Taxation For Self Employed Tenerife

taxation for self employed tenerife

If you decide to work in Tenerife in a self employed capacity, there is a bewildering array of things you need to know about.

What I've done is consult several different websites (some of which seemed quite "official") to gather up all this information into one place - here. Unfortunately, some of the "facts" presented by these websites can differ slightly, so, once again, I stress that this is a guide only and, for proper advice, you should consult a professional.

The blanket term for a self employed person in Spain is autonomo. There are two other routes that a single person, working for themselves, can set up legally.

One is to become a so-called empresario individual, or sole trader. The other, less common, way is to start up a comunidad de bienes, or "CB", which involves forming a partnership with someone else.

But, by far, the best way to get legal quickly is to take the autonomo route.

taxation for self employed tenerife

Autonomo

The Spanish Tax Office has different categories for autonomos and these cover pretty much any job you can think of. Within the list, you'll find plumbers, plasterers, shopkeepers, entertainers, estate agents, as well as every conceivable type of farming and fishing, plus many others. Two full lists of these categories can be found here and here. The reason for these is to enable the Tax Office to work out the IAE (impuesto sobre actividades economicas) tax appropriate to you.

Prior to any self employed work taking place, you must inform the Tax Office of your intention to set up a business. You obtain a document from them on which you have to fill in details such as what activity you will be engaged in, type of tax system you will be using, whether you have business premises, plus the obvious ones of name, address and ID number.

Quarterly Returns

One way of dealing with your tax is to submit quarterly accounts to the Tax Office. These have to be submitted no later than the 20th of the following month.

Tax is then calculated on your profit from that quarter at a rate of 20% (much less than the rate for non-self-employed).

If your annual turnover is in excess of 28,000 euros, you may be liable to pay the IGIC (Spanish VAT), which would involve your collecting this from customers and passing it on to the Tax Office.

The Módulos

This is another method of paying tax that does away with constantly submitting accounts.

In this method, this advantage is counterbalanced by the fact that your tax payment amount is fixed. Thus, it is possible to still have to pay tax even if you've returned no profits!

To calculate the amount, several factors are taken into consideration, such as where you live, how many hours you work, petrol used if your job is mobile, etc.

This method is more for small businesses, as it can only be used if your annual turnover is less than 450,000 euros.

To use this method, you will need the form called "modelo 131". Because no accounts are required, you might think you don't need to go to the expense of an accountant, but it's best that you do. If everything is not carried out correctly, there are severe fines to be imposed.

taxation for self employed tenerife

Retencion

This means, in English, pretty much what it looks like - "retention".

If you, as a self employed person, invoice a business for services rendered, that business is obliged to "retain" a fraction of your payment to forward to the tax office as advanced payment of your income tax.

This amount is 7% for the rest of the calendar year you start work, plus two full years after that. Thereafter, it rises to 15%. You have to rely on the business in question doing the forwarding of the money (see below).

Retencion does not apply to work done for an individual.

Social Security

When you register your self employed status, you should also register with Social Security. From that moment on, you are liable to pay a fixed monthly rate. There are several levels of payment, determining the amount of benefits you receive. The minimum possible amount is 200 euros monthly.

taxation for self employed tenerife

Things To Beware Of

In many ways, things are weighed against the autonomo should everything not go according to plan. Best to be aware of them.

Retencion

As described above, you have to rely on the business that has done the retaining to forward the money to the Tax Office. Would you believe that some businesses do not fulfill their obligation?

Guess what happens then? The Tax Office gives you a hard time, while the business gets off scott free.

Cheques

Beware being paid by cheque. It's not beyond the realms of possibility that it will bounce. If this happens, you'll be heavily penalised by your bank. No payment for your work and a fine to go with it.

Best to ask for payment up front - in cash.

False Business Details

You carry out some work for a business. When you submit your accounts, you give the Tax Office details of this business - the ones the business supplied to you - and, guess what, the Tax Office has no record of it.

Not your fault, you may think, but not according to the Tax Office. They fine you for supplying false information!

taxation for self employed tenerife