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SELF-EMPLOYED

Self-employed in Spain: Do I have to register and pay tax if I earn below minimum wage?

It’s illegal to earn below the minimum wage in Spain if you’re a full-time employee, but if you’re an 'autónomo' do you still have to register and pay tax when you're not earning much money?

Self-employed in Spain: Do I have to register and pay tax if I earn below minimum wage?
Do you have to register as self-employed in Spain if you earn below SMI? Photo: Tumisu / Pixabay

Being an autónomo (self-employed worker) in Spain can be challenging, given the high social security payments you have to pay every month and the bureaucracy that’s involved.

But is it actually necessary to register and pay tax if you’re earning below the minimum wage every month? 

In 2022, Spain’s Interprofessional Minimum Wage (SMI) is €1,000 per month if you’re paid in 14 instalments and 1,116 if you’re paid in 12 instalments throughout the year.

According to the Spanish news site The Objective, two-thirds of self-employed workers in Spain, around 2.2 million of the 3.3 million registered, earn below minimum wage.  

Currently, contract workers in Spain who earn €22,000 or above must present an income tax return and those whose annual income is less than €22,000 will be exempt from filing a tax return.

However, if you’re autónomo, you will still need to complete file la declaración de la renta, even if you have earned under €22,000.

The question of whether you need to register as self-employed in Span and pay tax even if you earn minimal amounts has been asked over and over again and is a bit of a grey area, with many lawyers not even being able to give a straight answer.

Take freelancers who are just starting out and are in the process of growing their business but who are not yet making enough sales to reach minimum wage. It could also be self-employed workers who are going through a period of financial difficulty or those who only work periodically such as language teachers, who may only give a few classes a week.

What does Spanish law say?

In 2007 the Supreme Court issued a ruling stating that it was not necessary to register as autónomo if you’re earning below minimum wage. Since then, there have been several self-employed workers who have won cases arguing and proving that they earned less than the SMI. 

However, there is no exact law on this and in 2018, Spain’s Social Security department issued a ruling stressing that everyone had to register as self-employed, regardless of the amount they earn.

READ ALSO: Why you should be raising your rates if you’re self-employed in Spain

According to InfoAutonomos, a website designed to help Spain’s self-employed: “The problem arises because the obligation to register as self-employed is independent of the level of income and the time dedicated to a work activity”.

Spanish Social Security legislation states that “you must register as self-employed if you regularly, personally and directly carry out an economic activity for profit, without being subject to an employment contract, even if you use the paid service of other people, whether or not you are the owner of an individual or family business”.

This means that you are supposed to register if you work on a regular basis, but you could still be earning below the minimum wage, whether you are working 40 hours a week or just for two afternoons a week.

The reality is that if you are not registered properly then you cannot legally issue invoices to clients in Spain and therefore cannot be earning anyway. You can issue invoices to clients abroad though, but may still not be earning enough to meet the Spanish minimum wage

Even if you do not exceed Spain’s SMI, if you issue invoices every month, Spain’s Seguridad Social Ministry and the Hacienda tax agency can potentially find out if you’re not registered. Other companies who you invoice will have a record that they’ve paid you and this will be submitted along with their quarterly tax returns.

There could be hefty fines to pay if you’re not registered when you’re supposed to be, but the amount will depend on individual circumstances. 

READ MORE: What are the fines and prison sentences for tax evasion in Spain?

Social Security payments

The main issue with having to register as an autónomo when you’re earning so little is that you have to pay monthly social security fees, regardless of how much you earn each month.

This means that someone who is earning below minimum wage is still having to fork out 289 per month (60 for the first year). Even if they earn nothing one month, they are still obliged to pay the social security fee.

Although these payments are set to change in 2023, those earning below minimum wage are still going to have to pay out a considerable amount. 

READ ALSO:

What about paying taxes?

As an autónomo you pay your taxes every quarter as well as VAT.

You will pay 19 percent income tax on yearly earnings from 0 up to 12,450, 25 percent on earnings from 12,451 to €20,200, 30 percent on earnings from 20,201 up to 35,200 and 37 percent from 35,201 up to 60,000.

As you can see, this means that even if you’re earning below the minimum wage and get less than 12,450 per year, you still have to pay 19 percent in tax. 

When you fill out your yearly tax return, usually in June for the previous year, then Spanish authorities will calculate how much tax you’ve paid in total. If you’ve paid too much, which is likely if you earn below minimum wage, then you will get paid some of your tax back. What you won’t get back though are the social security payments.

What are the solutions? 

It is quite difficult as there are one-size-fits-all solutions, only certain actions you can take to make the financial situation easier for you.  

You can deregister from being autónomo up to three times per year. This means that if you think there are certain months you will be earning below the SMI, then you can deregister.  

READ MORE: How to de-register as autónomo in Spain

However, instead of just not declaring amounts earned, you invoice for them later when you do register. If you can make sure you hold out and invoice for several payments together, you can make sure you earn enough for that month to be able to pay the social security fee and the tax.  

Keep in mind that even though you are paying out a lot, there are several benefits to registering as self-employed and paying your social security and taxes. You are eligible for state healthcare, you can get sick pay, plus maternity or paternity pay.

You may also be able to get special financial benefits, as what happened during the Covid-19 pandemic when lots of autónomo saw their earnings drop dramatically and got help from the government (but only if they were registered).

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For members

TAXES

Spain’s deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain's Deputy Prime Minister and Labour Minister, has called for a freeze on variable mortgage rates amid news that Spain's biggest banks have enjoyed a bumper year of record profits.

Spain's deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain’s Labour Minister and the ideological force behind sweeping labour market reforms, has called for a freeze on variable rate mortgages following news that some of Spain’s biggest banks reported billions in record profits last year.

On Wednesday, BBVA reported a 2022 profit of €6.4 billion, the largest profit in its history. Driving this profit, the bank’s interest margin grew by a whopping 30.4 percent, commission income by 12.3 percent, and loans by 13.3 percent.

Banco Santander posted an annual net profit of €9.6 billion, up 18 percent from 2021 and higher than forecasted by analysts polled by financial data firm FactSet.

READ ALSO: Banco Santander posts record profit as rates rise

Given these record-breaking profits, especially against the backdrop of a prolonged cost of living and inflationary crisis in Spain, Díaz has said the government must act decisively to “freeze mortgages” and “moderate profits.”

“The crisis cannot be an excuse to earn more,” she said, adding that the rise in the Euribor rate is “very serious”, with the average increase (estimated to be €258 per month) “impossible to bear” for normal Spaniards.

Euribor is the interest rate most often used to work out mortgage payments and calculate both variable and fixed rates.

READ ALSO: What the Euribor rise means for property buyers and owners in Spain

It is anchored to the interest rate set by the European Central Bank (ECB), and, as we are now seeing, quite responsive to global economic events. By the end of January, the rate had risen to almost 3.4 percent, the highest level since December 2008.

“While the rise of the Euribor will increase the average mortgage payment by €250 per month, BBVA’s profits grow by 38 percent to reach €6.4 billion, the largest in its history. The crisis cannot be an excuse to earn more. Freeze mortgages, moderate profits,” Díaz wrote on Twitter on Wednesday January 31st.

Banks respond

Unsurprisingly, Spanish banks are not exactly keen on Díaz’s idea. BBVA President, Carlos Torres, said “I trust what will happen is that the benefits of a market economy continue to be defended”. 

Torres also tried to remind people of the “negative years” that BBVA has endured, with “many billions of negatives”. 

It remains to be seen how persuasive Spaniards or the Spanish government find this comparison, or whether Díaz’s Twitter idea will translate into policy.

Windfall tax

Díaz’s call for a mortgage rate freeze is in line with the Spanish government’s approach to the excess profits of banks and energy companies. In July, the Spanish government introduced a temporary windfall tax on excess profits in order to fund some of the extraordinary measures it was implementing to help the most vulnerable in Spanish society deal with the cost of living crisis.

The government in July introduced a draft bill to slap a temporary 4.8 percent charge on banks’ net interest income and net commissions in 2023 and 2024 to fund measures to ease cost-of-living pressures. Between the new taxes on banks and energy companies, they should generate around €7.0 billion for the state coffers in 2023 and 2024. 

However, in November the ECB published a non-binding legal opinion that suggested Madrid undertake a “thorough analysis of potential negative consequences for the banking sector” of the tax.

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