In this article, we will review the costs common to most freelancers (autonomos) to help you with your business plan.

Social Security Contribution. 

This is the first cost to consider. 

Self-employed persons must pay social security contributions from the moment they register.

From 2023 onwards, this contribution will depend on the estimated profit.

However, there is some flexibility to choose the contribution base within a range. This will later be used as a reference for future benefits such as

• Off sick pay 

• Maternity or Paternity pay. 

• Unemployment 

• Pension. 

See our article: New Autonomo Contribution for 2023

In addition to the fixed monthly payment, an autonomo acquires the obligation to pay income tax on profits, as well as to keep books and submit regular reports to the tax authorities. In most cases, they will also be obliged to collect and pay VAT.

In the following section we will discuss. 

• Income Tax 

• VAT 

• Book- keeping formalities and reports.  

Personal Income Tax

Autonomos trade in their own name. This means that the profit they make from their business is fully attributed to them.  

In this case, it makes no sense for them to “set their own salary” and “leave the profit in the company”, because in reality, all the profit is their salary.

Income from self-employment, like any other income, is subject to personal income tax (IRPF tax), which is calculated annually.

However, every quarter the autonomos must declare their operating results up to that date and, if these are positive, make advance payments towards their final personal income tax liability.

The payment that needs to be cleared every 3 months is 20% of the business result. 

The business result is the gross incomes minus the business deductible expenses. 

• Business result = gross incomes – business deductible expenses. 

• 20% of Business Result -> Income Tax to be forwardEd against final bill. 

In addition to direct payments of income tax, in some cases our own clients are required to withhold a portion of their payments to us to pay tax on our behalf. This is called “retentions”.

Read more:

 How much tax will I pay?

What expenses can I offset against tax?  

VAT obligations

Not every business activity is subject to VAT. There are also certain types of transactions that are exempt from VAT. As you conduct your business, you may need to consult with us on how a particular transaction is affected by VAT liability.

In Spain there is no VAT exemption for businesses below a certain turnover. If the activity is subject to VAT, the autonomo must be registered for VAT from the outset.

Regular VAT system.

In the general VAT system, this tax is added to our prices, collected on our sales and then repaid on most of our business purchases. Any surplus in our VAT account is cleared quarterly by filing a tax return.

The quarterly report of our VAT account, whether a surplus to be paid or a deficit to be credited, must be sent to the Inland Revenue.

 Read More:

 Understand IVA, Retention and Income Tax. 

  How to estimate your quarterly result in Quipu

Retailers Tax System.

Retailers, those who sell unaltered items, whether in a physical shop or online, have a particular VAT system for them. 

Learn about it in our article: Retailer’s tax system. 

In any case, if you are going to carry out business-to-business transactions with other European companies, whether under the regular system or the retailer’s system, you will need to obtain international VAT registration. Find out more in our article:

Intra-comunitarian invoice and VAT number. 

These ones mentioned so far are not the only VAT systems that there are. Others may be: 

Special VAT system for Travel Agencies and Tour Operators .

Special VAT system for electronic transactions and broadcasting.

Book-keeping Formalities and Reports. 

As well as paying social security and taxes, there are other parts of business management that need to be taken care of.

Autonomos are obliged to: 

• Issue invoices.
• Keep invoice of each expense. 
• Track every invoice issued and received, include their IVA.
• Keep ledgers with business assets and depreciation of their value. 

• Send reports on:
  1. Balance of VAT account. 
  2. Business profit and loss
  3. Companies with which they have volume of business over 3000€ per year. 
  4. International companies they do business with. 

… and many more things depending on each case. 

Failing to provide the required information on a request can be costly in fines. 

This is one reason why having  neat and orderly books is essential.

Besides the mere obligation, a neat business administration can be extremely helpful to save us tons of work and headaches.

At Limit we assist you with all the above mentioned formalities and periodical submissions so that you can concentrate on sales or delivery your service.

Our accounting packages include free business registration, tax presentation, representation before authorities and an all-in-one Invoicing, expense tracking and accounting solution. 

With Quipu, you can invoice, control and manage your business activity from a single place. This will also help you to anticipate tax bills and avoid unpleasant surprises.

See our plans and register your business.