Setting up a Business in Spain Part 3: Tax and Social Security Matters for your New Business

Paying tax in Spain

The next instalment in our series on setting up a business in Spain looks at taxation and social security for both the self-employed and businesses.

Registering with both the tax office and social security authorities is vitally important and an important first step in any new business.

Taxation considerations

As in most countries, taxation in Spain is a complex matter.

All self-employed individuals and businesses are required to pay tax and file tax returns. Note that tax is levied on all earnings, however small.

Unless you’re confident your Spanish is good enough and you have a reasonable head for numbers, it’s best to employ an accountant to manage your taxation matters.

Top tip – open a separate bank account for business purposes. When you receive payment for work, put the amounts due for tax and social security into this bank account.

Self-employed taxation

Registration: Once you have your NIE you should register with the tax authorities (Agencia Estatal de Administración Tributaria – AEAT for short). You do this by going to the tax office that administers your post code.

This is generally the nearest one to your business – click here for a list.

You will need to provide your NIE (this is your tax number) and proof of identity, and explain your business activity, which determines your tax and VAT obligations.

Quarterly returns: Self-employed individuals must present quarterly tax returns based on their actual earnings over the previous three months. Depending on your business, there are two models – estimated earnings (used mainly by businesses such as shops, restaurants and trades people) and actual earnings (used mainly by businesses providing a service, e.g. a lawyer or a translator).

You can offset expenses against your earnings.

However, if you work from home, you probably don’t qualify for expenses such as electricity and internet connection.

Take professional advice on what counts as a business expense in your case. Note that you must have official receipts for all expenses.

VAT: Most self-employed must collect and pay VAT on a quarterly basis.

Annual returns: The Spanish tax year runs from January to December and all self-employed individuals must present an annual return by the end of June. Your account will prepare this for you and depending on the result, you may qualify for a rebate or have to pay extra tax.

Company taxation

Limited companies have tax obligations in Spain which include annual returns plus properly audited accounts. They are also required to present quarterly VAT returns.

Given the complexity of company taxation it’s best to employ the services of an accountant to do both the accounts and tax returns on your company’s behalf. Accountants are also aware of tax breaks and may save you money.

Social security

Whether you set up a business in Spain as a self-employed individual or as a company you’ll need to register with the social security system (seguridad social) and obtain a number.

To do this, you should go to your nearest social security office (available in most large towns – for a list click here).

You will need to show proof of identity, your NIE (see Part 1) and if you’re setting up a company in Spain, the appropriate documentation.

Monthly payments – all self-employed individuals are required to make monthly social security payments.

These cover health care for you (and your dependents) under the state health scheme and also contribute to your retirement pension.

Exact monthly payments vary depending on your age and how much you choose to contribute. In 2017, the minimum amount payable was €267 a month. Note that this amount is payable regardless of your actual earnings.

Top tip – the Spanish government periodically offers a series of reductions on social security payments for certain groups of people, e.g. first-time business owners, young people or self-employed over 55. When you register at the social security office, find out if you qualify.