Contracting in Spain: A Guide for International Contractors

 In Contractors

Contracting in Spain

Spain can be an attractive destination for international contractors, with a relatively low cost of living, vibrant culture, and open borders for EU citizens.  There can be any number of opportunities to find new clients in various business sectors. However, most roles will require some level of Spanish language ability.

If Spain is your first choice, you will want to learn the immigration, tax, and residency rules before you begin looking for clients, as well as choosing the best way to contract and get paid.

Do I need a visa to be a contractor in Spain?

The first question on an expat contractor’s mind is that of a work visa, to remain in compliance with immigration laws.  As with other EU member countries, EU citizens can enter Spain and work without any type of visa, as long as they get a residency permit.

Others will have to apply for a ‘self-employment work permit’, which requires you to have a business plan and sufficient funds to get started and live on for one year.  It is initially valid for one year and can be renewed for additional 2-year periods.

How do I get paid as a contractor in Spain?

How you set up your contracts and get paid will be important, and affect how much earnings you retain.

Work as a self-employed freelancer (autonomo profesional)

The first choice is to work as a freelancer, and EU citizens will have an easy time with this option due to no visa requirements.  You would contract directly with your clients, and set up payment milestones and methods to ensure you are both protected from any problems.

Set up your own limited company (Sociedad limitada)

Experienced contractors with a commitment to Spain, may want to set up their own limited company and use that entity to contract directly with Spanish clients.  This can convey more stability and professional status to prospective clients, more than just hiring yourself out as a freelancer.

Work with an umbrella company in Spain

Non-EU contractors or those who are new to Spain may want to use the services of an umbrella company to contract with their clients.  Even if you were thinking about the self-employment visa, the umbrella company can offer an alternative by sponsoring your work visa with fewer financial requirements.

How do taxes work for contractors in Spain?

Taxes in Spain are different for residents and non-residents, so it is important to understand the residency and filing rules to calculate your tax and withholding.

What is the tax residency rule in Spain?

If you spend more than 183 days in Spain in a calendar year, you will become a tax resident.  Likewise, if your primary profession is conducted in Spain (such as self-employment) you will be considered a tax resident, and taxed on worldwide income.  Then you would have to look to a tax treaty with your home country to avoid double taxation.

What are the tax rates?

For non-residents, there is a flat tax of 24% on all Spanish-sourced income, so if you are only in Spain contracting for a few months this will be your rate.  Longer-term residents will pay a progressive tax rate of 19-45%, depending on income level.  If you have a limited company you may have corporate tax liability as well.

How do I file taxes in Spain?

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, based on which option you choose.

Option 1: Using a provisional declaration form (most common)

Step 1: Collect a Foreigner’s Identity Card (NIE) number through the local foreigner’s office or police station within 30 days of arrival in 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 by filing Form 30. Guides for filing this form may be found here.

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. 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. Alternatively, you can 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)

Steps 1 and 2: Same as above.

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 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.

Step 5: Enter information relating to deductions.

Step 6: See steps 6 & 7 in Option 1.

What are the social security contributions in Spain?

If you are an EU citizen and covered by social security at home, you may be able to opt out of social security contributions in Spain.  If not, you will have to try to navigate the complex contribution rates, which do allow you to choose the amount you pay based on the benefits you receive.

For example, in 2020 you would pay 30% of a ‘contribution base monthly salary’ which you can set at lower or higher levels between EUR 944 and EUR 4070 (it doesn’t have to be your real earnings level).  The minimum contribution is EUR 286 per month.  If you are a new freelancer contracting in Spain (which many expats are), the contribution is even lower at EUR 60 per month for the first year.

If you use an umbrella company, they can help make these calculations for you and explain the benefits system.

How do I stay compliant while contracting in Spain?

The main compliance concerns for international contractors in Spain are

  • Making correct tax payments
  • Meeting immigration requirements, and
  • Paying social contributions.

Each of these can apply to expat contractors in Spain, and depend on a number of criteria that may be difficult to learn if you are new to the country.

The easiest way to remain compliant given all the variables is to use an umbrella company.  They are already well-versed in the rules for self-employed contractors and can help you get started with the contract. They can also facilitate all of the compliance-related steps on your behalf.

Using an umbrella company is the best way to avoid any misclassification issues or violating any self-employment rules.  Aside from compliance, here are the other benefits of using an umbrella company:

  • First, handle all client payments, tax withholding, and any social contributions
  • Secondly, issue you a payslip each month, to a local or foreign account
  • Thirdly, sponsor work permits for non-EU citizens
  • Then, help set up the contract with the client
  • Also, moderate any disputes with your client
  • Last but not the least, advise on access to totalization and double taxation treaties

We have experienced umbrella companies in Spain who are ready to help you right away, even before your leave home.  Please contact us for more information on how an umbrella company can be your essential partner in international contracting.