WHEN AM I OBLIGED TO REGISTER AS A SELF-EMPLOYED PERSON OR COMPANY?

Speed up your business with these tips "When am I obliged to register as a self-employed person or company? Analyse and discover this TIP!

In theory, from the moment you start a economic activity in Spain, in practice you can wait until such time as you are engaged in a remunerated activity on a repetitive basis that leads to a turnover below the minimum wage. Many subsidies, such as the one received by entrepreneurs who wish to register for the EOI accelerator programme, have to be registered with the EOI. be registered in the Census of business people, professionals and withholders of the State Tax Administration Agency or in the equivalent census of the Regional Tax Administration, which must reflect the economic activity actually carried out on the date of application for the aid, and demonstrate the maximum length of service established in the calls for applications...". In Spain, you are obliged to register as a self-employed person if you wish to carry out economic activities on your own account and without being linked to a company.

Some of the cases in which you would be obliged to register as a self-employed person include

1. Self-employment (entrepreneurship): if you want to be self-employed, you must register as self-employed and record your income and expenses.
2. Carrying out economic activities: if you carry out economic activities, such as the sale of products or services, you must register as a self-employed person.
3. Providing services (in the case of entrepreneurship advisors): if you provide professional services, such as consultancy or advice, you must register as self-employed.

In short, if you wish to carry out any economic activity on your own account, you must register as a self-employed person and comply with the corresponding tax and social security obligations.

Economic activity

An economic activity is any work or activity whose purpose is the production or distribution of goods or services for the purpose of making a profit or loss. This activity can be carried out by a natural or legal person, y can range from the sale of products to the provision of professional services. Examples of economic activities include: the manufacture of products, the provision of consultancy services, the marketing of products, the operation of a business, the provision of hosting services, the provision of financial advisory services, among others.

In short, an economic activity refers to any action aimed at obtaining income or carrying out an activity for commercial or profit-making purposes.

WHEN AM I NOT OBLIGED TO REGISTER?

There is no definitive list of economic activities that can be carried out without registering as a self-employed person in Spain. However, it is generally considered that economic activities that do not require registration as a self-employed person are are those which are not of a regular, professional or lucrative nature and which do not represent a main source of income. Examples of economic activities that do not require registration as self-employed may include: the occasional sale of products or services, the performance of work on a sporadic basis, the pursuit of economic activities as a hobby or pastime, among others.

Types of self-employed who do not reach the Minimum Interprofessional Wage (SMI)

A fairly widespread problem is that of those people who, being self-employed, hesitate between becoming self-employed or not registering due to their low level of income, which is lower than the Minimum Interprofessional Wage (SMI) (the case of many mentors, advisors and people who help entrepreneurs while earning very little). A circumstance that prevents them from paying the self-employed quota and sometimes taxes (IRPF), generally opting to remain in the underground economy and with the doubt as to whether they are committing a crime or whether nobody is going to worry about it. There are many people who do not make the minimum wage: private teachers, translators, designers, programmers, bloggers, artists, masseurs, e-commerce shops, proximity commerce, etc.

Several situations can be identified that usually give rise to doubts about whether or not to become self-employed:

• Persons who are self-employed on a part-time or part-time basis, or for a certain number of hours, or for individual hours per week or per month. Sometimes these people are also in paid employment (they work for another company).
• Freelancers and freelancers who are underpaid by their clients, in many cases a single client who "imposes" self-employment on them in order to save the social security costs that they will have if they hire them and who, on top of that, pay them almost everything on a variable basis according to results.
• Self-employed entrepreneurs, They will take a few months to reach the break-even point, i.e. the level of sales needed to make their business economically viable.
• Self-employed people whose businesses are in crisis or decline.
• Discontinuous self-employed, who work for only a few months of the year, such as teachers or self-employed people working in sun or snow tourism.

This is a rather sensitive issue, so expert advice should be sought before decisions are taken.

Can I invoice a client without registering as self-employed?

In order to be able to issue an invoice legally, two requirements must be met:

• Be registered with the Social Security as self-employed, 230 per month in 2023, unless you are eligible for a bonus or the flat rate (see TIP) 80 euros.
• Registration with the Inland Revenue by presenting the census registration form (form 036 or 037), at no financial cost. However, you will have to prepare your personal income tax and VAT returns and pay the corresponding taxes.

If you do not meet these requirements and you are self-employed, you will be swelling the black economy, affecting the state's revenue collection and unfair competition with other self-employed workers and SMEs that do comply with their legal obligations.

What the Social Security says about the obligation to register

Social Security legislation establishes as a rule that you are obliged to register as a self-employed person if you carry out in the following ways habitual, personal and direct economic activity for profit, without an employment contract and even if you use the paid services of other persons, whether or not you are the owner of a sole proprietorship or a family business. The problem arises because the obligation to register as self-employed is independent of the level of income and the time spent on the activity. What is important is that it is a self-employed activity and that it is carried out on a regular basis. But the concept of "regular" is a strict one, since it is considered to be regular whether you spend 50 hours a week on your business or whether you give classes in an academy two afternoons a week.

For a high street shop, the mere fact of opening implies that it is considered regular, and the same could apply for an online shop, although in this case it is more difficult to prove. However, the criterion of regularity is an indeterminate legal concept and the lack of precision has made inevitable the intervention of case law which, through its rulings, has been considering the exceeding of the threshold of the Minimum Interprofessional Wage (SMI) as an indicator of this habituality criterion. This interpretation has ended up being established as an objective measure to determine whether or not the self-employed should register with the RETA, but Social Security reaffirms that it is compulsory to register as self-employed with a regular, personal and direct economic activity for profit regardless of income. In fact, che new contribution bracket applicable in 2023 to the self-employed, which involves paying social security contributions according to the actual level of income, provides for a first bracket for self-employed workers who are below the minimum wage (SMI).

Minimum wage (SMI) and the self-employed

In 2007 the Supreme Court issued a case law ruling that established that it was not necessary to register as self-employed if the income was lower than the minimum wage. Since then there are quite a few cases of self-employed workers who have appealed against their penalties and have managed to get the judges to uphold them, having demonstrated that their income is lower than the Minimum Interprofessional Wage. Since 2019, the SMI has experienced very significant rises, reaching €1,000 gross per month in 2022, calculated for 14 annual payments, i.e. €1,166 gross per month if we consider only 12 payments.

However, as this is case law and not legislation, care must be taken!!!! Despite the regulatory loophole that has fuelled the idea of roguery and a certain "laissez faire" attitude on the part of the Administration and the Labour Inspectorate, the fact is that in June 2018 the Social Security ruled on the obligation to register as self-employed regardless of the income obtained. 

And of course, even if the jurisprudence is on your side, if you are penalised you will suffer the consequent economic and moral damage, because apart from the annoyance you will have to deal with appeals and that always entails costs. Moreover, in the last three years, while some users have told us that their Social Security administrations have said that if they do not reach the SMI there is no problem, others have been told the opposite, so be careful, because, as you can see, the criteria is neither unique nor unified in the Administration.

In any event, the entry into force of the flat rate (see TIP) and its subsequent amendments reduced the cost of being self-employed in the first stage of business life, making it easier to reach the SMI limit. The flat rate in 2023 is set at 80 euros per month for the first year, extendable in the second year if you are earning less than the SMI. Another option available to you is the possibility of registering and deregistering with the Social Security up to 3 times during the year. We do not know whether these details have been taken into account in court, but it is worth bearing in mind that, in the event of an inspection, they could be assessed in this way.

What the Treasury says

The tax authorities obviously want you to declare all your income. That is their priority and whether or not you are self-employed is something they refer to the Social Security. Therefore, to invoice you must register by filing form 036 or 037 and pay the corresponding taxes: Personal income tax on the income generated by your activity and the VAT invoiced and charged for it.

THERE ARE ALSO A NUMBER OF IMPORTANT ISSUES TO BEAR IN MIND:

The declaration of transactions with third parties (form 347), in which all taxpayers are obliged to report those persons and companies with whom they have had transactions for more than 3,005.06 euros in a year. So if over the course of a year you invoice more than that amount to a client, bear in mind that they will report it to the tax authorities and you must do the same so that the alarm does not go off. But it has nothing to do with the obligation to register. If you issue invoices to your customers, you must include the applicable VAT rate and pay to the tax authorities the amount of VAT you charge minus any deductible VAT you can deduct.

Contractors' and subcontractors' certificate: although many do not usually ask for it, companies that subcontract a freelancer are obliged to request the Contractors' and Subcontractors' Certificate issued by the Tax Authorities. To obtain it, you must be registered by filing form 036 and be up to date with your tax obligations. If a client asks you for it one day and you do not present it, they could refuse to pay you, as your clients are subsidiarily liable to the tax authorities for any debts you may have contracted with the Tax Agency. If you are registered as a self-employed professional and you sell to companies or other self-employed people with withholding tax on your invoices, you should bear in mind that the tax authorities have a record of your income because they your client declares on your behalf the income tax he has withheld from you. And if, for example, you have not filed a VAT return, it is very easy for them to notice.

Solutions: what's best for you

There are a range of possible solutions from which each individual must choose according to his or her personal and professional circumstances, the risks he or she is willing to take and his or her values. 

THE MOST COMMON ARE:

• Negotiating an employment contract: In many cases, especially when you work as a dependent freelancer for a single client, the best way to comply with the law is to try to convince the employer to give you an employment contract, even if you have to give up part of your income so that the employer can use it to pay social security. It is not easy, but it can be worth a try.
• Register with the flat rate (see TIP) or a subsidised quota: in most cases new self-employed persons benefit from the flat rate of 80 euros or from certain bonuses in cases of multiple activities (see TIP). These measures are aimed at facilitating contributions during the first years of activity and can help you to comply with the law at affordable costs and to hold out for a while until you see if your activity really works.
• Concentrate invoices and register for a few monthsThis consists of alternately registering and deregistering in a few months or even days (for example the last month of each quarter or semester), grouping all your invoices in that period, for which it is advisable to agree in advance with the client and to establish, if necessary, a system for monitoring the work carried out outside the accounts. It is usually advisable for the subject of invoices to be generic and not to refer to specific dates on which work is carried out. From a certain volume of annual income, which we can estimate at just under 14,000 euros if you pay the full self-employed quota, it is a dangerous practice, as a prolonged chain of registrations and cancellations can lead to an inspection, so you have to assume permanent self-employed status. However, if you follow the case law and take the SMI as the limit, you should pay contributions from 14,000 euros of annual turnover. But bear in mind that this entails the loss of bonuses, such as the flat rate.
• Discharges in specific periodsSince the entry into force of the latest Law on Urgent Reforms of Self-Employment, self-employed workers can register and deregister up to three times in the same year and make the proportional payment of the contribution from the date of registration and without counting the full monthly payment. From the fourth registration onwards, the Social Security will count the full month. So this is a good option if you only have to register for a few days.
• Seasonal discharge: in the case of discontinuous self-employed, whose work is concentrated in a few months, they will have to register during those months, for example the summer months in the case of a beach bar. In order not to do so, they will have to justify very well a level of income clearly below the monthly SMI. And as we have already said, if it is a business open to the public on the street, they must always be registered. As in the previous case, this practice entails the loss of bonuses.
• Invoicing through a third party or a cooperative: hhere are several alternatives, although you have to think twice: from invoicing through a "friendly" company to doing it through an invoicing cooperative, which have arisen for this type of case. Logically, as there are paperwork costs and taxes to pay, it is normal for them to ask you for some amount or percentage of your income so that it does not cost them money. And you should know that many of these cooperatives were investigated in 2017 by the labour inspectorate, especially those of a multi-sector nature, as their activity was considered to be fraudulent, and since then they have been a very limited option.
• Register only with the tax authorities: This option means that you only have to comply with half of your obligations, those related to the tax authorities but not with the Social Security, which is not always viable and legal, as it implies invoicing without being self-employed. Registering only with the tax authorities allows you to invoice with your NIF and pay the taxes linked to your income, something we always recommend in order to avoid possible penalties from the tax authorities, which can be quite heavy, and because your income is low, your personal income tax will be low and because you cannot appropriate the VAT charged on your invoices. It has the disadvantage that it obliges you to file quarterly and annual VAT returns and often also personal income tax and withholding tax returns, with the consequent cost in time and/or money (consultant). 
• "Secondary Activity": this situation occurs when the activity carried out is not your main activity, but secondary (in terms of income and time), as you are also working as an employee. It is a similar case to the previous one, so you will only register with the tax authorities and fulfil half of your obligations. The only difference is that the Inland Revenue will see that you pay Social Security contributions, even if you are under the General Scheme. And, as long as your self-employed activity does not reach the minimum interprofessional wage, you will have certain options of not being sanctioned in case of inspection by the Social Security (although this is not recognised in any regulation, there is only the aforementioned jurisprudence). And remember that if the activity is secondary but generates income above the minimum wage, you will end up in a situation of pluriactivity, with a contract as an employee and paying your self-employed contribution at the same time.
• Remaining in the black economy: We mentioned earlier that invoicing without being self-employed is not always a legal solution when you have a low income. In fact, it can give rise to the underground economy, an option to avoid, as it means remaining illegal by not registering with either the Tax Office or the Social Security, running the risk of one or another entity locating you and sanctioning you, and exercising unfair competition with those who are registered. If you do so, you must measure the risk, it is difficult to be located if you only do a small amount of occasional (not usual) work, if you do not advertise, if your competitors do not know you (so they cannot report you to the labour inspectorate), if you work from home and cannot be located (which reduces the risk of a labour inspector appearing) or if all your clients are individuals who do not ask you for an invoice or are abroad. Even so, our advice is that you should only opt for this option if your income is really very low.

Registration formalities and obligations

In addition, we recommend that you analyse your activity and draw up a growth plan for the future to see its viability and to what extent you can take the risk and take the step of registering and when. And for this, there is nothing better than a business plan (see TIP).

Penalties for not being registered as a self-employed worker

In the event that Social Security decides to sanction you, you will have to pay all outstanding contributions from the time they know that you started the activity plus an additional surcharge of 20%. So, if you have only registered with the tax authorities, bear in mind that the date of registration with the tax authorities can work against you.

Progressive quota for the self-employed from 2023 onwards

This whole bizarre situation has been generating considerable controversy, spiced up by painful comparisons with the situation of the self-employed in other European countries. To try to solve it, the government, after years of deliberations, has approved in 2023 the new contribution system for the self-employed based on their real income. However, Although throughout the negotiation process there was speculation that self-employed workers earning less than the minimum wage would not have to pay contributions, in the end this was not the case.

In this way, self-employed workers who earn less than the minimum wage are still obliged to contribute to the flat rate of 80 euros during the first year of operation. In addition, they will be able to request the extension of the flat rate for a second year if they have not managed to reach the minimum wage.

However, from the third year onwards, you will have to pay contributions according to the amounts foreseen in the contribution tables, which in a way discourages you from continuing as a self-employed person.

AND THE LOWEST TRANCHES ARE AS FOLLOWS:

• Income of less than €670 per month: 230 in 2023, 225 in 2024 and 200 in 2025.
• Income between €670 and €900 per month: 260 in 2023, 250 in 2024 and 220 in 2025.
• Income between €900 and €1,167 per month: 275 in 2023, 267 in 2024 and 260 in 2025.

As you can see, the new system will be implemented progressively and will allow the minimum fee to be reduced in the coming years.