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TAXES

APPROVED: Spain’s new tax rates for the self-employed from 2023 onwards

Spain’s autónomos will pay monthly social security fees based on “real earnings” in a similar way to how it works for income tax, as approved by the Spanish Parliament on Thursday August 25th. Here’s a breakdown of the new rates and other key information.

Published: 20 July 2022 13:13 CEST
Updated: 26 August 2022 08:34 CEST
spain new social security fees 2023
Self-employed people in Spain already pay the highest monthly social security fees in the EU. (Photo by JOSEPH EID / AFP)

After months of negotiations, Spain’s Social Security Ministry on July 20th was given the green light by self-employment groups ATA, UPTA and Uatae to change the way the country’s 3.3 million autónomos (self-employed workers) pay for social security coverage.

On August 25th, the Spanish Parliament approved the changes, thus confirming they will come into force in 2023.

Up until now, autónomos had a minimum contribution base of €294 a month after they’d been registered as self-employed for two years (for the first year it is €60 a month, and during the second year it rises progressively to reach €294, but this is also changing).

The changes mean that rather than there being a fixed minimum contribution base of €294, self-employed workers will pay different monthly amounts based on how much they earn. 

This is on top of IRPF, income tax, which they are also taxed on based on how much they earn in the form of tax brackets.

What this means in practice is that some seasoned autónomos will pay more for social security every month, whilst others pay less.

Instead of it being a fixed rate of €294, it will go from €200 a month for lower earners to €590 a month for higher earners.

The Social Security Ministry will also change these rates for each group of earners every year. 

So far they have disclosed what these rates will be for the years 2023, 2024 and 2025. 

The term “real earnings” (ingresos reales) refers to net income, the difference between computable earnings and deductible expenses.

There will now be 13 social security contribution brackets rather than just the one, from those earning under €670 a month to those earning above €6,000.

Below is a breakdown of these new minimum monthy contributions to the social security system based on real earnings for Spain’s autónomos. 

If there’s a brief conclusion to be drawn from this new system it is that self-employed workers in Spain who are low earners (anyone earning under €1,166 net a month) will benefit, especially those who are making under €900 a month as they stand to save up to €94 a month in social security fees by 2025. 

FIND OUT: Will you pay more under Spain’s new social security rates for self-employed?

Very high earners, anyone getting more than €4,000 net a month to give an example, will not be so happy as they could end up having to pay up to €300 more a month in social security fees.

But it’s perhaps the middle classes, the medium to high-medium earners that this legislation is particularly damaging for. For example, an autónomo who is starting to find success and earning €2,030 will end up paying €76 more a month by 2025. 

Many self-employed workers in Spain have long felt they are burdened with unfair tax and social security contributions in what’s already a difficult work market. 

This legislation will help autónomos who are struggling to get to the end of the month, but at first glance it appears that it will stump growth for startups and autónomos who are starting to get their businesses off the ground, financially speaking.

Self-employed people in Spain already pay the highest monthly social security fees in the EU.

They do however generally get more for what they pay, with benefits such as sick pay and maternity/paternity pay on top of access to Spain’s public healthcare system, benefits not always available to self-employed workers in other European countries.

Still having doubts about the new system? The link below should clear up any possible doubts.

Q&A: How will Spain’s new social security system for the self employed work?

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TAXES

How wealthy people in Spain are avoiding the millionaire tax

It may come as no surprise that the Spanish government has collected far less money than expected from the millionaire tax, as wealthy people have found several ways to avoid paying it.

Published: 16 April 2024 09:40 CEST
How wealthy people in Spain are avoiding the millionaire tax

Spain’s temporary tax on the super rich (impuesto de solidaridad a las grandes fortunas) is usually referred to as the millionaire’s tax or solidarity tax. It’s a tax on people worth more than €3 million and it’s not a tax on income, but rather on assets and holdings.

It was introduced by the country’s left-wing coalition in an attempt to help Spaniards weather the economic storm of the cost-of-living crisis. But as of September 2023, around a year after the tax measure was first brought in, the Spanish government reported that it had raised €623 million in revenue, a decent amount but considerably less than the initial projection of €1.5 billion. We now may know why that is.

According to tax data, the millionaire’s tax targeted just 12,010 payers, which represents barely 0.1 percent of the total taxpayer base in Spain.

On average these high-worth individuals each paid €52,000, which is complementary to the Wealth Tax (impuesto patrimonio).

However, though it was supposed to be a temporary tax measure, there’s now some uncertainty about exactly how temporary it is going to be in the long-run. The government has been making non-comital noises as of late, and amid the uncertainty many wealthy Spaniards have begun trying to find ways around paying it and trying to reduce their wealth tax bill overall.

READ ALSO: When will Spain’s millionaire tax be scrapped?

Donations

A lot of it comes down to ‘donations’ in order to make the money non-taxable or to reduce the taxable base on paper.

Spanish tax consultancy firms consulted by elEconomista.es report an increase in requests for help arranging ‘donations’ from parents to children or spouses in recent years, as well as the arranging inheritance agreements in the regions that allow deductions to offset the tax burden of the millionaire’s tax.

Donations are sometimes done through money and shares, but donating properties also seems to be a way of avoiding extra taxes, although property donations can work out more expensive due to the procedures to be followed and the taxes to be paid on property transactions in Spain.

The aim is to avoid paying the millionaire’s tax by splitting up the fortune, essentially because donations between family members is a way to reduce the level of wealth (on paper) and thus keep it below €3 million, the taxable base from which the millionaire’s tax is levied.

This trick is even more beneficial in regions where donations are subsidised, such as Madrid and the Balearic Islands, where inheritance agreements can be made, because any capital gain generated by the donation is not taxed.

READ ALSO: Inheritance tax in Spain – Should you pass your property on to your children or sell it to them?

Venture capital firms

Another method increasingly used by the wealthy seems to be setting up and putting money in venture capital or private equity firms.

According to Spain’s National Securities Market Commission, the creation of venture capital firms has grown by 38 percent since the government first announced the millionaire’s tax.

Siro Barro, partner in charge of tax law at Escalona de Fuentes, told El Economista that setting up venture capital firms are appealing because 60 percent of the investment made by creating a fund or equity can be exempt from both forms of tax in certain circumstances.

Tax experts expect the trend of creating and investing by the wealthiest taxpayers into private equity entities to continue to rise as long as the solidarity tax continues to exist, as with the donations loophole.

With the government yet to outline when this supposedly temporary tax will be scrapped (if at all), it seems these sorts of tricks, whether through donation or venture capital investment, are here to say.

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