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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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PENSIONS

Spain needs 25 million foreign workers to keep its pensions afloat

As the retirement of baby boomers looms, Spain's ageing population and declining birth rate mean the country will need millions of foreign workers to maintain its public pension pot and reinforce the labour market, the Bank of Spain has warned.

Published: 2 May 2024 09:46 CEST
Spain needs 25 million foreign workers to keep its pensions afloat

A recent study by the Bank of Spain estimates that the country will need up to 25 million more immigrant workers by 2053 in order to combat demographic ageing and maintain the ratio of workers to pensioners in order to support the pension system.

Without an influx of more foreign workers or sudden increase in the birth rate in Spain, something that seems very unlikely, experts fear that the growing disparity between working age people and pensioners could put the public pensions system in danger in the medium to long-term.

Like in many countries in the western world, the Spanish population is ageing, with the percentage of the population over 65 years of age predicted to peak in 2050, when almost one in three will be 65 years old or older.

READ ALSO: Spain’s over 65s exceed 20 percent of the population for the first time

By 2035 around one in four (26.0 percent) of Spaniards are expected to be 65 or older. That figure is currently around one fifth of the population.

Furthermore, this is compounded by falling birth rates. Spain’s birth rate hit a record low in 2023, falling to its lowest level since records began, according to INE data. Spain’s fertility rate is the second lowest in the European Union, with Eurostat figures showing there were just 1.19 births per woman in Spain in 2021, compared with 1.13 in Malta and 1.25 in Italy.

If nothing changes, the current ratio of 3.8 people of working age for every pensioner is predicted to plummet to just 2.1 by 2053, according to INE projections.

Maintaining this ratio seems unlikely moving forward, according to the report’s conclusions, something that would put pressure on pensions without significantly increasing social security contributions among working age people.

READ ALSO: Older and more diverse: What Spain’s population will be like in 50 years

The Bank of Spain report noted that “immigrants have high labour participation rates, generally above those of natives – in 2022, 70 percent and 56.5 percent, respectively.”

In three decades’ time, the INE expects Spain to have 14.8 million pensioners, 18 million Spanish nationals of working age and 12 million foreigners. To maintain the ratio, the Bank of Spain forecasts that the working immigrant population would have to rise by more than 25 million to a total of 37 million overall.

Of course, the arrival of 25 million working-age foreigners seems unlikely, if not impossible. To achieve this, around 1 million net migrants would have to enter Spain each year (discounting departures), a figure unprecedented in recent history. To put the figure in context, between 2002 and 2022 net arrivals in Spain reached five million, roughly five times less than what would be necessary to maintain the balance between workers and pensioners.

READ ALSO: ‘Homologación’ – How Spain is ruining the careers of thousands of qualified foreigners

Putting the economics aside, even if such an increase were statistically plausible, such a surge in net migration would be contentious both politically and socially. And it’s not even certain that increased migrant flows would be able to fill the gap in working age people and bolster public pensions: “The capacity of migratory flows to significantly mitigate the process of population ageing is limited,” the Bank of Spain warned in its report. 

What these projections suggest is that Spain’s public pension system will, in coming decades, likely have to be sustained by the contribution of fewer workers overall. This likely means higher social security payments. “Migratory flows have been very dynamic in recent years, but it does not seem likely that they can avoid the process of population ageing… nor completely resolve the imbalances that could arise in the Spanish labour market in the future,” the report stated.

The problem of ageing will also be transferred to the labour market and the types of jobs filled in the future. Increased migratory flows will soften the effect, but the labour characteristics of migrants coming to Spain may not match the job market in the coming decades. The jobs of the future, increasingly digital, will likely require qualifications that many of the migrants expected to arrive in the coming years do not have.

Consequently, the Bank of Spain suggests that “without significant changes in the nature of migratory flows, it does not seem likely that… [they] can completely resolve the mismatches between labour supply and demand that could occur in the coming years in the Spanish labour market.”

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