The full guide to income tax for freelancers in Spain
on abril 25, 2023 • 6 minute read
Yes, we know, income tax for freelancers can be a pain in the you-know-where. If you’ve already read up on the freelance quota and VAT, you might already be suffering a bit. And we’re not saying we’re doctors here at Xolo, but income tax is another pain we can cure, and you can even choose your own medicine:
- Keep reading this article, where we'll break down everything you need to know about income tax for freelancers in Spain.
- Sign up with Xolo and let us be your trusty sidekick in the fight against taxes. It’s like outsourcing your pain, but we’re masochists 😈.
- Give both a go! If you’re not sure about registering just yet, we’ll give you a solid understanding of how to handle your income tax (IRPF in the local lingo 😉).
Just before we get started, let’s get a handle on some of the other Spanish terms we’ll be using:
- Agencia Tributaria — Tax authorities
- Hacienda — Treasury
- IRPF — Income tax
- La declaración de la renta — Annual tax return
What is the personal income tax for freelancers in Spain?
Yes, personal income tax (IRPF) is a tax that seems to only exist to rob you of your hard-earned cash 😩. But unfortunately along with death, paying taxes is the only certain thing in life. It's not all bad news, though. IRPF is designed to be both:
- Progressive — the more you earn, the more you pay.
- Direct — charged on your total income over a certain period.
So, while it may not be the most fun thing in the world, at least it's not as bad as VAT. VAT taxes consumption and affects us all equally, no matter the quality of your wine 🍷.
How does income tax work for freelancers in Spain?
When it comes to IRPF, let's just say your relationship with the tax authorities (Agencia Tributaria) is a pretty intimate one. Most of the invoices you send out will make your clients pay your income tax on your behalf. Then, you usually have to report your income to the Agencia Tributaria every three months.
When it's time for our annual tax return, la declaración de la renta, the Agencia Tributaria will figure out if we've paid too much or too little. If we've paid too much, woohoo! We'll get a nice little rebate. But if we've paid too little, we'll have to fork out even more money for the Treasury 😭.
Before we dive into tax returns, though, let's talk about two key elements of the IRPF in Spain: retentions and quarterly returns. Trust us, understanding these things will make your life a whole lot easier.
Personal income tax retentions for freelancers
Personal income tax retentions for freelancers work by your clients paying a percentage, almost always 15%, to the Treasury on our behalf. It’s quite simple — when you create your invoice, you include the 15% retention, and your client will take care of the rest.
But there are some income tax exceptions for a few different groups:
- The first group is freelancers who have set up a company. It’s not that they are exempt from income tax altogether, they just pay it all in one go at the end of the quarter, rather than with every invoice.
- Regular freelancers who have signed up for the first time are eligible to include a 7% retention on their invoices for two years, rather than the standard 15%. But don’t fall into the trap of thinking that you’ll pay less tax overall. The reduction is a temporary incentive, and you’ll have to make up the full amount at the declaración de la renta — your annual tax return.
- Certain regions, such as Guipuzcoa, with its own treasury, offer local incentives for new freelancers too. For full details on the region where you want to work and live in Spain, reach out to an expert for all the granular details.
- Any freelancer invoicing a foreign client leaves income tax off their invoices. Clearly, you won’t avoid paying tax altogether, it’ll just be saved up for your quarterly and annual tax returns.
- The same is true for invoicing private citizens. Regular people don’t have the means to pay your income tax, so remember to keep some cash aside for your tax returns.
Quarterly personal income tax forms
Quarterly personal income tax returns exist to keep the Agencia Tributaria up to date on what you’re earning, but also to pay an advance on your yearly tax bill. You see, the sad truth is that the lowest personal income tax bracket for Spain is 19%, for the first €12,450 you earn. That is already above the 15% on your invoices, so your quarterly tax returns get you closer to your actual tax level.
Back to the forms — here are the four income tax forms that freelancers in Spain need to know about:
- Form 130: This applies to regular freelancers (not company owners) who receive more than 70% of their income from foreign clients. Most of your invoices won’t include retentions, so you have to declare your earnings (income minus expenses) every quarter. With this form, we give the Agencia Tributaria an advance payment of 20% of our income.
- Form 131: If you pay income tax through the objective estimation regime, you'll need to fill out this form. Not sure what that means? Don't worry, we'll cover it later.
- Form 115: If you're renting a property for your freelancing work, you'll need to fill out this form every quarter. Instead of your clients paying your income taxes, you'll have to pay a percentage of your rent to the Agencia Tributaria. Fun!
- Form 111: This is like the counterpart to Form 130. As a client, you need to pay the income tax of your providers in the same way your clients pay your income tax for you. And Form 111 is how you do it!
How to invoice with income tax in Spain: the three regimes for freelancers
So, you wanna know how to invoice with income tax (IRPF) as a freelancer? Buckle up, amigo, 'cause it's not as simple as just slapping a number on a piece of paper. First things first, you need to know which of the three regimes you're in.
Oh, by the way, when we say “regime”, that’s just a fancy term the Treasury (Hacienda) uses to categorize us freelancers.
Simplified direct estimation
This is the regime where most of us freelancers live. The simplified direct estimation is for those of us who make less than €600,000 a year. Which is probably all of us, let's be real.
Objective estimation of personal income tax or contribution by modules
Now, if you're one of those lazy freelancers who can't manage to make more than 600K in a year (joking, don’t @ us), you might be in the objective estimation regime. It's also known as contribution by modules, which sounds like something out of a sci-fi movie, but it's just another way to simplify tax and accounting management. To be part of this regime, you have to be in certain specific sectors. They include:
- The retail trade
- Catering, hotel, and nightlife industry
- Construction materials
- Beauty and care sector (hairdressing salons, manicure stores, etc.)
- Vehicle mechanics
Direct estimation with accounting simplification
Finally, we have direct estimation with accounting simplification. This one's for the big dogs, the freelancers who make more than €600,000 a year.
Annual income tax returns for freelancers in Spain — la declaración de la renta 2022
What? 2022?! Expat freelancers in Spain always have a bit of trouble with this. Put simply, 2023 is when you do your filings for your earnings over the fiscal year 2022.
After you’ve worked through your quarterly tax returns and got to grips with your regime, everything ultimately boils down to your annual tax return. This is where you and the Agencia Tributaria balance your books and one of you pays the other if you’re not correct to the céntimo… which you won’t be.
But fear not, dear reader, for Xolo is here to guide you.
When do freelancers have to do la declaración de la renta 2022?
Mark these dates in your calendar, folks:
- April 11, 2023: the start of the online filing process.
- May 5, 2023: you can file by phone starting from this date. We’d recommend booking an appointment a few days earlier.
- June 1, 2023: you can also file in person starting from this date and apply for an appointment from May 25.
- June 27, 2023: if you're paying by direct debit, this is your deadline.
And there you have it, freelancers. May the odds be ever in your favor.
Deductible income tax expenses for freelancers
What can you write off as a freelancer? It's pretty simple, actually. Just make sure they meet these three conditions:
- They have to be crucial to your business.
- You have receipts to back up your purchase.
- They are in your accounting records.
Let's say you're a food photographer. What could be a deductible expense for you? A sweet new Nikon camera 📸. And if you’re a translator, you could deduct the subscription to your go-to machine translation tool.
Non-deductible income tax expenses for freelancers
What expenses can't you write off on your tax return as a freelancer? Easy — everything else.
Tickets to a late-night rave you keep telling yourself will count as a business meeting — forget about it. Your weekly grocery shopping because you have to eat, don’t you? Nope.
Lucky for you, we’ve already got an article on precisely what you can and cannot deduct as a freelancer in Spain.
How to calculate freelance income tax in 2022
If you're the type of freelancer who keeps track of every little thing — all your quarterly forms and expense receipts — then you might be able to ballpark your income tax for 2022.
Basically, your tax rate depends on how much profit you made. Here's the breakdown:
- From €0 to €12,450, you're taxed at 19%.
- From €12,451 to €20,200, it's 24%.
- From €20,201 to €35,200, it's 30%.
- From €35,201 to €60,000, it's 37%.
- From €60,001 to €300,000, it's 45%.
- Over €301,000, it's 47%.
So first, figure out which tax bracket your profit falls into. Then, look at how much you've already paid in quarterly taxes and retentions to see if you owe anything more.
Sound confusing? Get Xolo on the job
If you’re not a numbers person, or you simply have better things to do than spend your free time working out your regimes, tax brackets, and deductibles, leave it to the experts.
Almost all freelancers in Spain leave their income tax affairs to a specialist gestoría, and we’d like to believe we’re among the best in the business. Xolo is your one-stop shop for everything freelance taxes: IRPF, RETA registration, quarterly declarations, and advice by phone, chat, or email — your choice!
So if you’re starting your freelance journey in Spain, avoid the quagmire of personal and income tax by signing up to Xolo today.