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

The Spanish government announced new tax rates for the self-employed from 2023, but many "autónomos" are confused as to exactly how it will work in practice. Here's what you need to know to understand the new system better.

Published: 9 August 2022 16:41 CEST
Updated: 13 August 2022 09:16 CEST
self employed in Spain
Spain's Minister of Social Security Jose Luis Escrivá. Photo: PIERRE-PHILIPPE MARCOU / AFP

From 2023 Spain’s autónomos will pay monthly social security fees based on “real earnings” in a similar way to how it works for income tax. The Spanish government revealed the new rates at the end of July 2022. 

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. It will go from €200 a month for lower earners to €590 a month for higher earners.

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

However, many of those who are self-employed are confused by the new rules and have many questions regarding exactly how much they’ll be paying from next year. 

Here are some of the most common questions asked and the answers, which are based on an interview with Social Security Minister José Luis Escrivá on radio station Cadena Ser. 

Q: When will the new system come into effect?

A: Autónomos will start paying the new social security quotas from January 1st 2023.

Q: How will I know what income bracket I will be put into?

A: At the beginning of the year, each autónomo will have to state their expected income level using a special tool called ‘importas’ or imports. This will help you calculate how much you might potentially earn during the year. You will be able to modify and change your income bracket six times per year, based on your real earnings. At the end of the year, you will find out what your final real earnings are and your fee will be adjusted accordingly.

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

Q: Does that mean I will get my social security back if it turns out I’ve paid too much?

A: Yes, essentially like the income tax, you will be paid part of your social security fee back again if it turns out you’ve paid too much. On the other hand, it also means that you will also have to pay more social security if you have paid too little.

Q: How will the new system work if I only work sporadically?

A: As mentioned above, you will be able to change your expected income every two months. This means those with seasonal work will end up paying less in social security fees than they do now, during the months when they get less work. When you begin to earn more, you can change your expected income level again and will be charged more.

Q: What will happen to the tarifa plana or flat rate scheme whereby new autónomos start out paying only €60 per month in social security fees?

A: The tarifa plana as it stands currently will end and those on it will not continue paying the same amount. Instead, new autónomos will pay a flat fee of €80 per month for the first year and will continue at this rate in year two, only if they earn below minimum wage. Low earners, those who earn less than €670 per month will see their rate reduced to €230 in 2023, €225 in 2024 and €200 in 2025.

Q: What will happen if I have to close my business for some reason, do I have to de-register completely?

A: The new law now states that if you are forced close your business partially or temporarily, such as in the case of the volcano eruption in La Palma, you now don’t have to deregister completely from the autónomo system. Those who have to partially close their business will be able to apply for financial help, even if they do not close completely.

Q: Why is there such a big difference between the social security rate in Spain and other European countries?

A: According to Escrivá, Spain is one of the countries with the highest level of protection for self-employed people in Europe. In other countries, you may pay less in social security fees, but will not get pensions, sick pay, maternity or paternity benefits, he explained. It also means you have aid benefits during a crisis such as the Covid-19 pandemic or if you own a shop on a street that has to be closed for construction, for example.

Q: How will we know if the new changes will be successful or not?

A: These reforms essentially mean higher pensions for the self-employed, as well as higher and better benefits. When autónomos start benefitting from these, then we know that it is successful, said Escrivá. 

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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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