If you're self-employed in Spain —or thinking about becoming one— it's crucial to understand how the tax system works. There are three main areas every autónomo (self-employed person) needs to be aware of: three key areas that every self-employed person should be aware of:

1. VAT (IVA – Impuesto sobre el Valor Añadido)

As a sole trader in mainland Spain, you pay VAT when you purchase goods or services and charge VAT when you sell them. Every quarter, you calculate the difference between the VAT you've charged your clients and the VAT you've paid on business expenses. The resulting amount must be paid to the tax authorities.In most cases, you collect more VAT than you pay — so you owe the difference to Hacienda.It’s important to understand that VAT is not part of your income. You're simply collecting it on behalf of the government. A common mistake among small business owners is to treat all income as theirs — and then be shocked when the tax bill arrives. But part of what you charge your clients is VAT, and that amount isn’t yours to keep.

You usually charge more VAT than you pay, so you have to pay the difference to the tax office.

It is important to understand that the VAT is not part of your real income. You are simply collecting it on behalf of the state. A common mistake for small businesses is to think that everything they collect is their own income, and then they are surprised when the VAT payment arrives. But some of the money you collect belongs to the Inland Revenue - not to you.

2. Social Security Contributions (Cuota de Autonomo)

Social Security covers situations such as sick leave, maternity/paternity, retirement, etc. If you are self-employed - or work in a company in which you have more than a 33.33 % shareholding - you are obliged to register and pay contributions.

The amount you pay depends on your declared income, but as a rule of thumb you can calculate that the share is around 30 % of your net profit.

• It is paid monthly, on the last day of each month.

• If you are a new self-employed person, you can take advantage of the 80 €/month flat rate for the first year, The period of validity may be extended in certain cases.

You can use our [calculator] to estimate your contribution based on your income.

3. Personal income tax (IRPF)

Here things get a little more complicated.

You must make quarterly prepayments of income tax throughout the year — typically 20% of your net income (income minus deductible expenses). Then, between April and June of the following year, you file your annual income tax return where all your income, personal deductions, and previous tax payments are reviewed.If you’ve paid too much during the year → you’ll get a refund.If you’ve paid too little → you’ll need to pay the difference.If you are both self-employed and a company director, your income tax is treated as if you were an employee — calculated monthly and withheld by the company — even though you pay Social Security under the autónomos regime.

• Yes you have overpaid during the year → The tax authorities give you a return.

• Yes you have underpaid → you will have to pay the difference.

In the event that you are self-employed and you also director of a company, your personal income tax is calculated as if you were an employee, with monthly deductions from your paycheck, even if you pay Social Security contributions as a self-employed person.

On deductible expenses

A very common question is: What expenses can I deduct?
It depends on the type of expense and the economic activity. For example, if you buy a car for business purposes, the tax authorities usually presume that you also use it for personal purposes, so they may not allow you to deduct 100 % of the expense unless you clearly justify that it is for business use only.

That is why it is so important to consult a tax advisor before you make certain purchases or file your returns. A good advisor can help you plan ahead, avoid penalties and make the most of legal deductions.

In a nutshell

Being self-employed in Spain comes with certain obligations, but understanding the tax system can save you money, stress and hassle. The three key areas -VAT, Social Security and Personal Income Tax- must be managed with foresight and good judgement.

If you have doubts or want to make sure you are doing things right, contact us - we are here to help you.