It’s extremely fulfilling to be your own boss, but what does being self-employed entail? Discover the factors to consider when becoming self-employed in Spain, and how it fares in comparison to other European countries.
The Spanish self-employed do not complain without reason. Some of their conditions are below those of neighbouring countries. Comparisons may be odious, but they provide a more complete picture of certain problematic situations and help to visualise the way to find a solution or simply to improve them.
In 2016, the social networks echoed the profound economic inequalities that exist between the self-employed in Spain compared to self-employed professionals who live, work and pay their taxes in countries as close to ours as Germany, Holland or France.
Entrepreneurs claim that working as a freelancer in our country is very complicated and it seems that this situation is not going to improve in the coming months, but quite the opposite. Could it become even more difficult to be self-employed in Spain in the future?
Being self-employed is the only form of entrepreneurship that in no way limits your liability for debts. Imagine that you need to refurbish the premises where you carry out your activity, for which you ask for a loan. If things don’t go as planned and you are unable to pay it back, you would pay the debt with all your personal assets.
Being self-employed you put your house, your car or your future salary at risk. Private assets, which have nothing to do with the business, but which you will be liable for if necessary. If instead of registering as self-employed, you create a company, your personal assets are untouchable.
The Self-Employed Quota
The monthly contribution to be paid by a self-employed person in Spain depends on the contribution base chosen, which is usually the minimum. Thus, the amount to be paid every month is around 270 euros, whether or not you have any income.
In countries such as the United Kingdom or France, the contribution paid is fixed in relation to the income received. In France, in addition to income, this amount is also determined by occupation.
There are countries where no contribution is paid, such as the United States, Italy and Portugal. And there are countries where you only pay a contribution when you earn a certain amount of income, as in Germany, where you only pay 140 euros if your monthly income exceeds 1,700 euros.
As for countries with fixed fees, the Netherlands also has a fixed fee, but it’s only 50 euros.
How are taxes paid?
In Spain, the self-employed have to pay VAT to the tax authorities on the income they receive from their activity. It is currently 21%. Each quarter, income and accruals are declared.
In other countries, such as the United States, VAT is not paid on each operation; however, 15% of what is earned is taxed. This system of taxing according to profit is also used in Italy, where 20% of annual profits is paid. It’s the same in Portugal, with a minimum of 24.5% of the profit made during the year.
In France, they have a particular system in which the activity carried out is taken into account. Commercial activities are taxed at 12%, services at 21.3% and liberal professions at 18.3%.
Some also use the VAT system, as in the United Kingdom, although it is not declared quarterly, at the end of the tax cycle and according to the profits made. There is also VAT in Germany, but there are exceptions whereby the self-employed are not obliged to include it on invoices, such as being under 30 years of age or not reaching a certain turnover ceiling.
What Does Social Security Cover?
The payment of a monthly contribution for a Spanish self-employed person means that he or she is covered by the social security system and enjoys its benefits. In addition, you are paying contributions and this will be reflected when it comes to enjoying a series of social benefits such as receiving a pension or even, depending on the contribution paid, is entitled to unemployment benefit, although this measure is controversial due to the extent of its actual coverage.
In the Netherlands, workers pay for their own health insurance, as in Germany, where it is somewhat more expensive. This is also the way it works in the United States, where the worker is obliged to pay for his or her own insurance.
The coverage offered by the British system includes social benefits such as pension and death benefits. The French self-employed is best off in this respect. They are entitled to sick leave, retirement, disability and widowhood pensions, among others. As far as medical care is concerned, in principle, it is paid for and then 65% to 100% of the cost is reimbursed by the State.
In order to compare the situation of the self-employed in different countries around us, we have discussed the three basic conditions in which they carry out their activity, however, there are other differences between countries with regard to the support of the self-employed. It is in the interest of the Spanish self-employed, who represent a volume of 3.1 million workers, to make the most effective ones as a model.
In short, being self-employed puts you in trouble and sometimes it is very difficult to reconcile your work and private life, some freelancers may fail in their first business, but most of them do not stop trying and do not give up on a job as an employee.
The benefits of being self-employed are not few, being your own boss and working on what you are truly passionate about is something that is definitely worthwhile. Even so, you should be aware that the working methodology is completely different to that of an employee and that you will have to deal with the pressures that come with being the owner of your own business.
At Spain Life, our opinion is that Spain is stuck in a rut. It appears that Spain is grounded in its old, rigid system from the Franco era, and it needs to realise that it’s the entrepreneur that brings jobs and wealth to the country.
In this sense, Spain on the whole seems to be lagging behind. Perhaps the government could consider reforming the system, such as having the self-employed do yearly tax returns as opposed to quarterly. This would allow businesses to pay taxes on profit, rather on losses, and remove the pressure of added interest.