We’ve all dreamed of it. No clock-in time, no manager breathing down your neck, and no reason not to head to the Caribbean and spend a week working on the beach.
So why don’t more people choose solo life?
Two big factors as to why so many are hesitant to go solo are the uncertainty of a secure income and the burden of managing your own admin. But we’re here to put those fears into perspective and show you it’s not all that bad once you get familiar with your incomings and outgoings!
We’ll cover the main areas for budgeting and costs of being a freelancer in Spain, including up-front payments and ongoing bills, how to save, and what solutions you can call upon to put yourself in the best possible financial position.
But first, if you’re new here, we’ll address a few common questions and a bit of useful local lingo.
Freelancers, or autónomos, in Spain have three main payments they need to keep on top of:
The freelance quota is a contribution a self-employed worker pays each month to cover their social security contributions. It is mandatory and goes toward funding your pension as well as giving you access to the public health service.
Despite the initial confusion about the budgeting and costs of being a freelancer in Spain, it is definitely worth it for ambitious people who want a lot more freedom in their working life.
Starting a business is hard, so our top tips for saving money as an expat freelancer in Spain are:
Income tax — impuesto sobre la renta de las personas físicas (IRPF) in the local language — is the first thing that comes to mind when looking at budgeting and costs of being a freelancer in Spain.
First things first: no, you can’t avoid it. They’ll hunt you down relentlessly and really make you pay. But they don’t exactly make it easy, so we’ll explain the best way to budget for self-employed income tax in Spain.
OK, we lied a little bit. The first part is pretty simple and there’s no cost to register as a freelancer with the tax office — La Agencia Tributaria. We’ve got a full article on registering as a self-employed worker, so we’ll skip those details here and dive into how to budget for income tax as a freelancer in Spain.
National income tax brackets for freelancers in Spain range from 19% to 47%, depending on how much you earn. That said, calculating the exact costs of income tax in Spain is quite tricky as your rate depends on whether you’re married with kids and which region you’re based in.
Taxable income band
€0 to €12,450
€12,451 to €20,200
€20,201 to €35,200
€35,201 to €60,000
€60,001 to €300,000
€300,001 and above
For anybody asleep at the back of the class, let’s get one thing out of the way. There is no circumstance where moving to a higher tax bracket will mean your take-home pay is lower. Everything up to €12,450 gets taxed at 19%, everything between €12,451 and €20,200 is taxed at 24%, and so on.
Now, all the bright sparks out there might have been wondering why they’re putting 15% on their invoices when the lowest income tax rate is 19%. Great question.
Freelancers in Spain include a 15% income tax retention on their invoices to Spanish clients, who pay the contribution directly to the Agencia Tributaria on their behalf. Think of it as a pre-payment to the tax authorities, who balance the books every year with an annual tax return — la declaración de la renta.
Yes, this means when it comes to budgeting and costs of being a freelancer in Spain, you need to have a rough idea of how much IRPF you have paid and how much you owe so you can set aside a little something for the end of year tax return.
New self-employed workers in Spain have the luxury of paying just 7% in income tax up front as a way of helping their business get off the ground. But beware, this isn’t a hand-out. You will still have to make up what you actually owe in the end of year tax return. Therefore, it’s not surprising for new freelancers who have a little cash to spare to pay 15% from the beginning and lessen the burden on their annual tax return.
Clients outside of Spain can’t pay your personal income tax on your behalf. Therefore, if over 70% of your income comes from foreign clients, you have to file tax returns every three months and pay IRPF at a rate of 20%. Just like the 15% on invoices to Spanish clients, this 20% is a guarantee so the tax authorities know you’re good for it when it comes to balancing the correct amount.
This does, however, mean that you’ll have a hefty payment at the end of every quarter. Budgeting is one of the essential skills for freelancers working with foreign clients because it’s very easy to forget you’ve got a bill coming when it’s three months away. We’d highly recommend shifting 20% of your profits into a separate account where you can’t touch it, as it will help you avoid the shock of an unexpected tax bill.
Need more help when billing your clients? Check out our article that covers all you need to know to invoice as a freelancer in Spain.
Although value added tax is not technically a cost for freelancers, we’ll explain why it is an essential part of your budgeting. Just like your income tax, it’s an unavoidable part of solo life, and the Agencia Tributaria will come after you if you’re late on your payments.
As long as you’ve got your foreign identity number (NIE), you don’t need to pay anything up front to register as a VAT payer in Spain. Excellent.
Because VAT only applies to products and services you purchase, self-employed people don't actually pay any VAT for their work unless that involves outsourcing. So why is VAT included in budgeting and costs for freelancers in Spain?
Remember we said you only have to pay quarterly IRPF taxes if 70% of your income comes from foreign clients? Well, all freelancers in Spain have to pay value added tax (IVA) bills every quarter.
In reality, this isn't your money in the first place. Aside from foreign clients and a few exceptions depending on your economic activity, your clients pay you 21% VAT on every project — and it's your job to hold onto this until you pay your quarterly tax return.
It doesn't take a genius to work out the importance of budgeting when it comes to freelance VAT bills. Spend that money at your peril, because the quarterly bill will come to bite you in the derrière if you’re not careful. As with your IRPF forecasts, you need to store 21% of your income somewhere you can't spend it, ready to go when your bill arrives. As we’ll see in the section below on tax deductions, you’ll usually make some savings here, but keep the 21% aside just in case 😉.
Foreign clients can’t pay VAT to the Spanish government. But that’s OK, they’ll pay in their own country.
One thing to keep in mind when invoicing clients in the EU is that you and your client should first become part of the Register of Intra-community Operators (ROI). Rather than writing out the 21% VAT calculation that your Spanish clients pay, simply include their VAT ROI number on the invoice.
For your non-EU foreign clients, it’s even easier. Just leave the VAT section blank.
The freelance quota is a mandatory monthly payment that covers all your social security needs, including healthcare and pension payments. Many see it as an unfair payment that penalizes freelancers, but in-company workers pay the same thing, but before they receive their salary.
Just like the rest of these admin tasks, you’re mercifully excused any up-front payments, so it’s straight on to the monthly fees that the freelance quota represents.
Until 1 January 2023, this was an easy, reliable cost that you could easily stick into your monthly budget as a freelancer in Spain. There was a flat-rate minimum payment of €294 that you could set up on direct debit and forget about.
But since the turn of the year, solos in 2023 and beyond have to navigate a new system which is harder to keep tabs on. In short, depending on your income, you set your own freelance quota, and any differences are balanced out at the end of the financial year. Don’t worry if your income changes, you can adjust your rate every two months.
Unlike your IRPF and IVA obligations, social security payments are predictable — you’re the one setting them after all. So budgeting for the freelance quota is relatively easy: just keep what you owe in your back pocket and your direct debit will do the rest.
You can choose to pay more than the minimum rate according to your salary, and your state pension will thank you in decades to come. However, very few solos choose to do this.
The rates in 2023 range from a stinging €230 a month for those earning up to €670 to a round €500 a month if you’re earning €6000 or more. First-time solos in Spain get a reduced rate of €80 a month for their first year, which they can continue during the second year as long as they earn below the national minimum wage — €1116.
If this section was a bit confusing, we’ve got an in-depth explanation on the changes to the freelance quota, including what your payments will be for the coming years and how to estimate what you owe.
Now onto the good bit: here’s where you can claim a few things back. A small, but worthwhile reward for your ambition as a solo. But first, a bit of level-setting with definitions.
Unfortunately, the government isn’t simply going to pay your bills and expenses.
When referring to income tax deductions, these expenses are simply removed from the total amount of your overall income to lower your taxable income. Put simply, if you earn €25,000 a year, but submit €200 in tax-deductible expenses, you’ll only pay tax on €24,800.
When referring to value added tax deductions, you can remove all the VAT from business-related purchases and 50% of your own vehicle expenses and keep it for yourself. These calculations are always made alongside your tax returns. The VAT returned to you is subtracted from all that VAT you’ve been collecting from your clients, and you pay the Agencia Tributaria what is left.
Remember to pay on card and keep those receipts to qualify for tax deductions.
Don’t worry — you’re not the only one who thinks freelance finances in Spain are a complicated beast. Unless you’re wired in a unique way, filling in forms and working out percentages won’t be your idea of fun, and that’s why so many of the self-employed in Spain community turn to accountants to do the hard work for them.
Accountants should be a part of every conversation on budgeting and costs of being a freelancer in Spain, but traditionally, it’s a wide-open field. Your neighbor’s cousin Paco could take care of things for €10 a month if you’re really strapped for cash, but handing over sensitive details to someone you can’t do a background check on is asking for trouble.
At the other end of the scale, the big-name lawyer firms operating on a regional or national scale will probably keep you compliant, but will give you minimal personal attention while they drain your bank account.
Since 2015, Xolo has been helping solos to simplify their budgeting and costs for freelancers in Spain and beyond.
But we’re not simply a hands-off accountancy firm working away in the shadows. As soon as you’re a member, you can reach out to our trusted local finance experts with any questions you have about the costs of freelance life.
Aside from that, you get access to excellent services such as:
✔️FREE registration with social security office and the tax authority
✔️An easy, user-friendly platform for creating and sending invoices
✔️Tax returns and your freelance quota all sorted on your behalf
So if you want the confidence to budget like a pro, sign up for Xolo today!
James McKenna has been a freelancer since 2017, working in subtitling, translation, and his main passion — writing. He loves nothing more than falling down a rabbit hole, a habit that has helped him specialize in areas as diverse as biotech, climate change, higher education, and business strategy.
Based in Barcelona, James learned the ropes the hard way, making mistakes that turned into valuable learning experiences. After working hard to establish himself, he is now working smart, and is always on the lookout for ways to streamline his business.