Why go self-employed?
If you want to be your own boss, or are thinking of taking the first step towards setting up a business in Spain, you might want to consider joining the 3 million or so Spaniards who are self-employed or 'autónomo'.
That's what Alicante-based travel writer and web site operator Sarah Farrell decided to do recently.
After several years of working in Spain in various full-time positions, Sarah went freelance 18 months ago when she took over a travel website franchise.
She needed to be able to invoice companies for the videos and articles she provided and being self-employed was the answer.
Karen Edwards, meanwhile, runs an English academy in the town of Alcudia in Majorca.
For her, being registered as self-employed was simpler, cheaper, and less risky then setting up a limited, or SL, company.
"As the school's turnover is relatively small, I could choose to run it as an autónomo," she explains.
For her, the situation has worked out very well.
She can work the hours she wants, and is also able to work 12 months a year, avoiding the nine month-contracts offered by many of Spain's private language academies.
Signing on to the scheme
To register as self-employed, you'll need to sign up at the tax office, or Hacienda, providing them information including your NIE number and details of the type of business you plan to engage in.
Depending on what activities you plan to carry out, you may need to provide other tax data.
Being self-employed is not a one-size-fits-all solution in Spain, and different industries can have different requirements.
You will also need to make sure that are registered with Spain's social security system, or SEPE.
Many people choose to hire a gestor, or business manager to help with the process, although this is not obligatory.
"Becoming an autónomo was quite straightforward," says Sarah Farrell.
"In my case, I just hired a gestor to help me with all the paperwork, and took it from there."
Sarah still uses this business manager, paying her €100 a quarter to process her tax statements, a service she says is invaluable.
"The laws keep changing changing on tax, and it can be a minefield," she explains.
Meanwhile, Karen Edwards also stresses the importance of having a good gestor.
"I didn't want to attempt setting up on my own: the system was just too complicated," says Karen.
In terms of finding the right person to do the job, she says it's "all about word-of-mouth".
"Most of Spain's autónomos pay a minimum flat rate of around €250 a month," Sebastián Reyna, the President of the Union of Professional and Working Self-employed People (UPTA) told The Local.
"In exchange, these registered self-employed people receive health care and pension entitlements — at least once you have paid into the system for 15 years."
There is also the option of paying slightly more if you wish to take advantage of unemployment benefits.
But these costs can appear prohibitive given that they have to be paid every month, no matter what you earn.
"You need to be very serious about what you do if you want to register as autónomo," says Karen Edwards.
"Being self-employed, you need to keep up the minimum payments — even if you don't have any work".
Reyna from UPTA also sees problems with the €250 per month flat fee. "This isn't much money for an older person who is well established in their position," he told The Local.
"On the other hand, for a young person just starting out, this can be a lot of money."
Reyna would prefer, instead, to see a sliding scale where people earning more pay more into the system.
But the UPTA chief also points out that people aged under 30 can benefit from special discounts at the moment.
This age group gets a discount of 80 percent on their monthly autónomo contributions in the first six months, and then of 50 percent in the next six months.
In the following 18 months, people aged under 30 pay 30 percent less per month.
"All this helps," says Reyna, although he would like to see more incentives offered.
"Going autónomo is the first step in starting up a business, and we need to promote it as much as we can.
"Spain lacks a culture of entrepreneurship, and people here tend to get ahead of themselves," the UPTA boss explains.
"But entering into business world means having a mobile phone and a client or two, and the more incentives we can offer the better."
"Think carefully before going autónomo. You won't get a set wage and you will need to be more flexible," says Sarah Farrell.
"You will also need to spend time chasing up bills, and you will discover that some people just don't think they have to pay."
As an autónomo you will also have to keep very careful tax and value-added tax records, partly to complete quarterly tax records, and in case you are audited.
According to the legal firm Advoco: "A "proper" receipt always has the name of the autonomo or business, the identification number of the business (CIF if incorporated, the NIE or DNI if an autónomo), date, description of product/service, invoice amount and VAT (IVA) applicable."
These receipts can be in English or Spanish: both are acceptable.
You will also need to keep records to claim any tax deductions.
"Self-employed people can claim a whole range of deductions," says UPTA President Sebastián Reyna.
"This includes a deduction for the autónomo fee itself, and office expenses, as well as vehicles which are used for work purposes."
Other costs which can be deducted include phone and internet services used primarily for work purposes, and accounting fees."
The key piece of advice here? "Keep your receipts!" says legal firm Advoco.
"If you are self-employed, you pay tax on the same scale as other people in Spain," says UPTA president Reina.
However, you will also have to deal with the system of retenciones, or withheld tax.
Basically, any time you invoice a company for a service, that company will have to pay a portion of the bill directly to the tax office.
In this way, the Spanish government can make sure self-employed people don't run off without paying their tax.
This withheld sum is not an additional tax, but it does mean that if you have paid too much in taxes, you will have to wait until the government refunds you at the end of the year.
Likewise, with the value-added tax, if you overpay during the year, you will be left waiting until the end of the year to see your money again.
The law firm Advoco has a useful guide to Spain's autónomo regime on its website.
The legal framework in this area is constantly changing, so make sure you get good advice before you start out.