Simple accounting tip for freelancers in Spain

I’ve been a freelancer (Autónomo) in Spain for many years, and the one thing I learned to do right (at least I never had issues after screwing up once), is accounting for taxes (IVA + IRPF).

As an expat freelancer, I suggest to get an accountant from the start, to help set up the business but also to run it. What accountants usually don’t help with, is how you safe your money for tax payments.

In Spain, you usually pay two different taxes: IRPF (income tax) and IVA (VAT). IRPF is 19% right now and IVA 21%. The calculation is a bit tricky. Let’s assume you invoice your client in Spain 1000 EUR (IVA and IRPF only apply for national invoices):

Invoice for my services: 1000 EUR
IRPF Tax (-19%): -190 EUR
IVA (+21%): 210 EUR
Total: 1020 EUR

As you can see, IVA and IRPF both apply on the net amount.

Today is payday and your client transferred you your hard earned money, 1020 EURO, yay, let’s go shopping! And here’s the catch:

210 EUR don’t belong to you. And you also need to pay additional income tax according to your total yearly income.

The first thing I did in my past 5 years as a freelancer, is to move those 210 EUR straight to a savings account. At ING you can create a “cuenta Naranja” (savings account). Transfer the money there, as by the end of every quarter, the Hacienda (Spanish Chamber of Commerce) will come to collect.

The IRPF is a little more tricky. Those 19% that are deducted from your invoice are paid by the company, so you never even touch this money (which is great, less to worry about). But usually you’d end up with a total tax rate higher than 19%, let’s say 30%. So besides the IVA, the tax collectors also knock to pick up the income tax every quarter. Just to be save (and keep things simple) I transferred the same amount of the invoice to the savings account. Means in total I transferred 210+190= 400 Euro to my savings account. Whatever is left at the end of a quarter, I’d leave on the account, just to make sure I have money in case there’s additional yearly tax to pay.

This strategy saved my a lot of trouble as the money isn’t on the current account and you don’t have to worry about how much you need to leave there for the tax collectors. So when you pick your bank to start your own business, make sure they support savings accounts.

If you’re in Barcelona, have a coffee with Denis from Deventer Consulting, he was my accountant while I worked in Spain and did an amazing job.

Good luck!

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