The first question that comes to anybody contemplating setting up their own business is, “how much is this going to cost me” so don’t let your enthusiasm take over; before you march down to your nearest Social Security office to register as self-employed, consider what it really means to run your own business and the on-going costs involved.
A major part of going solo is that you will be responsible for the monthly payment of your national insurance contribution from the moment in which you register. In the UK a self-employed person may only be liable to pay in the region of £50 per month; however as most of you are aware, national insurance contributions in Spain are quite a bit dearer than many other countries.
Each year the government releases applicable rates to calculate your contribution and for 2013 it is as follows:
|% including temporary medical leave:
|% excluding temporary medical leave:
What does all this mean? Aside from entitling you to health care if you weren’t eligible before, basically your monthly contribution depends on the above rates. The rate is your “salary” in a manner of speaking but it also contemplates including an additional amount on top to cover you for illness. You must also choose a “mutua” (health insurance company) to handle your paperwork in the event you claim for medical leave but don’t worry, you do not have to pay extra for this service, rightly so, it is including within your contribution. Let’s work on the premise of somebody who wishes to register as self-employed on the minimum rate and wants to include the supplement for temporary medical leave:
29,80% of 858,60€ = 255,86€ monthly contribution
Before you establish your rate, think realistically about how much you expect to earn from your business and your personal circumstances because the amount you pay each month directly affects how much you will be entitled to if you were unable to work due to ill health as well as what you will receive upon retirement age so the minimum rate is not necessarily the best way to go when you think long and hard about it. In Spain, you can only take out from the system what you have put in so if you contribute on the minimum rate, your pension will be calculated in the same way.
There are exceptions though, always welcome news if they apply to you. Please find two such examples below:
Men under 30
Women under 35
|STANDARD: 30 months relief paying a reduced rate with approximately 30% off the normal monthly contribution
NEW IN 2013: Flat rate of only 50€/ month (in practice, approximately 74,70€) during 6 months.
– As long as you haven’t been registered as self-employed during the previous 5 years
– As long as you do not hire employees
Those with registered disabilities
|Please consult with an advisor as reductions are dependent on your individual circumstances
As mentioned, you are liable to pay this amount from the day in which you register, however all payments are taken at the end of each month by direct debit to your bank account so if you register on the 25th of the month, you will still be charged the complete month so it only makes sense to register towards the beginning of the month if circumstances permit. Payment is due even if you haven’t earned much that month, if you went on holiday or if you were off sick so it is an obligation that shouldn’t be taken lightly as penalties and charges are incurred for non or delayed payment.
Of course, the monthly contribution is only one of the obligations of a self-employed person. There are other important matters to consider such as taxes and in Spain there are two very different tax systems that will determine your tax obligations throughout the year so it is important to get it right from day one but we’ll talk about that next time.