Have you been offered occasional work in Spain and you’re not sure what to do regarding tax and social security? Have you been offered regular work with a Spanish firm outside of your regular job? If you have, then you might have asked yourself if you need to register as self-employed, or autónomo, as it is called in Spain. And you might also have wondered whether, if you have to pay tax and social security on what you earn, it’s really worth taking it.
There’s no categorical answer, because reality is much more varied than the law can take into account. Even if you earn very little, there are a great many cases when, if you aren’t registered as self-employed, you could face a fine.
The Supreme Court has said that if your earnings are lower than minimum wage, you don’t need to register as self-employed, but there are many exceptions
Spain’s Social Security system defines the self-employed as “those who carry out an economic activity for money on a regular, individual and direct basis.” Although many professionals have no doubts about registering with the Special Regime for Self-employed Workers (RETA), there are circumstances when the law requires some interpreting to understand its reach.
For example, what does “on a regular basis” mean? How is it measured? “The truth is that this is a rather ambiguous criterion,” says Rafael Pardo Gabaldón, an advisor who works in the legal department of the National Federation of Self-employed Workers (ATA). A 2007 Supreme Court ruling states that if your earnings are lower than the minimum wage, you don’t need to register as self-employed. That means that if you earn less than €9,080,40 a year from your self-employed activities, and you work sporadically, then you don’t need to register with Social Security. But watch out, because everything is not completely black and white
I earn less than the minimum wage. What should I do?
So you don’t have to pay into the Social Security system. Which is no small matter. The monthly contribution is around €260 each month, unless you are eligible for the €50-a-month flat rate for the first six months, with discounts thereafter. But don’t get too confident, as there are many nuances, and you could find yourself being fined for not paying into the system.
“There is no absolute rule,” says Domingo Remojón, the head of iAsesoria.com and a contributor to consumer website iAhorro. “It’s a combination of factors that decide if you have to register or not.” For example, if you decide to open a store, Social Security will consider that a regular activity, and you’ll have to pay, even if you don’t sell a thing from one month to the next.
“The rules don’t take into account the minimum wage,” says Pardo Gabaldón. “And Social Security always assumes that people are working on a regular basis.”
Being registered with the tax office is obligatory if you want to issue any kind of commercial document”
Domingo Remojón, head of iAsesoria.com
You can face the same problem if you set up an online business, warns Sebastián Reyna, the secretary general of the Union of Professionals and Self-employed Workers (UPTA). “For example, you decide to sell t-shirts online. This is a marginal activity and your earnings are below the minimum wage, but Social Security will view it as the same as running a shop,” he explains. That said, in this case it would be harder for it to prove that what you’re doing is a regular activity.
And, of course, even if what you’re doing isn’t a regular activity, but you make more money than the minimum wage, you’ll definitely have to register as self-employed. “This could be the case of an architect who receives a single commission in a year, but which is worth €18,000. It’s going to be considered a regular activity.”
In other words, if your earnings or the amount of time you spend working will be sufficiently large to surpass the threshold requiring you to register as self-employed, it is clear that you will have to register as soon as you start your business, however much you earn. “The law is designed for self-employed people who generate earnings from day one, but this isn’t what happens in reality,” adds Remojón.
“ATA argues that if your earnings are lower than the minimum wage, you shouldn’t have to pay into the Social Security system as self-employed,” adds Pardo Gabaldón.
Can I bill clients without being registered as self-employed?
“Being registered with the tax office is obligatory if you want to issue any kind of commercial document,” explains Remojón. So if a client asks you for an invoice, you will have to register your specific activity with the tax office – this is called the impuesto de actividades económicas (IAE), or tax on economic activities. This doesn’t cost anything and doesn’t mean you are registering as self-employed – which is done at your local Social Security office.
But if you want to avoid problems, you’ll also have to make a quarterly sales tax (IVA) declaration, paying back the tax added to your invoice, as well as applying income tax to your bill (IRPF).
There are some activities that don’t require an invoice, such as those involving training or the arts. This would be the case of a teacher who gives occasional presentations at conferences. “These activities are considered earned income and not economic activities,” explains Reyna. In such cases, you don’t have to apply sales tax, just income tax.
What happens if I’m not registered and I get caught?
If you don’t register as self-employed when you should, and you are caught, you will have to pay all of your outstanding contributions since you first started working for yourself, along with a 20 percent fine, with interest. And remember, having registered with the tax office will not make a difference. You have one month to regularize your situation as a self-employed worker after registering with the IAE.
“For a lot of people, it’s just not worth registering, and in the end, they start earning money without paying tax,” says Remojón. A recent survey by the ESADE business school estimates that 55 percent of Spaniards were paid off the books or would be willing to be paid this way. Remojón says the law should be changed so that the amount self-employed people contribute to Social Security reflects their earnings, and also that they should only have to register themselves once: “We can’t have laws with these kinds of ambiguities and legal uncertainties that force people into all kinds of horrendous bureaucracy for no good reason.”
Reyna agrees: “We’re proposing a law to establish exactly the minimum amount you have to earn before having to pay Social Security, and from that amount, the contribution should be on the basis of what you earn. That is the way to encourage people to be entrepreneurial.”
If it’s not worth your while paying your Social Security contributions the whole year round, it is possible to register only for the months you work. This could be the case for self-employed language teachers, or for people employed in seasonal activities such as tourism.
In such cases, even if your earnings remain below the minimum wage threshold, you will still have to register with the Special Regime for Self-employed Workers (RETA) as it is considered a regular activity.
Domingo Remojón says you will have to be able to prove that you were working during the periods you were paying your self-employed Social Security contributions. “An example would be a programmer who registers for one month out of three, billing €3,000 each time. He could get a call from Social Security asking: ‘How can we know that you did all that work in just one month?’ That’s different to somebody who runs a bar in the summer, because that is easy to prove,” he says.
It’s also worth bearing in mind that if you register and unregister at different times over the year, you also run the risk of losing the right to the flat-rate contribution.