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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 foreigners in Spain’s capital can pay less tax with the new Mbappé Law

The regional government of Madrid is finalising the approval of the so-called Mbappé Law, a very favourable new personal income tax regime for foreigners who settle and invest in the Spanish capital.

Published: 23 April 2024 16:44 CEST
How foreigners in Spain's capital can pay less tax with the new Mbappé Law

Similar to Spain’s Beckham Law, introduced in 2005, this piece of legislation is named after a famous footballer who will be the first to benefit from lower tax rates, as will other foreigners in Madrid.

Kylian Mbappé is a French footballer who currently plays for Paris Saint-Germain, but looks set to sign for Real Madrid this summer.

The objective of the right-wing Madrid government of Isabel Díaz Ayuso is to attract more foreign investment to the region with beneficial fiscal rates.

READ ALSO – Beckham Law: What foreigners need to know about Spain’s special tax regime

Unlike the Beckham though, the Mbappé Law is only designed to benefit foreigners who move to the region of Madrid, it’s not open to those who want to move elsewhere in Spain.

Also unlike the Beckham law, foreigners will only be able to reap the rewards of the Mbappé Law if they invest money into the region. This could be in the form of investments in companies or in vehicles, but it cannot include investments in property.

Specifically, applicants will be able to deduct 20 percent of all the money they invest in the Madrid region.

The law applies to regional personal income tax, which accounts for approximately half of entire tax payments in Spain, since the other part corresponds to the State’s collection.

Normally, a foreigner like Mbappé will be taxed in the highest income bracket, as they will earn well over €300,000 gross per year.

When the law is finally approved however, Mbappé could avoid paying the regional income tax entirely, in the event that 20 percent of his Madrid investments represent the same amount that he would have had to pay in taxes on his salary.

READ ALSO: Why you should move to this region in Spain if you want to pay less tax

How will the Mbappé Law work?

For example, if Mbappé earned €40 million gross (not his actual salary), he would normally be charged €18 million in personal income tax.

Of this, 24.5 percent would correspond to the state tax, and this would have to be paid as normal. This means the state would collect €9.8 million from him in tax.

The change happens with the rest of the tax – the regional tranche. If he doesn’t make any investments, which now seems unlikely, he would have to pay €8.2 million in tax to Madrid.

If on the other hand the French superstar invested €40 million in Spanish companies or state bonds – he could deduct €8 million, which represents 20 percent of that amount.

This would mean that Mbappé’s tax rate would remain at 24.5 percent, a marginal rate that is slightly higher than the personal income tax for a worker who earns €20,000 and receives around €1,300 net per month.

As a percentage, of course, the amounts in Mbappé’s case are going to be huge. So, instead of paying €18 million in total, he would only pay €9.8 million.

Overall, this legislation signals that Madrid will become even more attractive to foreign investors.

By contrast, those who move to Catalonia will have to pay 25.50 percent in regional income tax, which added to the 24.5 percent of the state tax would increase personal income tax by half. So as a Real Madrid player Mbappé would earn €30.2 million, but if he signed for Barça he would pocket €20 million.

What’s the catch?

There are a few caveats to the new law, which primarily depend on how long you stay in Madrid. The new regulations establish that you have to stay and live in Madrid for a total of six years. If you leave before those six years are up, then you will be forced to return part of the tax savings you made.

What does this mean for Madrid?

The regional government of Madrid estimates that 30,000 foreign investors could choose to move to the region specifically in order to benefit from the new law and that it will cost the public coffers €60 million per year.

The idea is that Madrid will continue to attract foreign investment. Madrid’s leader Isabel Díaz Ayuso recently claimed that: “Two out of every three euros that arrive in Spain as an investment from abroad do so in projects that are developed within the Community of Madrid. In the last decade, the flow of investments has doubled”.

Madrid already has some of the best tax incentives in Spain. Residents pay less tax on their income, assets, inheritance and property transactions and conditions are beneficial to high-income earners in particular.

Financial experts agree that Madrid is among, if not the top region, with the most lenient tax system in the country, and when the Mbappé law comes into force, the region will benefit from even more incentives.

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