Over the past couple of weeks, I have received a number of enquiries about when it is compulsory to register as self-employed and what the minimum income amount permitted is before registry becomes obligatory. Since there seems to be a lot of confusion on the subject, I thought it would be a good idea to address it and hopefully answer some of your queries and more importantly, prevent you from receiving costly fines.
According to Social Security, “anybody who practices an economic activity for profit on a regular, direct and personal basis and exercises that right as a professional, i.e. is not contracted by an employer”, is obligated to register as self-employed.
This means that the obligation to register is not dependent on income received or the amount of time you choose to dedicate to the activity; there is no such thing as a part-time self-employed person nor a minimum amount you can earn before declaring; you are either self-employed or not, even though you may have been indicated otherwise. This is where much of the confusion comes from, as many people fall under one of the following categories:
- Side business: Those who only spend a few hours a week or a month on the business while perhaps working another job
- Low prospects: Those who may have only one or very few regular clients
- Start-up: Those who have set up a new business and would prefer to wait to see whether it has a chance at success before committing to social security contributions and tax declarations
If one of these scenarios fits your situation, you may wonder how you’re supposed to afford your social security contribution (approximately 260€/month) but even though these would appear to be valid reasons for exemption, unfortunately they have absolutely no bearing as far as legal registry is concerned. However, Spain’s labour laws are evolving so the possibility of adopting similar laws as other EU countries where contributions are calculated based on proven income instead of a flat rate regardless of earnings is currently on the table.
Deciding the best way forward can pose a dilema for business owners
Social Security isn’t the only Public Administration involved in the registry process, as we can’t forget registry at the National and Canarian Tax Offices is also mandatory. We all know both administrations have a keen interest in keeping tabs on who earns what and how so they require annual summaries to be submitted in which third party operations are declared. Say you receive more than 3,005.06 Euros from a sole customer or pay more than that amount to a single supplier; you are both liable to declare so if you are not properly registered as self-employed, you will be discovered and penalized for not fulfilling your obligations when the other party’s declaration is submitted.
What Can You Do?
- Painting a couple of houses during the year, wouldn’t be considered a regular activity, only sporadic and may even be declared on your personal income tax return. In this case, you wouldn’t necessarily be advised to register
- Registry as a dependant self-employed person (autónomo dependiente), means that at least 75% of your income derives from a sole client and involves a contract being signed between you and your client and then lodged at INEM offices. An agreement may even be reached in which your client covers your contribution in full or partially
- If you meet the criteria, consider registry at the reduced rate of approximately 70€ per month during the first 6 months of your business giving you some relief at the beginning
- Depending on your activity, it may be feasible to concentrate it to certain periods, which would allow you the option of registering only a few months of the year before coming off again but this obviously isn’t an option for the majority.
In any case, the proper registry of your business shouldn’t be taken lightly as the tax office in particular issues hefty fines if they were to find you have been carrying out an activity illegally. As always, if in doubt, seek the counsel of a professional before taking any action or in this case, inaction to avoid any nasty surprises.
