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WORKING IN SPAIN

Why does my salary vary between months in Spain if I’m a contract employee?

If you’re employed by a company in Spain, you may have noticed that what you get paid each month is sometimes higher and other times lower. Here's why this happens and how you can understand it better.

Why does my salary vary between months in Spain if I'm a contract employee?
If at the beginning of the year you received a raise, had a baby or opened a pension plan, it may mean that the tax withheld from your company will go up or down. Photo: StartupStockPhotos/Pixabay

Many asalariados (salaried employees) across Spain will have noticed that their wages at the beginning of 2022 may have been lower than that net salary they received at the end of 2021.

This is in fact usually not down to error, but comes as a result of your company withholding a higher amount of personal income tax (IRPF) at the start of the year, resulting in you getting paid less.

Companies in Spain are obliged to withhold a certain percentage of your salary called IRPF (Impuesto sobre la Renta de las Personas Físicas).

This, in turn, gets passed on to Spain’s Hacienda tax agency. Your gross salary and personal circumstances mean that the income tax withheld will vary.

Your employer will calculate the amount of your gross salary you must pay to the Treasury as personal income tax and will deduct it from your payroll month by month. This can be done between the 12 or 14 salary payments per year.

Alternatively, a lower percentage of tax may be applied in the first months of the year, which is then adjusted by raising it in the final few months of the year, or vice versa, which is why fluctuations can occur.

You should keep in mind that if at the beginning of the year you received a raise, had a baby or opened a pension plan, it may mean that the tax withheld from your company will go up or down. Having a new baby for example gives you a reduction.  

What if I believe there is an error in my IRPF calculations?

If you still believe there is an error, this can be rectified whilst filing your annual income tax return – la declaración de la renta – which you should each year between April and June.

READ ALSO – La Renta: The important income tax deadlines in Spain in 2022

If you receive an annual gross salary of less than €22,000, you are not required to fill out an annual tax declaration, but may want to do so if you believe that your employer has been deducting too much tax. If the error is found in your favour, Spain’s tax agency will return your overpaid tax.

How can I find out how much tax will be deducted in advance?

If you want to be prepared and find out exactly how much tax your company will deduct from your salary each month, you can fill out this tax calculator for 2022 found on the Hacienda website. This will let you know exactly how much IRPF should be deducted from your wage, depending on your personal circumstances. 

Your employer may also ask you to fill out the form Modelo 145 to help them work out how much tax you should pay.

The form will ask you for your current personal situation such as marital status, if you have children or other dependents. Depending on the outcome of this, you may get further discounts on the amount of tax that is withheld.

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For members

TAXES

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. 

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