Spain proposes changes to unpopular new social security taxes for self-employed

The Spanish government has suggested changes to the new controversial social security rates for aútonomos which they want to introduce in 2023, this time proposing that contributions on “real earnings” should be between €214 and €991 rather than between €184 and €1,267.

Spain proposes changes to unpopular new social security taxes for self-employed
Spain's Minister of Social Security and Migration Jose Luis Escriva. (Photo: Pierre-Phillipe Marcou/AFP)

Spain’s Social Security Ministry has proposed a new version of its social security payment quota system for the self-employed after their initial proposals in January were roundly criticised.

Spain’s self-employed workers – known as autonomós in Spanish – already pay the highest monthly social security fees in the EU and have complained for years that the system is unfair. These monthly fees, which currently run up to a maximum of €294 a month after two years as self-employed, are separate from income tax. 

The new contributions system proposed in mid-January by Minister of Social Security José Luis Escrivá has been rejected by self-employed unions and many autónomos, as it could see them paying double the amount that freelancers in France and Germany pay and triple that of those in the UK.

Escrivá had suggested a system consisting of 13 different tax contribution brackets based on ‘real earnings’, from those who earn less than €600 a month to those who make more than €4,050 a month.

The new model would have introduced a minimum monthly contribution of €184 for low-earning autónomos and up to €1,267 for the top earners.

This would be done gradually over a period of eight years, so from 2023 to 2031 minimum earners would see their monthly tax contributions drop year after year, whereas high earners would see them rise year on year.

Escrivá said on Friday that after studying the negative response from self-employed unions, “substantial modifications have been made with respect to the latest proposals, in response to the different requests of the social partners”.

The new proposals

Hoping to get unions onside, the Ministry for Social Security have promised – verbally, but not yet in writing – that net income will be redefined, and that some of the costly expenses many self-employed workers face will now be allowed as deductions. 

As for social security contributions, the new plans have already been criticised as they modify contributions at the lower and upper end of the income spectrum in what is perceived to be a non-progressive way: it now proposes a €30 increase to €214 a month for the lowest self-employed earners, those earning under €700 a month, and a €276 reduction to €991 a month for the highest earners.

So the tweaked proposal is slightly better for higher earners (but still very high) and slightly worse for the lowest earners.

Cuts for high earners

The latest plans lower the monthly social security contribution for high earners to €991.44 from €1,267 as initially proposed.

Middle earners

The bulk of the reductions, however, will come in the middle earners bracket (those who earn between €900 and €1,500 a month) where a large portion of Spain’s self-employed workforce sits. 

It is believed that the full details of the new proposals, including the rejigging of the contributions, will be shared with self-employed organisations next Monday but sources say it is believed self-employed workers with a “real income” below €1,125 per month will contribute €264; those earning up to €1,300 per month will contribute €316 monthly (€36 less than originally proposed), and workers with a real income of €1,500 per month will face a €392 monthly fee (€21 less than previously thought). 

Lower earners and first-timers

It is believed those who fall in the €700 – €900 per month quota section will maintain a monthly fee of €245, and that some exceptions for new self-employed workers will be kept: if you are a first-time freelancer, for example, there are some reductions – €60 per month for the first year, €143.10 per month from months 13 to 18, €200.30 per month from 19 months to 2 years, and the same amount up until 3 years.

Unions still not happy

Yet unions are reportedly unhappy that lowest earners will, under the tweaked proposals, see an increase in contributions, whereas the very top earners will see a decrease. “It is an insufficient proposal”, said Eduardo Abad, president of UPTA. “We want there to be substantial savings for the self-employed… the upper brackets are the ones that have to make a greater contribution effort so that the lower brackets can reduce theirs,” he added.

Government reaction

The junior coalition government partner, Unidas Podemos, has also questioned Escrivá’s revised proposal. Party spokesperson in the Congress of Deputies, Pablo Echenique, said on Twitter: “The initial proposal was already unacceptable. Now they want to lower the fee for the self-employed who earn the most and raise it for the most precarious?”

Self-employed’s social security contributions are a story that seems set to rumble on into 2022.

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The tax cuts and other benefits Spain’s new Startups Law will bring to entrepreneurs

Foreign entrepreneurs have been waiting for years for Spain's highly anticipated Startups Law to be finalised. The latest news is that it will come into force in September 2022; and new details on the benefits it will bring have also been released.

The tax cuts and other benefits Spain's new Startups Law will bring to entrepreneurs

Spain’s new Startups Law, which the Spanish government first announced in 2019, could finally come into force in September 2022, as indicated by Economy Minister Nadia Calviño. 

For the first time, Spain will have a law directly aimed at the particularities of small technology-based companies. 

The new Startups Law hopes to attract foreign companies, making it easier for startups to choose Spain by giving them incentives such as tax reductions. 

Although there is still a long way before the final text of the Startups Law is published, and it may have to go through several amendments yet, here’s the latest on the draft law so far and the benefits it will bring.

There will be no obligation to pay the social security self-employed fee for multiple activities

One of the most important announcements is the elimination of having to register as self-employed (autónomo) in the Special Scheme for Self-Employed Workers (RETA) for three years, provided that the entrepreneur who launches the startup is in turn hired as an employee by another company.

This is the case for 25,000 self-employed workers in Spain who currently combine working for themselves with being hired by someone else.

Overall, it’s good news as Spain’s social security fee is among the highest in Europe at €294 a month. 

Self-employed workers will have three chances to benefit from the new law

The failure of a business is something that is being contemplated for the first time in legislative text in Spain.

The startup bill will make serial entrepreneurship easier, meaning that a freelancer who has started a business, which ultimately doesn’t work, can try again and can continue to benefit from the same advantages. Specifically, entrepreneurs are allowed to benefit from the Startups Law up to three times.

Improvement in the tax treatment of stock options

Stock options are often a form of remuneration for work that is frequently used in startups. It consists of offering directors or employees the possibility of obtaining shares of the company where they work. Specifically, the tax exemption amount will rise from €12,000 to €45,000.

In addition, tax will only be paid on these shares when the sale of them takes place, or when the company goes public.

Deduction in Corporation Tax to 15 percent

It will give startups and investors a reduction in Corporation Tax from the current 25 percent to 15 percent. 

The elimination of obstacles for foreign investment 

One of the main problems foreign investors encounter when they want to invest in a Spanish startup is bureaucracy.

As a result of this, the new law aims to eliminate the obligation for international investors to request a NIE (foreigner ID number) to carry out this type of action. Both investors and their representatives will only need to obtain Spain’s tax identification numbers (NIFs).

Tax breaks

The new law includes a series of tax benefits in order to make national investment more attractive.

The maximum deduction base for investment for newly or recently created companies will be raised from €60,000 to €100,000 per year and the type of deduction will increase from 30 to 50 percent.

The period of time that a company is considered ‘recently created’ will increase

The period that is considered ‘recently created’ for eligible companies will go up from 3 to 5 years old. For biotechnology, energy or industrial companies, the bracket is wider still – 7 years.

Who will be able to benefit from Spain’s new Startups Law?

The Startups Law is open to anyone from the EU or third countries, as long as they haven’t been resident in Spain in the five previous years. It will allow them to gain access to a special visa for up to five years. 

This visa will be open to executives and employees of startups, investors, and remote workers, as well as their family members.