Just when you thought that it was safe to win the lottery in Andalusia or Madrid, the socialist Spanish government have introduced a new
temporary Solidarity Tax.
Am I paying too much Wealth Tax in Spain?
By John Hayward - Topics: Spain, Wealth Tax
This article is published on: 21st February 2023
Just when you thought that it was safe to win the lottery in Andalusia or Madrid, the socialist Spanish government have introduced a new
According to Investopedia, a solidarity tax is a government-imposed tax that is levied in an attempt to provide funding towards theoretically unifying (or solidifying) projects. In other words, it is a tax on the wealthy to provide funds for the not so wealthy. Other regions still have Wealth Tax with varying allowances and this will continue without the risk of having to pay two taxes. That said, taxes are rarely straightforward and I am confident that there will be issues in the future which will result in the Spanish tax office tweaking things. It is interesting, if not extremely concerning, that Wealth Tax was introduced on a temporary basis as well. It has been around for the last 11 years. So, not really temporary in my opinion.
We are in Modelo 720 season at the time of writing, with overseas assets having to be declared by 31st March. Although not a tax declaration, the Modelo 720 naturally leads on to Wealth Tax. One of the asset types to declare is property.
In Spain, the tax office can reference the Cadastre to establish a property value. However, they do not have access to the land registry in, say, the UK. Therefore, the only price that is in writing is the purchase price. It is this value that should be entered on the Modelo 720 and subsequently be liable, or not, for Wealth Tax. My suspicion is that people have declared what they believe to be the market value and are possibly paying too much in Wealth Tax as a consequence.
By redistributing wealth and utilising the allowances, and applying the 60% rule (contact me for more information), it is possible to reduce Wealth Tax (and/or Solidarity Tax) or even eliminate it completely.
We can introduce you to investment products that are not only tax efficient in Spain in terms of income tax but can help to reduce Wealth Tax.
Saving for retirement in Spain
By Chris Burke - Topics: Pensions, Pensions in Spain, QROPS, Retire in Spain, Retirement, Spain
This article is published on: 8th February 2023
One of the big differences when you move to Spain are the options available to you for retirement planning. In the UK/Ireland we have ISAs and private/employer pension schemes which both offer good tax savings.
ISAs are not tax free in Spain, and the annual ‘private pension allowance’ is only €1,500 per year per person! In some employer contribution schemes you can save up to €10,000 per year, but these are very uncommon. Compare that to £40,000 per year in the UK, or in Ireland up to €115,000 per person, per year! €1,500 per year is never going to achieve any serious amount of income for retirement.
The main reason for this is that in Spain, culturally people preferred to set up a company structure or accrue properties, passing these from generation to generation. Additionally, there is a lack of incentives from the authorities to entice people to save into retirement schemes.
Pensions have been popular for retirement in the UK/Ireland because of the tax savings and potential employer contributions. Take both of those away and they are not nearly as effective, which is what happens when you move to Spain. So, what can you do if you want to plan for retirement in a tax efficient manner?
For me, retirement is not just about a pension, it’s about a retirement plan. We help clients build that retirement strategy, taking into consideration the amount of income they want, making sure their assets are highly tax efficient (such as moving them away from future income tax positions) and then making sure everything is flexible and portable, because you never know what will happen in life. This is all done by using our client planning portal, where we work together to bring this to life using the following process:
This is all done by planning, where we work together to bring this to life using the following process:
- Assess existing assets including ISAs, pensions and other savings/investments
- Understand your objectives and when/where you are looking to retire and with how much
- Understand your current and ongoing financial situation, taking into account future events such as children/grandparents
- Compile this into a strategy where we plan, implement and review
- Review and adapt as the years go by evolving the plan to fit your life
We never know exactly what’s going to happen, but one thing is for sure, with proper informed planning and regular analysis, you will be much better prepared.
Am I tax resident in Spain?
By Barry Davys - Topics: Spain, Tax in Spain
This article is published on: 24th January 2023
Case Study Spanish Tax Resident Couple
Husband 60, wife 60, married, with 2 children who are financially independent and living in the UK
👉 Pensions: £930k
👉 Investments £60k
👉 Cash Spain €60k
👉 House €1.25 M
👉 Wills – UK & Spain
👉 Cash UK £184k
Build Understanding of Pension Situation
- Pensions will break UK Lifetime Allowance Rule even as Spanish Resident
- Difficulty estimating pension as coming from four different pension schemes
- When can I retire
- No overall investment strategy for pensions
- How to minimize tax on pensions
Better returns on Non Pension monies
- Bank accounts earning only 0.15%
Forward Planning including Inheritance tax
- Would Mrs X have enough to maintain property if current pensions provided only 50% pension on husband’s death?
- What would be the Spanish Inheritance tax if one partner died?
- How would this Inheritance tax be paid?
- How is inheritance tax applied in Spain and UK?
- How can the UK and Spanish inheritance tax liability be managed?
What we did
- Completed a full financial review of present financial standing
- Undertook a cash flow forecast to establish if widow’s pension was sufficient, how to pay inheritance tax on first death and how long their money will last
- Provided a Transfer Value Analysis report by our qualified pension expert – a Fellow of the Chartered Insurance Institute
- As a pension was a defined benefit pension, a secondary full report provided by a FCA regulated adviser with full UK pensions permissions in line with UK, FCA rules
- Consolidated pensions to improve tax efficiency, improve widow’s pension and manage in line with their other assets
- Built investment strategy to improve return on their investments and cash
- Clarified how inheritance tax works in Spain and UK and gave an estimate of tax due
- Built an inheritance tax strategy, including sufficient money available to pay tax in Spain on first death
- Minimised Spanish Tax paperwork and liaised with Spanish Tax adviser
- Produced Family inheritance tax strategy document so whole family knew the strategy without disclosing amounts held by the parents
- Wrote to UK HMRC for confirmation that the family home in Spain will qualify for the Main Residence Nil Rate Band
- Identified a UK inheritance Tax saving on a UK life assurance policy
- Carried out regular reviews over 6 years (so far) to update investment and inheritance tax strategies and to adapt to changes to the law
✅ Clarity for clients and children on Inheritance Tax
✅ Improved return on bank accounts to 3.5% pa giving an improvement of 4,200 pa
✅ Removed pensions from UK Lifetime Allowance rules
✅ By providing documentary evidence from UK HMRC for Main Residence Nil Rate Band confirmed an inheritance tax saving of up to £140,000
✅ Improved widows pension by £7,000 pa
✅ Kept clients compliant with changing tax rules
✅ Answered the financial question “Am I going to be OK?” with a “Yes”
If you are a resident in Spain, or are planning to become a resident and would like any information on tax, pension transfers, investment planning or general financial planning you can contact me on:
email@example.com or direct on 0034 645 257 525
More Spanish residents to pay wealth tax
By John Hayward - Topics: Spain, Tax in Spain, Wealth Tax
This article is published on: 19th January 2023
Valencia reduces allowance with more people having to pay
the Impuesto Sobre el Patrimonio
Further to my article from last week, and after consultation with our accountant associates, it appears that the main residence wealth tax allowance of up to €300,000 only applies after 3 years of living in the property (habitual residence). This has been questioned but, as is often the case in Spain, getting a response from the tax office can be tricky.
The tax office words that are relevant in terms of getting around this 3-year rule are “circumstances that necessarily require the change of housing”. Moving to Spain to retire or for a change of lifestyle would not generally tick that box. If there are justifiable health reasons or similar then that appears to be acceptable in terms of applying the allowance.
To emphasise the habitual residence aspect, from JC & A Abogados in Marbella: “Please note that you must live effectively and consecutively in the property for more than 3 years, so you cannot rent the house out even for one day. In addition, you have to impute a benefit in kind for the Spanish property during the same 3 years period.”
In the words of JC & A, “The 3 year period starts counting from the purchase date as long as the dwelling is inhabited effectively and permanently within 12 months as from the purchase date.”
“…..a taxpayer who bought his main home but could not live in it because it was not suitable and had to have some works that exceeded 12 months; the conclusion is that the 3-year period starts counting from the date he moved in and not the purchase date.”
Adding salt to this potential tax wound, whilst it is not treated as your main residence (even though you live there permanently), you have to pay tax on its value as if you were a non-resident.
This all seems rather inequitable but is the law as things stand.
If you would like to discuss managing your money in these volatile and uncertain times, please do not hesitate to contact.
Visit John Hayward of The Spectrum IFA Group or complete the form below.
What a year this has been. Let’s hope next Year is better..
By Jeremy Ferguson - Topics: Spain
This article is published on: 22nd December 2022
At the beginning of this year the World started to ‘wobble’, set off by the Invasion of Ukraine, and rising murmurs about the likelihood of increased inflation, and with that the threat of rising interest rates.
Share prices in companies around the world quickly started to fall, shortly followed by the never-ending spiral of doom and gloom in the news, creating a continuously depressing stream of information showing the Worlds financial markets were taking a downturn. This all came as a bit more of a shock because of the unprecedented period of cheap money, and constantly increasing share prices everyone had become used to over the last ten years.
After the lockdowns I always maintained you couldn’t just stop the world turning without it eventually to have some sort of effect. It just took a while for it to come out in the wash – and now it has. A lot of the delay between stopping economies working, (and a noticeable effect), was the false security provided by what amounted to the printing and the subsequent handing out of money in many countries, to name but one of many factors that occurred during those crazy times.
Eventually, after the factories were closed and businesses shut, supply chain issues came to light. The backlog of empty production lines had to be dealt with. That, coupled with an imbalance between limited supply and a sudden surge in demand, rising transport costs, plus the knock-on effect of the War in Ukraine, have all resulted in inflation going through the roof.
Traditionally the central banks around the globe try and control inflation with interest rates, and at the moment they are raising them at one of the fastest rates ever seen in a bid to try and stem the current surge in inflation. The worry for next year will be whether they may slow things too much, as these things tend to have a time lag. We can only wait and see. Higher interest rates are not all bad news, as savers normally benefit from interest on their bank deposits, but this isn’t happening significantly to date. When they are being offered, my experience is that the bank will only allow relatively small amounts to be deposited in these savings accounts offering higher rates.
On top of everything already mentioned, other factors also came to a head this year – the UK started to feel a Brexit effect which has weakened overseas investor confidence and taken its toll on trade. Liz Truss’s infamous UK mini-budget caused UK Government Bonds to fall in value like crazy, and what is usually considered a safe haven for many clients and pension funds, took a drastic downturn.
Recessions normally have an effect on employment, but at the moment this looks ok. Interestingly however, if you look at the US, there are an estimated 4m people off work at the moment due to long covid, so figures there are certainly distorted.
So as you will already have gathered, 2022 really hasn’t been a great year!
Living in Spain is such a privilege for many of us. The doom and gloom out there at the moment seems so much more acceptable when you wake up to beautiful weather almost all of the time. The cost of living has risen, but in general terms Spain is still a lot cheaper to live in than the UK.
They say it’s important to count your blessings, and if the fact we live here is one of them, then I for one am looking forward to 2023.
If you fancy an overview of your finances, even if it’s just to reconfirm your plans are all well founded in light of the ever-changing world, please do not hesitate to get in touch.
Spain’s New Digital Nomad Visa
By John Lansley - Topics: Digital nomad visa Spain, Living in Spain, Spain
This article is published on: 19th December 2022
We are familiar with images of people in deckchairs, equipped with a laptop and a cocktail, brilliant blue sky and sparkling sea in the background, happily working in exotic locations – but how realistic a picture is this here in Spain?
The pandemic has seen huge changes in the way many work, with WFH (working from home, or working remotely) becoming a reality for the lucky millions who were able to do so. The choice of returning to your office or continuing to work from your kitchen table may not always have been yours to make, with employers holding differing views about both supervision and the benefits of having colleagues close at hand.
Whatever the case, for some, WFH continues, perhaps only for a few days a week, but for many their employer doesn’t mind where they are located, as long as the job gets done.
Spain has now joined other countries in offering a specific working visa to those who satisfy the requirements. Since Brexit, many from the UK have seen their dream of moving to Spain shattered by the much tougher visa requirements that now apply. I have written before about the Golden and Non-Lucrative Visas, which favour the wealthy retired, but will this new route provide a real opportunity?
The Digital Nomad Visa is part of new legislation that is designed to encourage business start-ups, to try to improve Spain’s attractiveness to entrepreneurs, and which includes reduced levels of tax for individuals and businesses setting up here.
Let’s look at what we know about the requirements of the new scheme, due to commence in January 2023
- Applications will be open to 3rd country nationals (non-EU countries, including the UK)
- Applicants must work mainly for companies based outside Spain
- Applicants’ work must be exclusively online or by telephone
- Applicants must be graduates or postgraduates from a ‘prestigious recognised university or business school’ or have 3 years’ professional experience
- The applicant must have been working for the same company/ies for at least a year prior to the application
- The company must have approved remote working
- Applicants must demonstrate they can do their job online and that they have been doing so for at least 3 months prior to applying
- The visa will be initially for 1 year, and can be renewed thereafter (renewal should be applied for within 60 days before expiry) for up to 5 years in total
So, in practice, this limits access to the visa to those with good educational qualifications or previous professional experience, and who have already been working remotely.
What don’t we know?
- There will be a minimum income requirement, as yet unknown, but likely to be similar to the €2,316pm currently applying for a Non-Lucrative Visa
- Spanish medical insurance might also be required, to ensure the applicant is not a burden on the Spanish healthcare system
However, those lucky enough to qualify will have to be aware that they will in all likelihood become Spanish tax residents, with potential consequences for their employers, tax deductions and national insurance contributions.
But the new digital nomad visa could be a path for you to take if you are keen to move to sunnier climes, experience international work possibilities – carrying only your professional expertise and your laptop, you could be opening the door on a new life!
Moving to Spain is more complicated than ever before, but this new opportunity may help you do so. Obtaining professional help with visas, tax planning, buying a home and investment possibilities is essential, and my colleagues and I will be happy to help, and introduce you to trusted professional partners where appropriate.
Guide to Inheritance Tax in Catalonia
By Barry Davys - Topics: Barcelona, Catalonia, inheritance tax Spain, Spain
This article is published on: 16th December 2022
So, we have now managed to control the amount of wealth tax due (Wealth Tax in Catalunya). However, when we receive an inheritance or leave something to our family, we are taxed again. Inheritance tax or ‘impuestos de successiones’ feels even worse than Wealth Tax. At this point we have now paid savings tax, income tax AND wealth tax. Now there is IHT on top! Like Wealth Tax, though, it is possible to manage your liability.
Inheritance Tax in Catalunya – How it works
Perhaps the most important aspect is that tax is charged to the recipient of a bequest or property physically located in Spain. For UK nationals living in Catalunya, this is a surprise, as in the UK it is on the estate of the person who has passed away.
Tax is due on the value of the bequest but the rate of tax is dependent on your relationship with the person who has passed away. A spouse, child, sister, uncle or non-related all have different methods of calculating the tax due. Once the tax has been calculated, there may be discounts to be applied to reduce the amount. Indeed, it takes at least four different steps when working out the tax due to end up with the final figure. Fortunately, help is at hand in calculating the amount.
It is also very important to understand that the tax return has to be submitted within 6 months of the death and the tax has to be paid by the same day. A common situation we see is where a person is due to inherit a share of a property but the property has not been sold within 6 months. The forms still have to be submitted to the Hacienda and tax paid based on an estimated value. Failure to do so results in a fine and interest.
How to Manage Your IHT
There are numerous strategies, but for British people, careful planning is required. In the UK it is the estate of the person who has passed away that is taxed, but in Catalunya it is the recipient; so we have two different systems with two sets of rules. Care is needed to ensure that planning in one system does not increase the liability in the other. Fortunately our qualifications and experience in the UK and in Catalunya mean we understand this issue.
Another issue specific to British people living in Catalunya is that they do not plan for RECEIVING a bequest. When asked to assist with planning for inheritance tax it is nearly always from a view of “what can I leave to my children?”. Yet before then people often receive bequests from their parents and family which triggers a tax charge. Planning for receiving a bequest can be as important as planning for leaving a bequest.
Certain assets are exempt from Inheritance Tax. Careful choice of where investments are kept can also help. Finally, dovetailing UK and Catalan Inheritance planning can also make a difference.
If you would like to discuss how to manage your Wealth Tax liability, please email me at firstname.lastname@example.org, call me on 00 34 645 257 525, or use the contact form below.
Financial updates in Spain
By Chris Burke - Topics: Autonomo in Spain, Digital nomad visa Spain, Spain, Wealth Tax
This article is published on: 23rd November 2022
This month we cover the following topics (if there is anything you would like to understand more or wish to see covered in these articles, don’t hesitate to ask):
- Digital Nomad Visa – Update
- New Wealth Tax Implemented for those with assets over €3 million
- New Autonomo payments from 2023
Digital Nomad Visa – Update
The Spanish Government has confirmed plans for its digital nomad visa scheme. The scheme will offer citizens from non-European Union countries the opportunity to live in Spain whilst working remotely for companies located outside the country.
The visas will be available for those who derive a maximum of 20 per cent of their income from Spanish firms and who work remotely for companies located outside Spain. The visas should bring vital help to the Spanish economic sector and that it will also help the country recover from the economic damages caused by the Covid pandemic.
Even though there has been no detailed information publicly and the law has not yet been 100% passed through Parliament, it has been publicised that the visas will be initially granted for a period of one year. There will then be the opportunity for this period to be renewed for more than five years, depending on the circumstance of the applicant.
Spain’s Economic Affairs Minister, Nadia Calviño, stressed that “the digital nomad visa will attract and retain international and national talents by helping remote workers and digital nomads set up in Spain.”
In order to benefit from Spain’s digital nomad visa, applicants must be able to show or prove that they have been working remotely for at least a year and be from outside the European Economic Area. They must also show that they hold a contract of employment or, if freelance, prove that they have been regularly employed by a company outside of Spain. Proof that they have enough money to be self-sufficient and have an address in Spain is needed too.
Spain is not the first country in Europe to instigate a Digital Nomad Visa programme. Estonia, Croatia, Portugal and Iceland already have a similar visa scheme, and in January this year the Government of Romania implemented a similar visa.
New Wealth Tax Implemented for those with assets over €3 million
Spain is set to implement a new wealth tax, its second, as the country looks for ways to raise funding to pay for social policies amid soaring inflation.
As reported by Bloomberg, those who have assets worth at least €3 million ($2.9 million) a year from 2023 will be affected, the Budget Ministry said in late September. Payments made against an existing wealth tax will be deductible from the new one, it said.
There are three ranges to the tax:
|Assets||Tax (Payable Yearly)|
|Between €3 and €5 million||1.70% payable on the value of the assets|
|Between €5 and €10 million||2.10% payable on the value of the assets|
|Over €10 million||3.50% payable on the value of the assets|
23,000 people will be affected by the new tax and is expected to raise around 1.5 billion Euros. In 2024 another 204 million is expected to be raised by an increase of up to 2 percentage points on incomes above 200,000 Euros a year. There will be tax reductions for lower earners which is estimated to be worth about €1.88 billion over two years.
New Autonomo Payments from 2023
Self-employed workers (Autonomo’s) in Spain will start paying new monthly social security fees which will be based on the amount they earn. The changes will be brought into force from January 2023.
For those newly self-employed and under the age of 35:
|Time Period||Amount Payable|
|The first 12 months||€60 (80% reduction)|
|Month 13 – Month 18||€146.97 (50% reduction)|
|Month 19 – Month 24||€205.76 (30% reduction)|
This flat rate is a measure to promote self-employment that consists of paying a reduced monthly Social Security contribution as a self-employed person for two years.
For those who have been self-employed for two years or more:
|Amount earned per month (€)||2023||2024||2025||2026|
|600 – 900||€281,50||€269,30||€257,00||€244,80|
|900 – 1.125,90||€293,90||€293,90||€293,90||€293,90|
|1.25,90 – 1.300||€351,90||€351,90||€351,90||€351,90|
|1.300 – 1.500||€351,90||€413,10||€413,10||€413,10|
|1.500 – 1.700||€351,90||€413,10||€474,30||€474,30|
|1.700 – 1.900||€351,90||€413,10||€474,30||€535,50|
|1.900 – 2.330||€351,90||€413,10||€474,30||€535,50|
|2.330 – 2.760||€351,90||€413,10||€474,30||€535,50|
|2.760 – 3.190||€351,90||€413,10||€474,30||€535,50|
|3.190 – 3.620||€351,90||€413,10||€474,30||€535,50|
|3.620 – 4.050||€351,90||€413,10||€474,30||€535,50|
*Source: Government of Spain
In summary, the current minimum fixed payment of €294 will be changed to a progressive system of 13 instalments, depending on income. This will be introduced over 9 years. It’s important to note that these changes have not yet been finalised and there are still some details to be agreed.
If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch. You can book an initial consultation via my calendar link below or email/send me a message.
Autonomo or set up a company/SL in Spain
By Chris Burke - Topics: Self-employed in Spain, Spain
This article is published on: 22nd November 2022
After the recent news from the Spanish Government that they are set to change the Autonomo tax payment structure, many questions have arisen. The main questions surround if it will be cheaper, easier and more effective to start an SL than be Autonomo. In this article, I aim to answer this question and clear any doubts that you may have.
What is an Autonomo?
Autonomo is the Spanish word for freelance or self-employed individual. If you provide some kind of service (irrespective of what this is), you need to register as an Autonomo.
What is an SL?
An SL (Sociedad Limitada) is the equivalent to a Limited Liability company, a private limited company (or ltd) in the UK.
What are the main differences between an Autonomo and an SL?
The 6 main differences are:
1. Set Up
To create an SL, there are several steps which must be taken. Firstly, the initial investment required to set up an SL is a minimum share capital contribution of €3000 (according to the recently approved Law 18/2022, of 28th September, also known as “Ley Crea y Crece” the minimum share capital contribution will be €1, as long as the company complies with the requirements approved). The next steps include registering the company with the Mercantile Registry (Registro Mercantil Central), signing a public deed at a notary office and allowing for additional tax documentation.
On the other hand, becoming Autonomo is much more straightforward. No initial investment is required and the process is significantly faster and easier. You must register with the tax authorities (Agencia Tributaria of Hacienda) and with Social Security (Seguridad Social).
An SL is incorporated as a separate legal entity. It is distinct to the entity of its owner(s) and partners. This means that the shareholder’s liability is limited to the capital invested in the business. The personal finances of the owners/partners would not be affected if the SL was to go under. However, Directors of the company are liable (with all their personal wealth) against the creditors, the shareholders, for their actions taken through the company both legally and financially.
However, Autonomos are responsible for all business debts. There is no legal separation between the company assets and the personal assets. As a result, there is more risk in the form of personal property, savings and possessions.
An SL, as a legal entity, is subject to corporate tax (Impuesto de Sociedades) at a fixed rate of 25% of profits. A discounted rate of 15% over profits may be available for newly established companies in their first two years of operation (the first year in which the company has profits and the following year).
Any transaction that the company might carry out with related parties must be at the market value e.g. the remunerations paid to the Administrator.
In case the shareholder/s is a person developing a professional activity, the Spanish Tax Authorities require that at least a 75% of the profits of the company must be paid to the professional shareholders. Therefore, in the end only a 25% of the profits of the company benefit from the lower tax rates in the Corporate Income Tax with respect to the Personal Income Tax. If you could not prove that the company has its own personal and material resources, the Tax Authorities could argue that 100% of the profits of the company must be transferred to the professional shareholders.
Autonomos pay IRFP on their net income, after associated business costs. The tax is progressive in the sense that the higher the income, the higher the rate of tax. The tax rate results from adding the Spanish tax rate and the one approved in each region (“Comunidad Autónoma”). For example, in Catalunya the tax rate ranges from 7% (20%) all the way up to 47% (50%), if your annual income reaches more than €300,000. The type of business activity that the Autonomo carries out affects the rate of tax. In the first two years there is a 20% reduction in net income as long as in the year prior to starting the new activity you did not develop.
With regards to IVA (VAT), the rate is the same for both SL and Autonomos.
4. Social Security
For an SL, the costs start at €350 per month (with the new regulations entering into force in January 1st 2023, the amounts to pay for Directors of SL to the Social Security will decrease and this cost will start at 310€ per month). The company director must register with Social Security.
Autonomos are normally eligible for a discounted rate for the first two years (however this depends on the field of work). Furthermore, they may also be eligible for a discount in the third year depending on field of work and age.
The Spanish Government brought in new regulations which will commence January 2023. These regulations will change the Autonomo social security payment structure so that the more the Autonomo earns, the more social security they will pay. For lower earners, they may find that they will pay less than they currently do. However, for higher earners, they may find that they will pay more.
It may be easier for an SL to secure financing and more opportunities may be available. Banks and lenders tend to have more confidence in lending to an SL as opposed to an Autonomo. Due to the way an SL is set up, they are generally seen as more solvent.
An SL is subject to Plan General Contable (general accounting standards) by the Spanish Government. This is a much more complete accounting process. Documentation must be maintained for all financial operations. Annual Accounts must be submitted in the Mercantile Registry annually. Furthermore, Corporate Tax must be paid annually, and VAT must be paid quarterly or monthly depending on the level of income.
On the other hand, the accounting practice required by Autonomos is simpler and straightforward. They are required to submit all sent and received invoices, with quarterly declarations for IRPF and VAT (if VAT applicable). They are also required to make an annual declaration by the end of June each year.
Costs of becoming Autonomo in Spain
A self-employed person that has applied for a reduction in the Social Security Contributions because they started their activity before January 1st, 2023 will pay a flat fee of €68 a month for the first 12 months. They will then be eligible for a 50% reduction over the next 6 months. Following this, they can claim a 30% reduction for the subsequent six months. The self-employed worker will start paying full social security contributions after 2 years has passed.
These contributions to the Spanish Social Security system, from January 1st, 2023, will start at 281,50 Euros, although they will be also able to request a reduction for the first 24 months. They are entitled to an 80% reduction during the first 12 months, a 50% in the following 6 months and 30% during the remaining 6 months. After that, a 100% of the contribution must be paid. There is an additional 30% reduction for a further year for male freelancers under 30 years of age and female freelancers younger than 35 years old.
Autonomos over the age of 65 who can prove that they contributed into the social security system for at least 36 years and six months are exempt from paying the full Social Security contribution indefinitely.
The above costs are the only start-up costs required for anyone who wishes to become autonomo. The only initial start-up cost would be the Social Security payment, as detailed above.
Income Tax (IRPF)
Autonomos must pay tax on their profits. There are certain rules on the deductible expenses for a freelancer. Please see the link to this article here on what expenses you can deduct as an autonomo. The differences in the deductible expenses between an Autonomo and a SL are supposedly none. However, using a company credit card for expenses seems more ‘open minded’ than what an autonomo’s receipts can be made up of. After determining profits, there is a 20% additional reduction on the taxable income for the first 2 years. This taxable income will be subject to the progressive tax rates of the general income in the Personal Income Tax that, as stated, can be higher than 50% in the highest bracket, in certain regions.
Also, on a quarterly basis, the Autonomo must pay 20% of the quarterly profits in advance, taking into account of the final annual tax liability levied on the freelancing. This amount will be deducted from the annual tax liability, once determined.
Costs of starting an SL in Spain
Social Security on a director
The company director of the SL must pay social security contributions and these start at €350 per month. However, the reductions in the Social Security contributions (80%, 50% and 30%) will be applicable if certain requirements are met.
Corporate Income Tax
15% in the first 2 years on the profits, if the company is new and the activity has not been carried out before by the director or by another related company. After that, there will be a Corporate Income Tax rate of 25% of profits
Making the choice
It very much depends on your personal circumstances. In general, if you have 3 directors/employees or more and an annual income of 80k then an SL could be the best option. However, this should be determined on a case-by-case basis and very much depends on your personal situation. It is always recommended to take professional advice to establish if this is the correct decision for your business.
The main factor is how much money you make (or will make) and the size (or size to be) of your business. It is much quicker, easier and cheaper to become Autonomo so if you are starting out and you do not have a clear idea of how much income will be generated, this may be the best option. However and as an example, if you would like to sell shares, take on employees or increase the number of partners then an SL might be the better option. An SL may also portray an image of a larger, more professional and solvent business when compared to the Autonomo set up. As a result, if you plan on working with large, established companies then you may find the SL route the better option.
Finally, you cannot establish an SL and then change to Autonomo. If you want to change to Autonomo when you have established an SL, first you need to liquidate the SL. It is much easier to go from Autonomo to SL. It may make financial sense to do this as you may end up paying a reduced rate of tax. SL’s pay a flat rate of 25% (15% for the first year in which the company has profits and the following year), however if you are a high earning Autonomo then you may find yourself paying up to 47% (50%). The general consensus is that it makes sense switching from Autonomo to SL once you are consistently making profits of more than €80,000 per year, or taking into account all other factors.
If you would like to speak with a Financial Adviser in Spain, Chris Burke is experienced, qualified in personal financial matters. Chris can review your current pensions, investments and other assets, with the potential to make them more effective and tax efficient moving forward. Don’t hesitate to get in touch with Chris via the form below – or click the button below to make a direct virtual appointment here.
The Spanish State Pension
By John Hayward - Topics: Retire in Spain, Retirement, Spain, UK Pensions
This article is published on: 21st November 2022
How many years must one work in Spain to claim a Spanish State Pension?
When Brexit finally happened, one of the concerns that I had was regarding the bilateral agreement between the UK and Spain. I wanted clarification on whether years worked in the UK would continue to count towards the years required to qualify for the Spanish State Pension. The minimum number of years in the UK is 10 years but in Spain it is 15 years. Under the Trade and Cooperation Agreement made between the EU and the UK on 24th December 2020, and specifically the Article SSC.7: Aggregation of periods, it states that the periods of employment must be considered “as though they were periods completed under the legislation which it applies”.
How does this work in practice?
If someone has worked for 9 years in the UK and 14 years in Spain then, under the individual countries’ rules, neither minimum has been achieved. However, both countries’ rules are satisfied when adding the 9 to the 14 and vice versa. That is not to say that one would receive 23 years’ pension from either or both countries but merely that the person qualifies for a pension in both countries; 9 years’ pension in the UK and 14 in Spain. Details of how the pension is calculated can be found in my colleague Chris Burke’s article Claiming your UK State Pension whilst living in Spain/EEA.
Can you continue working in Spain whilst claiming a Spanish State Pension?
In the UK, you can receive your State Pension and continue to work. You will then only pay Class 4 National Insurance contributions, those associated with profit, as no further pension benefit will be accumulated. In Spain, you cannot claim your full State Pension entitlement if you continue working, and you do not employ anyone. However, it is possible to continue working beyond Spanish State Pension age and claim a reduced pension subject to certain conditions, one of these being that you must have achieved the minimum number of years to claim 100% of the Spanish State pension. This is currently 35 years but will be increasing over the next few years. You can once again apply the principle as discussed above in terms of adding the years in the UK to achieve this minimum.
To find out what your options are and how we can help you with your retirement planning, please contact me at email@example.com or call/WhatsApp me on (0034) 618 204 731.