How can an Umbrella Company Help with Contracting in Spain?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. They just want to focus on their work, maximise their earnings and get on with their life. And so generally the best solution is a contractor type arrangement. Luckily there are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies). This guide will help you understand your options and we’ll talk you through the pros and cons of each of them. If you want to talk to any Spanish Umbrella Companies, that’s where we come in. We know them all, which industries they specialise in, the different services they offer and can suggest which ones are best suited to your situation.
If reading through the guide seems too much we’d be happy to setup a call and see if we can help you. Just get in touch and ask us to give you a call!
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Spain. Even better, most are experts in Spain and expat tax law, meaning they’ll also help you optimise your earnings in Spain.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
For those with the will and skill, there is a self employed or “Autonomo Profesional” pathway which allows you to setup as an independent contractor in Spain. Note this is different from Autónomo Empresarial which is for those starting a small business or something entrepreneurial involving lots of clients.
On the plus side Autonomo have lower social security obligations than employees. They pay taxes quarterly instead of having them deducted at source in their monthly payroll. And they might be able to claim more work related expenses.
But on the down side there is a lot of admin and responsibility associated with this status. Autonomo workers become personally liable to the Spanish tax and social security authorities for any debts. There are minimum standards in Spanish tax law for how Autonomo must keep their accounting records, invoices and business documents. And to make it more complex, the regulations for autonomo tax and social security can be slightly different depending on which region of Spain they are living in. Lastly autonomo have to pay quarterly income taxes (and potentially VAT or IVA – Impuesto sobre el Valor Añadido), monthly social security contributions and file an annual tax return.
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for Spain.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in Spain, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Spain and your home country can seem like full-time work in itself.
Independent contracting in Spain isn’t always straightforward. You’ve got immigration issues, tax difficulties, and mountains of complex admin work. Even worse, missteps can cost you serious money, or even land you in legal trouble. For foreign workers it is very rare that you could use a foreign personal company, for example a UK Ltd Company, for your Spanish contract.
For most contractors the choice is to engage an umbrella company or become self employed / autonomo. In theory you could also look at direct employment but it generally comes with higher social security costs for the employee and employer. And employers are cautious recruiting foreign workers for short term work in Spain, Spanish employment law is more suited to permanent work than short term assignments.
When you’ve got a contract job offer in Spain, you need to be aware of what you’re getting into – and how you can make it simpler. Most of our clients want to focus on doing their work and enjoying the experience of living in Spain. They don’t want to spend their downtime navigating Spanish bureaucracy and all the related admin.
A Contractor’s Guide to Taxes in Spain
One of the most consistently challenging aspects of contracting in Spain is complying with the country’s tax system. As well as paying tax in Spain, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge. It will be influenced by your tax residency, visa status and potentially any tax treaties between Spain and your home country.
How do I calculate my taxable income in Spain
If you’re working in Spain under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in Spain for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in Spain, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in Spain through PAYE is left with the prospect of doing everything themselves.
Do you know much about Spanish Tax Law? Does Spain have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Spain can range from 19 to 45 percent, but this may vary according to the autonomous community where you reside. You need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Spain
| When Do You Need to Lodge Your Tax Return? | Tax year is the calendar year. Tax returns may be filed from May 1. |
| Tax Filing Deadline | June 30 |
| Can you file it online? | Yes, https://www.agenciatributaria.gob.es/AEAT.sede/en_gb/Inicio/Inicio.shtml |
How to File Taxes in Spain as a Contractor
A personal income tax return should be filed by any resident whose gross income exceeds EUR 22,000 or EUR 12,000 for employees who obtain income from more than one employer. However, everyone must file a Spanish tax return in their first year of tax residency. The following steps outline the process to file tax returns.
Collect your identity card and register your obligation to pay tax
Step 1: Collect a Foreigner’s Identity Card (NIE) number through the local foreigner’s office(link is external) or police station(link is external) within 30 days of arrival into Spain. This usually takes 2-3 weeks to arrive.
- Note: a Spanish national would be issued with a DNI (Spanish National ID) instead of the NIE.
Step 2: Using this NIE number, you must register your obligation to pay Spanish tax with the Agencia Tributaria(link is external) by filing Form 30(link is external). Guides for filing this form may be found here(link is external).
Option 1: Using a provisional declaration form (most common)
Step 3: From April 6, you can log into the Agencia Tributaria using your NIE and request a provisional declaration form (‘borrador’). This is a draft statement that is based on a limited amount of pre-filled information including employment, property and bank statements.
Step 4: Modify any existing information that is incorrect.
Step 5: Enter deductions that may offset your income. This includes:
- Personal/marriage allowance
- Deductions for children and dependents
- Mortgage relief
- Pension contributions
- Rent
- Time spent abroad for your employer.
Step 6: Tax residents must report assets from abroad exceeding EUR 50,000 using Form 720(link is external). This may also be submitted online. A minimum fine of EUR 20,000 may be imposed for breaching this obligation. Assets include:
- Accounts in which the individual is the titleholder, or is a representative, authorized person or beneficiary, or has disposal powers.
- Securities, rights, insurance and life or temporary annuities.
- Real estate or rights on real estate.
Step 7: If you have tax due, you can pay in one go at your bank or choose to pay in 2 instalments by direct debit (end of June and November). Tax refunds will usually be paid into your account around 3 to 4 months after filing your tax return.
Option 2: Submit your own income tax declaration (for more complicated tax returns)
Step 3: Log into the Agencia Tributaria using your NIE.
Step 4: You can submit your own income tax declaration form without a borrador and this can be done online(link is external) by filing one of the following forms:
- Form 100: Spanish income tax declaration for residents.
- Form 150: Income tax declaration for non-residents.
- A list of other forms that may apply can be found here(link is external).
Step 5: Enter in information relating to deductions.
Step 6: See steps 6 & 7 in Option 1.
Tax Figures in Spain
| Currency | Euros (EUR) | ||||||||||||
| Tax-free Threshold in Spain | None | ||||||||||||
| Income Tax Rates |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Notes | Personal tax is levied on gross income at progressive rates as according to the above table. It must be noted that the total tax liability is the general rate plus the tax liability under the autonomous community rates. This means that the final marginal tax rate will vary according to the marginal tax rate of the community where the taxpayer resides. For example, the maximum marginal rate for a resident in Madrid is 44% and 48% for a resident in Cataluña. Non-residents are taxed at a flat rate of 24% on Spanish-sourced income. Residents of EU member states and EEA countries are taxed at a flat rate of 19%. |
Tax Residency in Spain
When do you become a tax resident in Spain
You become a tax resident in Spain when:
- You spend more than 183 days in a calendar year in Spain, or
- The centre of your activities or economic interests is in Spain. A presumption of residence arises if an individual’s family lives in Spain.
Does the 183 day rule apply in Spain
Yes
Am I taxed on my global income in Spain
Yes, if you are a resident. Non-residents are only taxed on their Spanish-source income.
Can you set up your own Limited Company in Spain?
| How long does it take to set up | 13 days |
| How much does it cost | EUR 1154 |
| Is it easy? | Starting a Business Rank: 86. (Source: World Bank) |
Tax Calculator in Spain
If you are a contractor and want a calculation on your tax and net retention in Spain, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Spain
Contractors in Spain are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A Spain umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Spanish taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Spanish tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Spain
We work with numerous umbrella companies in Spain, many of whom are experts in tax and immigration laws. If you have any questions about tax in Spain, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Spanish work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Spain but without the overhead of directly dealing with the Spanish tax authorities. Get in touch with us today for some reliable advice on tax in Spain!
A Contractor’s Guide to Work Permits in Spain
Immigration is one of the primary concerns for any contractor hoping to start working in Spain. Permanent employees will find it easy to get their Spanish work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
EU nationals are not required to apply for a work permit to undertake employment in Spain. Non-EU nationals must apply for a work permit. There are two types of work permits in Spain, the Cuenta Ajena and the Cuenta Propia. The Cuenta Ajena is given to those who have a contract with a specific company and the Cuenta Propia is for those who are self-employed.
The Cuenta Ajena is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in Spain is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Spain (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in Spain. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout Spain and match contractors with the right company for them. If you’ve already secured a contract in Spain, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).
We’ve helped lots of contractors in Spain – and have shared answers to some of the most common questions our clients have had about contracting in Spain.
