SPAIN has around 3.2 million self-employed people, known as ‘autonomos’, accounting for 16% of the population. The country taxes these workers excessively, leading to a huge black economy that, in 2019, accounted for 19.9% of gross domestic product.
In comparison, the UK’s black economy, with people working for cash and deliberately not paying tax, is estimated to be half the size, at around 10%.
The problems of the ‘autonomo’ system are felt by many Brits in Spain who hoped to enjoy the “sunlit uplands” of being self-employed, only to be surprised at the cost, complexity and paperwork involved.
Registering as ‘autonomo’
If you live in Spain for 183 days a year, you’re considered a tax resident and are obliged to declare your worldwide income and pay income tax called ‘Impuestos sobre la Renta de Personas Físicas’ (IRPF).
For freelancers, this means registering with the ‘Agencia Tributaria’ (Hacienda – tax office) and going ‘alta’ for ‘autonomo’.
There are ‘modelos’ (forms) to register yourself, but it’s much easier to use the services of your local CADE (Centros Andaluces de Emprendimiento), which will do everything for you.
When registering, you must choose whether to be a freelance professional (‘profesional autónomo’) or self-employed entrepreneur (‘empresario individual’). With both categories, you’re held personally responsible for the financial liabilities of your business. You must also specify a category for your work, which has its own activity code.
Other business models
If you want to form a business partnership, you can choose between the ‘Comunidad de Bienes’ (based on the joint ownership of a business, goods, and property) and the ‘Sociedad Civil’ (private partnership agreement for a specific business). Partnerships don’t usually pay as much tax as formal companies, but each partner must pay IPRF.
You can also start a limited company, called a ‘Sociedad Limitada’ (SL), meaning you’re not responsible for its liabilities. This involves a different – and more demanding – setup process, with requirements for initial investment, tax, social security documentation, and payments. The accounting standards are more complex as well.
Having a limited company offers you a 25% tax rate, while newly created companies are taxed at 10%. If you’re lucky enough to earn €60,000 per annum plus as an ‘autonomo’, you would be taxed at 45%, so setting up a company is prudent for high earners.
Whatever your activity and business model, it pays to keep an eye on business grants, which are available in Andalucia and, sometimes, in individual municipalities.
What does ‘autonomo’ status require?
Once you’re ‘alta’ as an autonomo, you must pay a monthly fee to the Hacienda and submit quarterly VAT and income tax returns – this usually involves employing a ‘gestor’ to do your accounts. Expatica has a comprehensive guide to the requirements.
Although the ‘autonomo’ system offers discounts for newcomers, with payments starting at a palatable €60 pcm for the first year and €150 for the second, these reach almost €300 pcm after 24 months. You lose entitlement to the scheme if you turn it off (go ‘baja’) for a month or if a payment fails.
Lucy Hayes Logan of the Tus Alpujarras advice agency says: “There’s some help nowadays with reduced rates. However, if you miss a payment, it can automatically go to full rate. Or, if you close your business, you cannot benefit again for three years. Otherwise, you start right away with the full payment.”
There are other potential problems for newcomers. The tax accounts for between 19-47% of an ‘autonomo’s’ income, with no minimum earning threshold. So, if you have a quiet month workwise, you could be stuck paying more than you earned.
Barriers to solvent business
Alex Bunsusan, who hails from London, says: “I’ve been ‘autonomo’ for 22 year and the payments are very high and are not income or profit-related. So, even if you don’t earn much, you still must pay almost €300 pcm. Plus, it means doing VAT and income tax returns every three months, which is loads of paperwork, and you can’t deduct expenses ‘receipts’ like you can in the UK – all deductibles must be proper invoices.”
Professional saddle fitter, Claire Marshall, says: “The cost of staying ‘autonomo’ diverts cash away from being able to invest in a business and isn’t fairly linked to actual earnings. It’s the lower income people who struggle and suffer. This is contrary to how a democratic socialist tax system should operate.”
Estate agent, Matthew Wood of Lanjaron Properties, says: “Reducing the barriers to entry would actually increase tax income for the Hacienda if more people paid a fair rate.”
The various barriers explain why many workers – from builders to creatives – duck the system and take cash in hand. The tales of older people hiding money under their mattresses probably aren’t urban myths.
It’s also clear why so many businesses close after a couple of years when faced with paying the €300 pcm ‘autonomo’, gestor’s fee, income tax, electricity, and the lease.
Carers and single parents
Despite talk of amending the much-criticised system, in January 2022, contributions for ‘autonomos’ increased by €8 a month. Those paying the full rate went from €286 to €293.76.
The Unión de Profesionales y Trabajadores Autónomos (UPTA) said they “did not understand” why the “fiscal injustices” for self-employed workers aren’t stopped by Spain’s ministries of economy and finance. Many people would concur.
Further changes are planned – with some in the lower income bands – but these aren’t for the better, according to critics.
Under the proposed changes, possibly to be applied during 2022, those earning €660 pcm or less would pay a flat rate of €220. Manual Alvarez Arena, a gestor in Orgiva, points out that this is aimed at care workers. Nevertheless, it is eye-watering on low earnings.
It begs the question: how are people supposed to cover their living costs when the Hacienda takes so much in tax? In comparison, in the UK, the tax threshold is £12,570 and working people on low incomes can apply for Universal Credit.
Unlike in the UK, the Hacienda makes no assessment of individual circumstances. For example, a single parent working part-time around school and childcare responsibilities pays the same as a full-time worker with no dependents.
A single mum from Granada told the Olive Press: “I tried to make it work as an ‘autonomo’, juggling work and childcare, but I feel like the Hacienda takes money you haven’t got, especially when the discount scheme ends. With part-time work, how many hours must you complete just to pay the tax and gestor?”
Another mother, Freya Ruth Rogers Moalim, recently set up the ‘El Paso’ fashion shop in Orgiva and started on the discount scheme. She says: “Autonomo provides an opportunity for people who otherwise couldn’t afford to set up a business, but I’m panicking at the thought of it going up. I don’t know how I will stay afloat. I applied for a grant for digital marketing but, generally, they don’t apply to me as I’m not poor enough, or new enough, or established enough – there’s always something that means I don’t qualify.”
Freya says she would like to employ an assistant but cannot afford it, because of the high cost of covering their tax contributions under the current system. Therefore, she only opens mornings, to fit around childcare.
Several other people told the Olive Press that employing an assistant is so expensive that they abandoned the idea.
Alex Bunsusan says: “To employ someone costs about another 34% on top in social security payments.”
Steve Gilbert of Marbella agrees: “Do not employ anyone, as it’s too expensive and problematic. Tell them also to become ‘autónomo’ and invoice you.”
This scenario explains why many Spanish businesses are run as family affairs, handed down over the generations, and with everyone from grown-up children to grandparents taking part.
Says Lucy Hayes Logan: “Quite a few business owners have family as staff, with only one or two freelancing, because they cannot cover the full fee for anyone else.”
This also makes it harder for people to find part-time jobs, as so many small businesses ae nepotistic.
Fight for your rights
Several support groups are dedicated to improving the situation for Spain’s ‘autonomos’, including ‘Autonomos 0.0’ (82.7k members), Partido Autonomo (201.8k members) and Mas Que Autonomos. On these groups, the existing system is described as “slavery, without rights”, “a complicated regime” and “unsustainable” for small businesses.
Lucha Autonoma exists on Instagram and Telegram (@Lucha_Autonoma) and is campaigning for a better system. With the slogan “no we can’t”, it organises street protests, so people can show their discontent at Spain’s ‘autonomo’ problems.
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