Like everything in life, being self-employed has its pros and cons, and today we’re going to look at a great example — VAT for freelancers. If the mere mention of VAT (or IVA in Spanish) makes your head spin, just take a second to appreciate how awesome it is to work from home in your PJs.
Now back to the less fun stuff. As a freelancer, you need to know how to calculate VAT, when to pay it, which forms to use, how to include it in your invoices, and what VAT regime you fall under.
Or you could just let Xolo handle it for you. We’re like your own personal admin agency, taking care of all things VAT, income tax, and social security. You’ll get a little taste of what our experts can do for you in this article, so let's break it down, shall we?
Sure, we know it stands for "value-added tax," but what does that actually mean? Taking a few lessons from the Spanish dictionary, the RAE:
VAT is "an indirect tax on consumption and the provision of business or professional services, chargeable at each stage of the economic process."
Basically, VAT is a tax on the goods and services we provide as freelancers, but it’s paid by our clients.
So, as freelancers, VAT is a pretty big deal for us. Basically, we need to pay attention to both our output VAT and input VAT.
Never heard these two terms? Don’t worry, we’ll give you an explainer.
Output VAT is the amount of VAT we include on our invoices. For example, if you charge Margot Robbie €100 to take some headshots, you have to add 21% in output VAT to your invoice — €21.
If the VAT rate is the reduced 10% rate (we’ll get to that soon), then it would be €10 instead. All clear until now?
Input VAT is the VAT we pay on our business expenses. Let’s say you bought a special lens to do Margot's headshots, which cost €10 pre-VAT. Your final bill will include 21% in input VAT, which is… you guessed it… €2.10. A grand total of €12.10.
Margot, on the other hand, will pay you €21 in VAT for your services. It’s both her input VAT and your output VAT. One thing for certain, it’s certainly not your money to spend.
If you want to calculate your input or output VAT for a quarter or year, it's pretty simple. Just add up all the input and output VAT from your invoices.
Not all freelancers are the same. It all depends on what you do for work and how you're registered with the IAE. Don’t worry about the word “regime” here, it’s just how the Spanish treasury (Hacienda) refers to the different categories of freelancers under its watchful eyes.
Most of us freelance folks are under the general VAT regime. If you're a designer, writer, photographer, translator, or community manager, you're probably in the general regime. Basically, you have to file Form 303 with the tax authorities (Agencia Tributaria) every quarter and pay your VAT bill.
The equivalence surcharge regime is for the retail sector. If you're in this regime, you don't have to file Form 303. Yay!
But here's the catch: you can't deduct VAT on your expenses. Boo!
Finally, there are some lucky freelancers whose activities don't require VAT or are exempt from it. If you fall into this category, you don't have to file any forms or pay any VAT. But naturally, you can't deduct VAT from your expenses either.
Activities not subject to VAT are subtly different from those that are exempt.
Any activities not subject to VAT are those that literally can’t be. Think sample product exhibitions or free deliveries.
However, the government has decided that other activities are exempt, usually because they have a positive impact on society.
Here’s a brief list of freelance activities exempt from VAT:
We’ve mentioned different freelance rates a few times throughout this article, and this is where we give you full details. In short, the VAT rate you put on your invoices depends on the line of work you’re in.
There are three different VAT rates to keep in mind:
Now, if you're part of the general VAT regime (which, let's face it, most of us are), you have to deal with the Agencia Tributaria every three months.
We need to fill out Form 303 to keep the taxman happy. And it’s best not to make him angry. You wouldn’t like him when he’s angry.
First things first: we need to know what to include in our quarterly VAT payment. It's pretty straightforward — just include all the VAT from your invoices in your quarterly return. Simple, right?
Now for the deductions. You can only deduct the VAT on expenses that are directly related to your work as a freelancer. So no deducting top-of-the-range serrano ham unless you're really making a business out of it. And trust us, we've seen some weird attempts at deducting random stuff. Don't be that person.
Once you've got all your VAT sorted, bow down to the Agencia Tributaria and file your quarterly return using Form 303. You can either do it in person (if you're feeling brave or vintage) or online through their website. But be warned — any mistakes or attempts to cheat will not be tolerated.
So, if you're unsure about anything, ask an expert!
P.s. we mean us 💁.
Even though VAT is mostly a quarterly thing, there's still some annual work you need to do.
As a freelancer, you need to file Form 390 every year. It's basically a summary of all your VAT activities from the year, based on the four 303 forms you filed throughout the year.
Good news — the deadlines for filing your VAT forms are pretty much set in stone. So you can plan ahead and mark these dates in your calendar:
Your quarterly payments
According to the Agencia Tributaria, you need to file your Form 390 “during the first thirty days of January after the year you're reporting on”.
So basically, file it around the same time as your fourth Form 303 of the year. And that's it!
Despite what you might think, calculating VAT for freelancers is a piece of cake. No complicated formulas or percentages like income tax. All you need is some simple addition and subtraction.
To figure out how much VAT freelancers in Spain owe for the quarter, just follow these steps:
Easy peasy, right?
Here's some good news. If your forms 303 and/or 390 show you've paid more input VAT than output VAT (and as long as the Agencia Tributaria doesn't find any mistakes in your return), you're eligible for a VAT rebate!
When can you get it? Usually, the refund request period is the same as the filing period for form 390, which is between 1 and 30 January. Just send in your request during that time and you'll get your rebate within 180 days.
If you think you have the same period to balance your VAT books when it’s you who owes them money, that’s cute.
Agencia Tributaria runs the show, so we freelancers have just over a month to pay up what we owe 😩.
As per the Agencia Tributaria’s website, we need to make our quarterly self-assessments from the 1st to the 20th of the month following the settlement period (April, July, October), or between January 1st to January 30th for the last quarter of the year.
At least we get to work at home in our PJs, remember?
Hey, but don't worry, fellow freelancers. We have a trick up our sleeves! We can ask for a deferral of the payment of VAT to the Treasury, depending on how much we owe:
If we owe less than €30,000, we can defer payment for up to 12 months.
If we owe more than €30,000, we can defer payment for up to 36 months, but we have to give some guarantees of future payment.
In this globalized world, where the EU is practically one big country (I'm sure many of you have clients from other EU countries), knowing about intra-community VAT is important.
Intra-community VAT is the tax law that governs transactions when we buy or sell goods and services in other EU countries.
There are just two obligations and one outcome of intra-community deals:
The outcome? Any transactions with clients from other EU countries are exempt from VAT. So, if you're a photographer for an Italian fashion magazine, no VAT for you.
VAT for us freelancers isn't as complicated as it may seem. With a little bit of practice, you’ll get the hang of it. But it does take up a lot of time — especially if you want to make some serious savings.
If you'd rather focus on the finer things in life and leave the VAT headache to someone else, sign up with Xolo today! We'll also take care of your income tax and social security payments so you can sleep easy knowing it’s all under control.