The term freelancer or independent professional is commonly used to refer to a person who, on the basis of a service agreement, carries out specific assignments independently and, as a general rule, personally, without being employed by the client.
In recent years, due to the rapid development of digitalisation, this type of professional relationship has become an alternative to working from home or remote employment for many people, particularly because cross-border professional relationships can be managed much more easily in this way.
Unlike working from home as an employee, under this arrangement there is no employment relationship between the freelancer and the client. The client therefore does not have to deal with income tax withholdings or Social Security contributions arising from an employment relationship, and payment is made on the basis of invoices.
Further information on the possibility of a person residing in Spain being employed by a German company and the resulting obligations towards the Spanish authorities can be found in our article: Home Office: Working in Germany, Living in Spain.
Freelancer or Employee
In addition to the simplicity this arrangement offers the client, the advantages of working as a freelancer include the generally recognised benefits of self-employment, such as a better work-life balance, the ability to organise your own work, etc., as well as the possibility of significantly reducing Social Security contribution costs.
In this respect, the various reductions applicable during the first year can limit Social Security contributions to just €80 per month. If, in addition, a gross remuneration similar to that previously received as an employee is maintained, the net income actually available can increase considerably, particularly during the first few years. Further information on the benefits currently available to new self-employed persons can be found in our article: Tax Benefits and Reduced Contributions for the Self-Employed in Spain.
Compared with an employment relationship, the disadvantages generally include the loss of certain employee rights, such as protection against dismissal (although this can, to a certain extent, be reproduced contractually through appropriate clauses in a service agreement), as well as the risk that the service relationship may, under certain circumstances, be considered a case of false self-employment.
In Spain, the risk of the relationship being considered false self-employment is considerably reduced where the self-employed person has more than one client and no single client accounts for more than 70% of their turnover. Where these circumstances are not met, particular attention must be paid to demonstrating the freelancer's independence and autonomous organisation of their activity.
If this arrangement is chosen, particularly in the field of services, an important aspect must be taken into account when registering as self-employed in relation to the “reverse charge” mechanism for VAT.
“Reverse Charge” and “NIF-IVA”
The procedure known as the “Reverse Charge” mechanism allows the obligation to account for the corresponding VAT to be transferred to the customer established in another EU Member State.
In this respect, a company or self-employed professional established in Spain may issue invoices without Spanish VAT to business or professional clients in Germany, provided that the relevant requirements are met. In this case, VAT is not accounted for by the service provider in Spain, but by the recipient of the service in Germany. Since the recipient must account for VAT and may, at the same time, be entitled to deduct the same amount as input VAT, the transaction is normally VAT-neutral. If the Spanish service provider does not have a valid intra-Community VAT identification number (NIF-IVA), problems may arise when applying this mechanism correctly.
Unlike in Germany, in Spain an intra-Community VAT identification number (NIF-IVA) must be specifically requested from the Spanish Tax Agency. The validity of the NIF-IVA can be checked through the European Commission's system.
Advice and Registration as Self-Employed
Although it is possible to register as self-employed personally if you have the necessary language skills, it is advisable to obtain prior advice regarding the tax consequences and possible reductions in Social Security contributions. Many professional firms offer both registration and the filing of quarterly tax returns for a fixed fee, with some specialising specifically in advising and assisting self-employed professionals and business owners. Through firms authorised as a PAE, registration can be completed in less than 48 hours.
Your PAE: Law - Spain
As a PAE (Punto de Atención al Emprendedor) authorised by the Spanish Ministry responsible for economic affairs, our firm has direct access to the relevant public authorities, the Spanish Tax Agency and Social Security, enabling us to carry out the most important administrative procedures electronically, accelerate the registration process and avoid the need for visits to the various authorities.
Registration as self-employed within 3 working days and without the need to visit public authorities in person. Further information.
As lawyers, tax advisors and a registered PAE, our firm will be pleased to assist you in analysing your specific situation, carrying out the necessary administrative procedures and preparing and filing the required tax returns. Further information about our services for self-employed professionals and business owners can be found in the section Self-Employment.
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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