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WORKING IN SPAIN

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

From 2023, Spain’s autónomos will pay monthly social security fees based on how much they earn, instead of a fixed rate, the Spanish government has confirmed. So will you end up paying more or less?

Published: 25 July 2022 15:49 CEST
Updated: 10 January 2023 16:49 CET
Will you pay more under Spain's new social security rates for self-employed?
Will you pay more or less in social security fees? Photo: Bench Accounting / Unsplash

Autónomos or the self-employed in Spain have it tough, having to pay one of the highest social security contributions in Europe, on top of income tax. However, this is all about to change. For some it will mean they will end up paying less in social security fees, but for others it will mean paying considerably more, making the situation even tougher.

Currently, autónomos have to pay a minimum contribution base of €294 per month after they have been registered as self-employed for two years, regardless of how much they earn.

For the first year, they will pay €60 a month, and during the second year it rises progressively to reach €294.

But this is all set to change because from 2023 they will pay new rates. 

READ ALSO – CONFIRMED: Spain’s new tax rates for the self-employed from 2023 onwards

Instead of there being a fixed rate of €294, the fee will go down progressively to €200 a month for lower earners and progressively higher – up to €590 a month – for higher earners.

Spain’s Ministry of Employment and Social Security will also change the rates for each group of earners every year. So far they have revealed what these rates will be for the years 2023, 2024 and 2025. 

Find out below if this means that you will be paying more or less in social security fees from next year.

Essentially this shows that anyone earning under €1,300 per month will be paying less in social security fees, with those earning €1166.70 to €1,300 a month paying just €3 less than they do now.

Those earning between €1,300 and €1,700 will pay the same amount as they do now – €294 per month, while anyone earning over €1,700 will be paying more.

According to the government, of the three million self-employed workers in Spain 2.4 million earn under €1,700 per month, meaning that the majority will see their social security contributions staying the same or reduced.

They say that these changes will benefit two out of every three self-employed people in Spain.

While this is of course good news, it’s the mid to high earners who will be affected by the changes the most.

High earners, those earning €4,000 per month will have to pay out €300 or more in social security fees, but it’s mid earners that will end up being the worst off.

For example, an autónomo who is just starting to be financially stable and earning €2,030 per month will end up paying €390 per month by 2025, which is €76 more than they currently pay.

It means that autónomos may not want to take on more work for fear that it will push them over the threshold and they’ll have to pay more in fees and it may also encourage more people to be paid under the table, referred to as ‘trabajo en negro‘ or ‘working in the black’ in Spain.

Self-employed in Spain already pay some of the highest contributions in Europe

Many self-employed people in Spain already believe the system is unfair because they pay a lot more in social security contributions than their European neighbours, and many are now set to pay even more.

In Germany for example, a self-employed worker with a monthly income of less than €1,700 pays nothing. Anyone earning over this amount pays a fee of €170.

In the UK, national insurance contributions start at £3.05 a week, or £158.60 a year. Those earning over £9,568 will pay 9 percent on profits up to £50,270 and 2 percent more on profits after that.

More benefits

While those in Spain do end up paying more, they also gain more too. Health care, sick pay, maternity and paternity benefits and pensions are all available to self-employed workers here.

This is not the case in many other European countries, who may have to pay extra for health insurance or do not get any maternity or paternity benefits if they’re self-employed.

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AMERICANS IN SPAIN

EXCLUSIVE: What the new Spain-US social security deal means for Americans

The Local speaks to the Spanish government and tax experts to understand what the new social security and pensions agreement between the United States and Spain means for American workers, digital nomads and pensioners in Spain.

Published: 15 May 2024 11:10 CEST
EXCLUSIVE: What the new Spain-US social security deal means for Americans

In early April, the United States and Spain announced a new social security and pension agreement.

The first update to the bilateral agreement between the two countries since 1986 was announced by US Ambassador to Spain, Julissa Reynoso, and Spain’s Minister of Inclusion, Social Security, and Migration, Elma Saiz.

The official agreement is unpublished so The Local spoke with a representative from Spain’s Ministry of Inclusion, Social Security, and Migration as well as international tax experts to understand the agreement in more detail.

Key aspects of the agreement

The Ministry told The Local Spain that the agreement is a step towards, bolstering mobility between Spain and the United States by improving pension calculations and social security protections.

The agreement has to do with the accumulation of benefits and affects working Americans living in Spain. There are two main components; the first affects which system people pay into (Spanish or American) and the second maximises the amount people can collect from social security.
 
Regarding paying into social security, the new agreement extends the “posting period” from three years to five years, with the possibility of extending it to seven years.

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This is meaningful for US employees who are working in Spain and means that they can now pay into the US social security system, rather than the Spanish social security system for longer.

Whereas the employee contributions in Spain and the United States are similar, 6.4 percent in Spain and 6.2 percent in the United States, the rate that employers pay differs greatly. In the United States the employer pays 6.2 percent into social security, whereas in Spain they pay 31 percent.
 
Why does this matter? “Previously when Americans moved to Spain, US employers were cutting the amount that they paid in salary because the cost of employment went up so much”, Louis Williams, Co-Founder and CEO of Entre Trámites, told The Local Spain.

It’s also made employers hesitant to grant digital nomads an Employer of Record (EOR) which would allow American workers to be on a Spanish contract.

READ ALSO:

In terms of collecting benefits, the representative from Spain’s Ministry of Inclusion, Social Security, and Migration says, “In the calculation of the Spanish pension there have been technical modifications that will benefit especially those people who developed their last working life in the United States, without this harming those who have worked in Spain immediately before requesting the benefit.”

In other words, under the new agreement, after calculating a person’s benefits under each country’s system, the recipient will be awarded the most beneficial of those two calculations.

Impacts for self-employed workers and digital nomads

According to the Ministry, “The agreement allows self-employed workers to temporarily move to the other State while maintaining their legislation, a possibility that was previously restricted only to employed workers.”
 
This has big implications for people who avoid moving to Spain because of the complicated social security contributions scheme, as they’ll now be able to continue paying US social security taxes (rather than Spanish) for up to seven years.
 
“The interesting thing is if this is extended to digital nomads because it would make the digital nomad visa more attractive,” says Williams.

“Why? Because if you’re posted by an employer (who can now avoid high Spanish social security taxes) you’re eligible for Beckham’s Law.” The law, which does not extend to autonomous works, can cap tax liabilities at 24 percent.
 
Being posted could make life much simpler, according to Elliott Locke, ACSI, co-founder of abroaden, a financial wellbeing and education start-up for people living abroad headquartered in Barcelona.

“The calculus is harder for freelancers given the different legal structures and methods for freelancing between the two countries. In many ways, if an American moves here to work remotely, it could be beneficial for them to have their US-based employer hire them on a local contract through an employer-of-record,” Locke told The Local.
 
In short, the new agreement could make it more attractive for U.S. companies to post employees in Spain, making them eligible for Beckham’s law and allowing autonomous workers to pay into the U.S. social security system, making it more beneficial and easier to be a digital nomad in Spain.

READ ALSO:

Who benefits from the new agreement?
 
The people who will feel this new agreement the most are employers, digital nomads, retirees who have paid into both systems over the years, and finally, civil servants. “Spain has incorporated as possible beneficiaries of the Agreement those people who have contributed to the civil servant’s regime (passive class regime), who were excluded in the previous Agreement,” says the Ministry.
 
When can we expect the new agreement to come into force?

Don’t hold your breath; this is Spain after all, but we can expect the agreement to come into force within the next two years.

The deal has to pass through Congress before approval, which is likely why it has not yet been published. If things move quickly, people could expect to benefit within a year.

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