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?
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 2023, Spain's Interprofessional Minimum Wage (SMI) is €1,080 per month if you’re paid in 14 installments and €1,260 if you’re paid in 12 installments throughout the year.
Additionally, the daily minimum wage for casual and seasonal workers is €51.15.
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. Up until this year, this was a flat fee, regardless of how much you earnt. This meant that someone who is earning below minimum wage was still having to fork out €289 per month (€60 for the first year), even if they earn nothing one month.
From 2023, instead of there being a fixed rate of €294, the fee will go down progressively to €200 a month for lower earners and progressively higher - up to €590 a month - for higher earners.
Spain's Ministry of Employment and Social Security will also change the rates for each group of earners every year. So far they have revealed what these rates will be for the years 2023, 2024 and 2025.
But it does mean that in 2023 anyone earning less than €670 per month (below minimum wage) will still have to pay €230 in social security fees.
READ ALSO:
- Will you pay more under Spain’s new social security rates for self-employed?
- New self-employed workers in Madrid to pay no social security tax
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 can invoice for them later when you do register. If you can, you could hold out and invoice for several payments together, that way 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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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 2023, Spain's Interprofessional Minimum Wage (SMI) is €1,080 per month if you’re paid in 14 installments and €1,260 if you’re paid in 12 installments throughout the year.
Additionally, the daily minimum wage for casual and seasonal workers is €51.15.
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. Up until this year, this was a flat fee, regardless of how much you earnt. This meant that someone who is earning below minimum wage was still having to fork out €289 per month (€60 for the first year), even if they earn nothing one month.
From 2023, instead of there being a fixed rate of €294, the fee will go down progressively to €200 a month for lower earners and progressively higher - up to €590 a month - for higher earners.
Spain's Ministry of Employment and Social Security will also change the rates for each group of earners every year. So far they have revealed what these rates will be for the years 2023, 2024 and 2025.
But it does mean that in 2023 anyone earning less than €670 per month (below minimum wage) will still have to pay €230 in social security fees.
READ ALSO:
- Will you pay more under Spain’s new social security rates for self-employed?
- New self-employed workers in Madrid to pay no social security tax
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 can invoice for them later when you do register. If you can, you could hold out and invoice for several payments together, that way 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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