I am currently a freelance webdesigner in the UK, so self-employed. I wanted to check how this would work in Spain, my biggest concern was whether I would still be able to keep my UK clients, thus invoicing them and getting paid in sterling.
If you live in Spain for more than 183 days per year you are deemed a Spanish resident and are subject to Spanish tax. You are required to declare your global assets to the Spanish tax authorities. Hence there has been a mass exodus from Spain in recent years and there is a lot of property on the market at a good price!
I discovered however that the tax system does not need to be prohibitive. Here are the key points.
- It would be necessary for me to register as a self-employed person (Autonomo) in Spain. When I do that I stop paying tax in the UK and start paying in Spain.
- It is essential to find yourself a good accountant, you cannot do this yourself. They do everything for you and ensure that your returns are submitted on time. In Spain this has to be done quarterly.
- As an autonomo I must pay social security contributions (the equivalent of NI contributions) at a rate of around €270 (approx £193) per month. I am bound to pay this whether I earn anything or not. This is not a major issue and is similar to the amount that I pay in the UK. This amount is deductible from your total earnings before you pay tax. The bonus is that this amount covers your whole family for Spanish National Health. This is particularly useful for us because my husband will not be employed or self-employed. It also gives you sick pay if you are ill for a long period – at the moment that is around 18€ per day. After 15 years of paying social security contributions you would be entitled to a pension. (At the same time you will want to keep an eye on your UK pension because if you don’t pay into that for a minimum of 30 years, you don’t get your full pension.)
- The good news is that I can still invoice my clients in Sterling and get paid into my British bank account. The only difference is that I must show my Spanish address on the invoices and also my Spanish Tax Number.
- I do not have to charge VAT. I don’t current bill VAT to my clients, so would not wish to start. The only thing I need to do here is get a European VAT number.
- I can claim expenses on my business in Spain in the same way as I do in the UK. It is essential to ensure that any invoices or receipts that you receive quote your Spanish Tax Number. This is not as difficult as it sounds, businesses all over Europe are used to being asked for this these days.
- You need to get an NIE number in Spain to buy property, cars, register as self-employed. This takes a full day of tramping around various offices and police stations to get.
So to the tax itself
You will pay more tax in Spain than you do in the UK. Everyone must pay tax including pensioners. Any income that you receive is subject to tax. There are some allowances but nowhere near as much as you get in the UK.
Here are the 2016 rates:
Personal allowances for individuals are €5,550 (about £3964) year.
If you are over 65 the allowance is €6,700 (about £4785). If you have a low income you are entitled to around a further €3,000 euros in allowances. So a pensioner on basic UK state pension would probably not pay very much tax if any.
Earnings from €0 to €12,450 – are taxed at 19%
Then earnings from €12,450 to €20,200 – are taxed at 24%
Then earnings from €20,200 to €35,200 – are taxed at 30%
Then earnings from €35,200 to €60,000 – are taxed at 37%
Over €60,000 – are taxed at 55%
If you earn £20,000 in the UK you would pay around £2,000 per year in tax. If you earned £20,000 (or €28,000) in Spain you would pay around £3,700 (or €5,200). So you pay a considerable premium to live in the sun!
If you are self-employed and pay Social Security at €270 per month you can deduct that from your earnings before you pay tax.