Question
I spoke with a Spain tax lawyer the other day. I was told that between Income Tax (20%-25%) and quarterly IRPF (24%-30%) I would need to pay nearly 50% of my income in taxes.
This is as a freelance software developer with clients in the US. Is this correct? I’m feeling some sticker shock.
I was also told that if I receive a digital nomad visa and begin working in Spain at the end of this year, I will immediately be considered a tax resident, and need to file taxes for the 2024 tax year.
I had thought that if I was in Spain for less than 6 months, I wouldn’t have to file taxes for the first year. Can anyone shed some light on this?
Answers
These are the answers of Spainguru’s Facebook group members:
“The quarterly payments and the yearly payments are the same income tax. Think of the quarterly payments as estimated tax payments.Then the annual tax filing is the settling of the tax for the entire year.
However, the social security tax is separate from the income tax and is paid monthly.
There are different interpretations of the tax resident question. Some people on Facebook say that registering as autonomo makes you a tax resident. But I’ve never seen anybody link to an official source for this statement.
Other people say that registering as autonomo does NOT automatically make you a tax resident. I believe this because ‘autonomo’ is not mentioned in the law that explains who is considered a tax resident. And my gestor holds this latter position as well. If you earn income in Spain in 2024 then yes, you should expect to pay income tax and file a tax return for 2024.
But if you are not a tax resident then you pay the non-resident income tax. Non-residents pay at a different rate and only on the income that they earn in Spain
Tax-residents pay at the progressive rates and on their worldwide income for the entire year. I moved to Spain in August, became autonomo in November and earned income in Spain in November and December.
I’m planning to file as a non-resident for 2023 and pay the non-resident income tax for the income I earned in Spain at the end of the year. This is with the advice of my gestor.”
“Generally, it doesn’t matter where your client is located and where ‘income is from’. What matters is where you are physically located when you do the work and earn the income. If you are physically living, working, and earning income in Spain, then Spain wants to tax that income.”
“You can use this calculator to see more or less how much tax you would be paying. It’s automatically set to Andalucía so you would have to change that to wherever you live but it will give you a rough figure.
Regarding the tax resident question, being in Spain for 183 days is not the only way you become a tax resident, that is right. If you apply towards the end of the year, you might not get your TIE and autonomo until 2025 (it depends when you apply) and therefore might not be considered a tax resident until 2025.”
“If you start activities in Spain after opening a bank account and receiving your TIE and it is less than 183 days within the year, then in this first year you would pay the non-tax resident tax.”
“The taxes are progressive, so the more you earn, the more tax you will be paying. If you change the 34000 yearly to 60000, for example, you will see the tax % changes too.”
“This is why I couldn’t understand the mad rush of W2 employees who were working so hard to get their companies to change them to 1099.
It’s like they gave zero thought to taxes or estate planning. I’m waiting for the final declaration on the DNV option for W2 employees; which benefits from the beneficial tax regime Spain advertised to begin with.
And an elimination of needing to pay into Spanish social security. It’s disappointing how bad the DNV is for Spain. Especially when it comes to US employees and freelancers. So many other EU countries made it so much easier.”
Conclusion
The taxation system in Spain for freelancers, including those on a digital nomad visa, encompasses both quarterly income tax prepayments and an annual tax settlement, clarifying that both forms of payment address the same tax obligation.
Social security contributions, however, are handled separately and require monthly payments.
The determination of tax residency is subject to interpretation and is not automatically conferred by registering as an autonomo. The crucial distinction lies in whether one is considered a tax resident; non-residents are taxed only on their Spanish income at a different rate, while tax residents are subjected to Spain’s progressive tax rates on their worldwide income.
Therefore, understanding one’s specific tax residency status is essential, and following professional guidance, as seen in the example of a freelancer planning to file as a non-resident for the part of the year they earned income in Spain, is advisable to navigate these obligations correctly.
