In Spain, self-employed persons are generally understood to be individuals who are not employed under an employment relationship and who personally and habitually carry out an economic activity on their own account, using their own means of production and organising their activity independently. EU citizens are subject to the same rights and obligations in this respect as Spanish citizens.
Unlike a company, a sole trader or self-employed person does not have a legal separation between business and personal assets and therefore generally has unlimited personal liability for the activity. Nevertheless, this form of business offers advantages, particularly due to the considerably lower administrative burden and simplified bookkeeping requirements.
Self-Employed Professional or Sole Trader?
Similar to other EU Member States, such as Germany, Spanish tax law distinguishes between self-employed professionals (actividad profesional) and sole traders carrying out a business activity (actividad mercantil). Up to a certain annual turnover, however, this distinction generally results in only relatively minor differences with regard to taxation and bookkeeping requirements.
Professional activities generally require specific professional qualifications and the personal performance of the services, whereas sole traders have traditionally been associated with commercial and productive activities. Typical self-employed professionals include doctors, lawyers, tax advisors, teachers, translators and architects. In addition to professional and business activities, Spain also recognises a third category: artistic activities.
The precise classification is determined according to the tables published by the Spanish Tax Agency for the purposes of the Tax on Economic Activities (Impuesto sobre Actividades Económicas – IAE), although both self-employed professionals and sole traders are generally exempt from this tax where the applicable requirements are met. If your activity appears in the IAE table under “Sección” 1, it is classified as a business activity; “Sección” 2 covers professional activities and “Sección” 3 covers artistic activities. The table is available on the website of the Spanish Tax Agency: IAE Table. Self-employed professionals may also be subject to the accounting requirements applicable to business activities if they operate through a business establishment or office and have employees.
Methods for Calculating Income from Economic Activities
Unlike the relatively secondary distinction between self-employed professionals and sole traders, the method used to calculate income from economic activities is decisive both for calculating tax and for determining other obligations, such as bookkeeping and registration with the Commercial Registry. Therefore, whether simplified bookkeeping may be used in Spain and whether registration with the Commercial Registry or legalisation of accounting books is required depends primarily on the method used to calculate the income from the activity rather than simply on the distinction between a professional and a business activity.
In general, a distinction is made between two methods: the direct assessment method (estimación directa) and the objective assessment method (estimación objetiva). The former is further divided into the normal and simplified methods.
A) Direct Assessment Method
The direct assessment method, or “estimación directa”, applies to self-employed persons unless their activity qualifies for the objective assessment method (estimación objetiva). Since the latter is only available in specific cases, as explained below, estimación directa is the standard method of calculating taxable income and is used by the majority of self-employed persons in Spain.
a) Simplified direct assessment method
Self-employed persons whose annual net turnover (importe neto de la cifra de negocio) from all economic activities in the previous tax year was below €600,000 generally apply the simplified direct assessment method. As its name suggests, this is a simplified method of determining taxable income which also entails simplified accounting requirements.
Since there is no turnover from a previous tax year in the first year of activity, this method generally applies to newly registered self-employed persons unless their activity qualifies for the objective assessment method or they have opted out of the simplified method.
b) Normal direct assessment method
If annual net turnover in the previous tax year exceeds €600,000, the normal direct assessment method applies. In this case, it is particularly important to determine whether the activity is a professional activity (actividad profesional) or a business activity (actividad mercantil), as the latter may be required to keep accounts in accordance with the provisions of the Spanish Commercial Code and to have the corresponding accounting books legalised annually by the Commercial Registry.
B) Objective Assessment Method
The second method for calculating income and, consequently, the corresponding tax liability is the objective assessment method (estimación objetiva). This method may only be applied if the activity is expressly included in the annually updated Ministerial Order (Orden Ministerial) and the taxpayer has not expressly opted out of the regime or renounced it by filing the corresponding quarterly tax return under another method.
Typical activities that may qualify for this method include, among others, agriculture, livestock farming, certain restaurants, bars, bakeries, cafés, guest houses, hotels, shoe repair businesses, kiosks, taxis, freight transport, driving schools and hairdressers.
Under this method, income and therefore the corresponding tax liability are not calculated on the basis of actual income and expenses. Instead, taxable income is determined using a standardised assessment based on various tables and factors such as the size of the business premises, the length of the bar or counter, electricity consumption, the number of employees and other parameters.
Summary:
In order to comply correctly with bookkeeping and tax obligations, it is important to determine before starting the activity which assessment method applies to your particular business or professional activity.
If any of the following questions is answered with “No”, the next assessment method applies:
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Objective Assessment (Estimación objetiva)
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ü The activity is included in the Ministerial Order. ü Turnover in the previous year was below €600,000. ü The taxpayer has not opted out of this method. |
YES YES YES |
NO NO NO |
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Simplified Direct Assessment (Estimación directa simplificada)
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ü Turnover in the previous year was below €600,000. ü The taxpayer has not opted out of this method. |
YES YES |
NO NO |
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Normal Direct Assessment (Estimación directa normal) |
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Bookkeeping and Tax Returns
In the following articles in this series, you can find further information on the bookkeeping and tax filing obligations associated with self-employment in Spain. For this purpose, it is important to know which assessment method applies (estimación directa normal or simplificada / estimación objetiva).
Tax Benefits for Self-Employed Persons
Our firm will be pleased to assist you in analysing your specific situation, carrying out the necessary administrative procedures and preparing and filing the relevant tax returns on your behalf. If you are interested in our services or have specific questions regarding this topic, please do not hesitate to contact us by email or telephone.
Author:
Christoph Sander
Lawyer and Tax Advisor
CEO, Partner, Director
info@sspartners.es
Tel: (+34) 951 12 13 06
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