Every year we expect changes regarding Social Security Contributions and general procedures and this year is no exception. There have been many delays on this subject because a number of new measures were supposed to be introduced but it looks as though these may be delayed a few months so that Social Security Delegations can learn how to implement these new procedures, and another issue is as usual, the State Budget was not published on time and was only made available on the 14th January 2019.

Instead of going through all the various changes that may or may not take place, I want to highlight the most important changes that affect you directly at this moment.

As you know, as Sole-Traders, we do not have a fixed income or a monthly salary and in Spain, our Social Security contributions are not calculated according to our actual income; instead they are based on a scale established by Social Security. They determine a minimum monthly “salary” we would need to live on and from there they calculate minimum and maximum base rates for our monthly contributions, which usually increase a little each year either in January or in July.

Most sole-traders pay into the system on the minimum base rate which in the latter half of 2018 amounted to 932,70 euros but it increases this month by 1,25%, setting it at 944,40 euros. Another important change is to do with the concepts that we pay for each month within our contribution. The monthly contribution automatically includes a concept called General Contingencies or “contingencias comunes” which incorporates an insurance policy via the Mutua in the event the sole-trader is unable to work due to non-work related accidents or illness and it also includes an amount that goes towards their future pension. There were two optional concepts that could be paid for on top of that, Professional Contingencies (Professional Accidents or Illness) and Closure of Business.

Upon registering the business activity, I would normally recommend to those business owners who carry out high risk activities such as construction to pay extra for Professional Contingencies so that if they were to suffer a work-related accident, they would receive payment from day one and for a higher amount. Closure of Business was always a difficult topic because it is similar to a sole-trader receiving unemployment benefits if the business had to close but the catch was that you would have to prove to Social Security that the business failed on all levels which as you can imagine was virtually impossible to achieve and Social Security would ultimately reject more than half of the applications received so many thought it was pointless to pay this extra amount.

From January 2019, however, it becomes obligatory to contribute General Contigencies, Professional Contingencies as well as Closure of Business in the following way:

  • General Contingencies: 28,30%
  • Professional Contingencies: 0,90%
  • Closure of Business: 0,70%
  • Professional Training: 0,10%

If we apply these amounts to the new Mínimum Base Rate of 944,40 euros, the breakdown would be as follows:

  • General Contingencies: 267,27 euros
  • Professional Contingencies: 8,50 euros
  • Closure of Business: 6,61 euros
  • Professional Training: 0,94 euros

TOTAL CONTRIBUTION: 283,32 euros per month (an increase of approximately 5 euros per month)

Those business owners who are registered to a limited or public company, are also liable to these increases. in their case, the minimum base rate is 1.214,08 euros, an increase of approximately 7,22 euros per month and situates the monthly contribution at 364,22 euros

This new format allows for better cover and increased benefits:

  • Receive payment for work-related accidents or illness from the first day in which your doctor signs you off from work
  • The ability to stop paying Social Security contributions if you are unable to return to work from the second month of temporary incapacity (non-work related accidents or illness) until your doctor declares you are fit to work again
  • To access professional training/ courses
  • Better access to closure of business benefits, whose duration increases from 12 months to 24 months

This increase in the percentages applied to the minimum base rate is expected to continue over the next four years to 30,30% in 2020; 30,60% in 2021 and 30,90% in 2022 to cover the additional benefits included within the monthly contribution.

Another expected improvement that has been studied for a number of years because of pressure from Business Associations and Colleges is to change the way Social Security contributions are calculated. This means there is a possibility that sometime during 2019, the system I have just explained again to you may be completely abolished and a new system that allows sole-traders to pay contributions based on their actual income as practiced in many other European countries begins which would particularly Benefit those sole-traders who earn less than the established minimum wage. As you can imagine, this concept is not so easy to implement. There are many factors to consider and personally, I think that one of the major problem areas is fear that sole-traders will underdeclare their income to pay less Social Security, which in turn could cause the whole Social Security Administration to collapse (no unemployment benefits, no sick-pay, no pensions…). We will have to wait to see what will happen this year but this concept was recorded in the Sole-Trader Reform approved in October 2017 so it could only be a matter of time.

I sincerely hope this blog post has clearly explained the way in which sole-traders pay their monthly contributions, the increases, additional benefits and expected changes to come but if you have queries, please feel free to contact me for a consult.

 


We’re less than two hours away from ringing in 2019 in the Canary Islands but work is far from over. There are some important changes regarding the General I.G.I.C. (Impuesto General Indirecto Canario) Rate, the rate that affects the majority of businesses. Earlier today, the Canarian Government published Ley 7/2018, 28th December, General Canary Islands’ Budget 2019, which states the General I.G.I.C. Rate will be reduced from 7% to 6,5% for all delivery of goods or services that are not subject to other I.G.I.C. Rates from 1st January 2019.

This means that from the 1st January 2019, the I.G.I.C. (value added tax) for any sales or services provided must be calculated at 6,5%. All invoices or estimates provided to customers must factor this change, even if a quote was initially accepted in 2018.

This marks the second change in six years as the General Rate was last modified in July 2012 where it  was increased from 5% to 7%.

 


This week has seen unprecedented Supreme Court action that has unleashed all kinds of mayhem on an internal level, not to mention the consequences this has had on the financial sector. Over the past few years we have seen thousands of court cases revolving around the financial sector and their methods when it comes to granting mortgages. The primary issue was in relation to the infamous Floor Clause inserted in mortgage agreements (in many cases without advising the mortgage holder!) but a Supreme Court ruling in favour of mortgage holders obligated banks to reimburse any benefits obtained which could be a few thousand euros per case. The secondary issue and the one this article referrs to has to do with reclaiming the Stamp Duty paid on the Mortgage Deed.


Following on from my April post on the same subject, it has been confirmed that sole-traders, professionals and business owners must pay four euros more than they have been paying since the last increase in July 2017. This is due to approval of the General State Budget which raises the minimum base rate from 919  euros to 932 euros, meaning that those who pay the minimum contribution will pay 279 euros per month from now on.

It isn’t all bad news… 520 million euros have been allocated from the State Budget to improve sole-trader conditions to include additional help for start-ups, better rates to hire employees and support for those who have children and/or dependents. This is turn will also include better pensions (we hope!).

 

 


Following on from when new Data Protection Laws were first reported, this is a reminder that the deadline for these laws to come into force is now extremely close. After four years of debate, new regulations were approved which means that in line with European Directives, come the 25th May 2018, we say goodbye to the old system and say hello to the General Data Protection Regulation (GDPR). In Spain, this means the Ley Orgánica de Protección de Datos (LOPD) is being replaced by the Reglamento General de Protección de Datos (RGPD).

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