 303 (VAT) or 130 (IRPF). But in the quarterly VAT declaration (303 form) and in the annual (390 form) these data related to intra-community transactions must be collected.
And what if your customers are individuals?
As a general rule, if you invoice intra-community customers that are neither companies nor professionals, but private individuals, it is considered that the sale is taxed in the country of origin, that is, you must include the corresponding Spanish VAT in your invoices.
And what if invoices outside the European Union?
Countries outside the European Union are not subject to the ROI requirements, therefore if you only invoice or include invoices for spending from third countries, you do not have to be in ROI.
Can I cancel my ROI registration?
The deregistration in ROI is done through the same 036 form. If at any time you detect that you are not registered in ROI, then the Tax Agency considers this to be fraudulent, so your registration is rejected. In this situation, you must appeal and defend your registration right.
8. Deductible expenses
For an expense to be fiscally deductible, it must meet the following conditions:
- 1. That it is a real operation.
- 2. That has been made for the attainment of income.
- 3. That is duly registered in the expense book.
- 4. That it was charged in the year in which it occurred.
- 5. That is duly justified, as a priority by the invoice delivered by the entrepreneur or professional who has made the corresponding operation.
8.1. Purchases of goods
In this section we would include all the purchases of goods consumed in the current year, specifically, something that everyone uses is the office material. If your activity is manufacturing, you should include the raw materials you need, and if you do trade, here you would include the goods for resale.
8.2. Fixed assets (amortizations)
Fixed assets are a set of assets included in the book of investment assets, which are not intended for sale and which you will use in your activity beyond an economic year. The most common examples are a computer (tangible assets) or a web page (intangible assets).
Since these goods are going to be used for more than a year, it makes sense for them to be included as expenses little by little, and for that, there are tables with percentages of amortization. With an example, you will get it clearer. Imagine that you acquire a computer whose tax base amounts to € 1,000, since the percentage of amortization of this type of goods is 33% if you had purchased it on January 1 the amortization expense in that year would be € 330.
8.3. Contributions to Social Security or Professional Mutuality (Mutua)
Both the payments you pay to Social Security for having registered as self-employed, as well as the fees you pay to your professional Mutuality (lawyers, doctors, engineers, architects, etc.), in case you use Mutuality as an alternative scheme to the RETA, are deductible expenses.
8.4. Leases (premises or personal property)
The most common are expenses for renting premises for the exercise of activity, but also rents of movable property, such as renting a photocopier, are also considered deductible.
8.5. Expenses related to vehicles (totally / partially designated)
This section would include fuel, necessary repairs, maintenance costs (ITV), insurance and municipal taxes (IVTM). But it is very important that you know that all these expenses are only fully deductible in Personal Income Tax for the self-employed who dedicate themselves to:
- 1. Commercial activities (commercial agents)
- 2. Passenger transport activities (taxi drivers)
- 3. Freight transport activities (transporters, delivery people, messengers)
- 4. Driver education activities (driving schools)
For the rest of the self-employed, the regulations do not allow deducing anything from the taxable base of these expenses, although it does allow a 50% VAT deduction provided that the self-employed can show that the vehicle has partially designated their activity.
8.6. Fees of independent professionals
This includes the costs of the financial adviser, lawyers, economists, registrars, notaries, for all the services rendered to you related to the exercise of your activity.
8.7. Supplies (if you have a location designated to your activity)
If you use a place to develop your activity, all the expenses of supplies related to the premises will be 100% deductible.
8.8. Supplies (if you use a room in your home for your activity)
In the cases in which the self-employed person partially designates his / her habitual residence to the development of the economic activity, the expenses of supplies of said dwelling, such as water, gas, electricity, telephony and Internet, will be considered a deductible expense in the resulting percentage of apply 30 percent to the existing ratio between the square meters of the house intended for the activity with respect to its total area, unless a higher or lower percentage is proved.
After many years of uncertainty about what and how much can be deducted by a self-employed person working at home, we now know what can be deducted, although the result of the amount to be deducted after applying the percentages is really small. You can check it with an example:
A software developer who works from home, has enabled a room of 18 m2 for the exercise of his activity, having his house an area of 90 m2. Therefore, the percentage of the surface that it allocates to its activity is 20%. What operation will you have to perform to know what can be deducted from a telephone and Internet bill that amounts to € 145.00?
€ 145,00 x 20% (percentage of m2) = € 29,00 x 30% (percentage established by the regulation) = € 8,70
IMPORTANT NOTE: these deductibility rules can only be used to deduct a proportion of the taxable base of the expense, that is, you will not be able to deduct any amount from the VAT of the invoice.
If you are the owner of the home in which you develop your activity, you will also pay community of owners, housing insurance and IBI. Well, in this case, you can deduce the percentage that represents the proportion between the square meters of the house intended for the activity with respect to its total area.
8.9. Financial expenses (financing of loans)
If you have used some kind of financing for the development of your project, the loan interests and commissions charged to you by the financial institution are also considered deductible.
8.10. Health insurance
The tax-deductibility of insurance premiums is limited exclusively to health insurance and only in the part corresponding to sickness or healthcare coverage, and can not be extended to different insurance, such as accident insurance, or to different coverages. The health insurance payments paid by the holder, his spouse and children under 25 years of age, up to the maximum amount of € 500 per member per year, are considered deductible expenses.
On the other hand, it is possible that for the development of your activity you need or require a civil liability insurance policy, in this case, this insurance would also be deductible.
8.11. Living expenses of the self-employed worker
This has been another controversial expense for deductibility by the self-employed until in 2018 the rule clarified what type of expense and amounts could be considered as deductible.
The requirements that these expenses must meet to be considered deductible are:
- 1. They must be produced in business days.
- 2. They must be produced in restaurants and catering establishments.
- 3. They must be paid by any electronic means of payment (card or transfer).
- 4. The invoice must be kept, indicating the day, establishment and amount.
- 5. They cannot exceed the quantitative limits established by regulation:
– WITHOUT OVERNIGHT: € 26.67 / day (Spain); € 48.08 / day (abroad)
– WITH OVERNIGHT: € 53.34 / day (Spain); € 91.35 / day (abroad)
8.12. Mobile phone
To be able to deduct the invoice of your mobile phone, you must have a specific telephone line for the development of your activity. Otherwise, the Treasury will not allow you to include that invoice among your expenses.
8.13. Expenses related to travel
If you are a professional who must travel often to visit your customers and have to bear transportation and accommodation costs, you can relate these expenses to your activity, although you should follow a series of precautions since the Administration is strict to accept them.
The important thing is that you can show that these expenses are related to your activity, so the first thing is to collect evidence to prove that these expenses are really yours. It is interesting that whenever possible you can obtain an invoice in your name and if it is not possible, save the ticket and pay whenever you can with a credit or debit card.
In addition, to prove that they are really related to your activity we advise you to follow these precautions:
- If you travel by taxi. Ask the taxi driver to indicate on the bill your name, date, time and the journey made so that you see the purpose of the trip and that it was related to the activity.
- If you travel by bus, metro or train. It will have to be during working hours since Hacienda only considers the related trips in those hours as related to the activity, so you can deduct tickets and transportation vouchers that reflect the date and time of use and that are in that time interval.
Finally, we leave you with the best solution when it comes to demonstrating the deductibility of these expenses. If possible, try to have your fees broken down in the invoices you issue to your customers and, apart from that, the expenses for food, stay and transportation that you have had to bear for providing the service billed, as expenses incurred by your account. If you do so, the Treasury will not question that these costs are really related to your activity, since you will have incurred them on your customers.
8.14. Outsourced work
If part of the work you do as a professional you have to subcontract because you have to meet deadlines or have had a flood of customers, those expenses that incurred will also be considered deductible.
Nowadays there are many self-employed workers who use Internet advertising to make themselves known. Specifically one of the most used services is Google Ads. Both the invoices of Google and those of any other company that charges you for advertising your services will be considered deductible.
8.16. Representation expenses
What professional has not closed business or contract after a meal with a client? And what is expected is that you are the one who invites. In these cases, you can deduct both his food and yours, regardless of the location of the restaurant, since customer care is deductible. Even so, the expense assumed should be reasonable and sporadic and you should also ensure that the bills or tickets show that there were several partakers.
9. Non-deductible expenses
As a general rule, the AEAT (the Tax Agency) establishes three indispensable requisites for expenses to be declarable:
- The expenses must be linked to the economic activity that you develop as a self-employed worker.
• All expenses must be justified with invoices, sometimes very specific receipts are accepted.
• They must be registered in the accounts, in the book of expenses and investments that a self-employed worker must have.
In general, the expenses are deducted in two statements, on the one hand in the annual income statement (IRPF), and on the other, quarterly in the VAT form 303. Let’s see each of them separately.
9.1. Non-deductible expenses in the IRPF
At the time of preparing the Annual Income Statement (Declaración de la Renta) and obtain your net return from your activity, you must compute all your income and expenses derived from it.
In this computation, you must continue to have the same criteria mentioned above, only expenses related to the activity and nothing of a personal nature, such as meals in restaurants, leisure trips, gifts for the family, etc.
The Tax Agency also prohibits the following costs or expenses:
• Fines and penalties, as well as the surcharges that you may have incurred for submitting the Tax Agency’s forms after the deadline.
• Payments of the tax models as well as payments of deferrals thereof.
• Game losses.
• The expenses that you may have had with entities or persons residing in tax havens.
• The supported VAT that you have already deducted in the quarterly statements already submitted.
These items are easily locatable and excludable, but the controversy does not come precisely from them, but from those expenses that are linked to the professional and personal life of the self-employed worker and that it is very complicated to define how much corresponds to one and the other.
We mention the most relevant:
• The home office. If you work from home you can deduct part of the expenses, but it should always be well documented and argued.
• Mobile phone. The mobile phone bill is admitted for professional use, but it is convenient to show that you have another line for your exclusive personal use.
• Private car and its derived expenses. It is only deductible in the IRPF if you use it for your activity (taxi drivers, delivery drivers, etc.).
• Travels. They are deductible in the IRPF but they must be very well justified. They can be hotels, meals and displacements.
• Clothes. It is deductible as long as they are exclusive clothes to carry out work such as a uniform or protective clothing.
9.2. Non-deductible expenses in VAT
For the quarterly VAT return, in addition to the three points established by the AEAT, it must be borne in mind that expenses cannot be included in the following cases:
- if there is no official invoice, the ticket is insufficient.
• if more than 4 years have passed since the invoice was issued.
Do you practice more than one activity as a self-employed worker? And one is subject to VAT and the other one is not? I’ll give you an example to make it clearer: a computer programmer who, in addition to practising his professional programming activity teaches classes for university students. The programming activity is subject to VAT and must issue their invoices with 21% VAT, but the activity that he develops as a teacher, being a regulated education is exempt from VAT, and therefore his invoices to his customers will go without VAT.
In these cases, the VAT quotas borne in the acquisitions of goods and services made by our computer programmer to perform his 2 activities (office material, telephone, computer equipment, space rental in coworking, etc.) are only deductible in a determined proportion, which is called “prorrata”. This proportion is calculated by a special procedure.
Types of prorrata
There are two prorrata modalities:
1. The general prorrata, which is applied when the special prorrata does not apply.
2. The special prorrata, which only applies in the following cases:
• When the taxpayer chooses its application.
• If it turns out that when applying the general prorrata the deductible fees are 10% higher than those that result if we apply the special prorrata, you must necessarily apply the latter.
Deadlines to opt for the special prorrata
The terms for opting for the special prorrata are the following:
1. As a general rule, in the last VAT declaration corresponding to each calendar year.
2. In the case of starting an activity, the term available is until the end of the period of presentation of the VAT return for the first quarter in which the activity begins. If you start the activity on February 25, you will have time until April 20 to opt for the special prorrata.
If you opt for the application of the special prorrata, that option has a minimum validity of 3 calendar years. Once that period has elapsed, the taxpayer may revoke his option and may proceed to a general prorrata.
11. Equivalence surcharge
11.1. What is the equivalence surcharge?
The equivalence surcharge is one of the special VAT regimes that applies to the self-employed workers who are retail traders, that is, who sell to the final customer. It applies to individuals (both registered and self-employed), as well as to communities of property.
It is mandatory in the case of retailers and is called ‘recargo de equivalencia’ because it is equivalent to the VAT of the retail phase.
11.2. Who is considered a retail merchant?
In order for you to be a retailer, the following requirements must be met:
- That you regularly deliver products without having undergone any manufacturing, processing or transformation process, by yourself or through third parties.
• That more than 80% of the volume of sales of the previous year in relation to deliveries of products has been made through deliveries to final consumers.
11.3. Characteristics of the equivalence surcharge
You will pay, in addition to the VAT paid on the purchases of products, the so-called equivalence surcharge, which in the case of the general rate (21%), the surcharge amounts to 5.2%.
Therefore, a product that costs € 100.00 base, you, as a retailer, would cost € 126.20 [100.00 + 21.00 VAT + 5.2 of RE].
The great advantage is that you do not have to declare VAT, generating a simplification of the tax process.
11.4. Exceptions to the equivalence surcharge regime
The activity of commercialization of goods is subject to the regime of surcharge of equivalence except when it comes to market with the following goods:
- motor vehicles to drive on roads and their trailers
• boats, ships; airplanes, light aircraft, sailboats, etc.
• accessories and spare parts for the aforementioned vehicles
• jewellery, precious stones, natural pearls and objects made with gold or platinum
• original, collector’s and antique objects of art
• machines and accessories for beekeeping and poultry farming
• petroleum products
• industrial machinery
• building materials and construction items
• minerals (except coal)
• investment gold
• iron, steel and other alloys, always unmanufactured
11.5. Types of equivalence surcharge
The applicable equivalence surcharge types are the following:
- 5.2% for items that have a VAT at the general rate of 21%.
• 1.4% for items that have a VAT at the reduced rate of 10%.
• 0.5% for items that have a VAT at the super-reduced rate of 4%.
• 0.75% for tobacco.
For example, a merchant who acquires an order of € 2,000 from his supplier will receive an invoice of 2,000 + 21% VAT + 5.2% of Equivalence Surcharge = € 2,786.
– You do not have to keep accounting books or submit quarterly VAT returns, but you must keep your personal income tax books according to the regime for which you have opted:
- In the most common regime, the simplified direct estimation regime, you must keep the following books: sales and income records, purchases and expenses and investment goods.
• In the objective estimation regime (“módulos”), the books register of purchases and expenses and investment goods.- It is mandatory that you communicate to your suppliers and certify that you are subject to the equivalence surcharge.
– If a client asks you for an invoice you have the obligation to provide it including VAT and your client can deduct it even if you, as a merchant in an equivalence surcharge system, do not have to pay VAT into the Tax Agency.
11.7. Differentiated activities
You are a retail merchant, you sell retail items as a self-employed worker and you tax under the equivalence surcharge regime. Now you know that in this regime you cannot deduct the input tax and you do not have to submit declarations. Well, if you now start an activity under the general VAT regime, it will be considered that you develop two differentiated activities and, therefore, you will have to act in the following way:
- As regards the activity subject to an equivalence surcharge, you will not be able to deduct the VAT from purchases and expenses under any circumstances.
• You can deduct all the expenses incurred in the new activity subject to VAT.
• Purchases or common expenses, that is, purchases and expenses that serve you for both activities will be deductible based on the prorrata percentage. With prorrata, we refer to the percentage represented by the sales of the new activity at the end of the year with respect to the total sales made.
11.8. Advantages and disadvantages
The advantage that is most obvious and that we have already mentioned is that your management with regard to VAT is simplified enough. You do not have to submit VAT returns, but also, you do not need to perform administrative work.
The disadvantages begin when we talk about deductions. You must bear in mind that the VAT paid cannot be deducted or recovered, so the purchase or sale of products is going more expensive than usual. Nor can you deduct the VAT from the investments you make in your business.
In the case of entrepreneurs who intend to make a large investment, it would be advisable to opt for a limited company.