The more than three million persons registered as self-employed in Spain are well-aware of the advantages and pitfalls that come with it. Spain, unlike many other European countries is considered quite inflexible in the way business owners, especially new business owners pay their Social Security contributions and taxes but there is finally a light at the end of the tunnel and the amendments that we have been campaigning for so long and have been in the pipeline for over one year are finally a reality. Let’s review the main points Ley 6/2017 of 24th October, Urgent Reforms to Autonomous Work offers. Note that the most important measures to do with taxes or the Social Security flat-rate will come into effect on the 1st January 2018 whereas the others are valid from the 25th October 2017.
- Social Security Flat-Rate and Other Discounts: Any new self-employed person or those who have not been registered as such in the last two years (currently five years) can benefit during a 12-month period of a reduced rate of 50 euros instead of the 6-month period that is currently in effect. After the initial 12 months, the following still applies:
- From months 13 to 18: 50% reduced rate (137,97 euros)
- From months 19 to 24: 30% reduced rate (192,79 euros)
- From month 25 onwards: Normal rate (275,02 euros)
This means that besides increasing the flat-rate period, those who fulfil the criteria are entitled to reduced rates for 24 months!
Men under the age of 30 and women under the age of 35 who fulfill the above criteria may also opt for an additional 30% reduced rate in the twelve months immediately after the above schedule, therefore benefitting from 36 months of reduced payments at Social Security. The above measure applies even if the business owner hires employees.
If a self-employed person cancels this status at any point, they would have to wait three years before they can re-register and apply for the same reduced rates.
- Flexibility and Changing the Base Rate: To date, if a sole-trader for example, were to register on 13th October and cancelled on 8th November, they would be obligated to pay the full contribution for the months of October and November even though they only really worked 27 days. This new measure now allows for more flexibility to pay for the time they are actually registered. Many sole-traders choose the minimum base rate to pay the lowest Social Security contribution possible, however, they may opt to pay a higher tariff to increase the amount of money that goes towards their pensions. This reform now allows the base rate to be altered up to four times a year instead of two:
- Applications from 1st January to 31st March apply on 1st April
- Applications from 1st April to 30th June apply on 1st July
- Applications from 1st July to 30th September apply on 1st October
- Applications from 1st October to 31st December apply on 1st January of the following year
- Reduced Penalties: Social Security contributions are always charged on the last working day of the month but sometimes it can be difficult for a sole-trader to organize the necessary funds in time and this led to cruel and unusual punishment to the tune of a 20% fine for delayed payment. This has now been reduced to 10% under the reform. Remember however that any sole-trader who has reduced monthly rates will lose this privilege for late payment.
- Multiple Employment: Due to financial issues, many contribute to the Spanish Social Security system as employees AND as sole-traders simultaneously, meaning that there is usually an excess that should be refunded to them. Up until now, the sole-trader had to apply for said refund which involved a lot of unnecessary red tape but this procedure is now automatic and the refund would be payable by the Administration before 1st May of the following tax year.
- Tax Deductions: Financial concerns have also seen an increase in the number of sole-traders that choose to work from home. Even though this practice is advantageous, the Tax Office did not allow certain expenses to be deducted as it was not clear to them how much corresponds personal or professional use. For example, if the house and the office did not have independent electricity meters, this expense could not be deducted, but now this does not apply, and the Tax Office will allow 30% of electricity, water, gas and Internet bills to be deducted unless this does not correspond to the proportion to the square meterage the office takes up in relation to the total size of the house.
Travel, accommodation and meal expenses can also be deducted as long as these are directly related to the business activity, they arise at hotels and at establishments included within the hospitality sector, they are paid by electronic means with the relevant bill. The maximum that can be deducted is 27,27 euros per day on national territory and 48,00 euros per day abroad.
- Work-Related Accidents: Sole-trader who travel to their place of work (therefore excluding those who work from a home office) were not covered if they suffered an accident going to and from work as an employee would but thankfully this has now changed and is considered as a work-related accident.
- Work-Family Reconciliation: To favour family relations coupled with work obligations, the following measures apply:
- 100% discount of Social Security contributions during maternity or paternity leave, adoption, at risk during pregnancy as long as this situation lasts for at least one month. Until now, the monthly contribution still had to be paid.
- 100% discount of Social Security contributions during one year for the care of minors up to the age of twelve or dependent family members with recognized disabilities.
These are the most relevant changes but it is not possible to include all the changes so whether you are already registered as self-employed or are planning to do so in the near future, make it a point to investigate any new advantages that may apply to your particular circumstances. The positive here is that the Spanish Government is finally listening to a collective, they have described under the Preface of this Law as the main driving force of the country’s wealth and employment.