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Taxes freelance translator Spain or UK
Thread poster: Lara Walsh
Álvaro Espantaleón Moreno
Álvaro Espantaleón Moreno  Identity Verified
Spain
Local time: 11:41
Member (2015)
English to Spanish
Not legal Oct 4, 2016

Michael Joseph Wdowiak Beijer wrote:

Merab Dekano wrote:

If you are a sole trader ("autónomo" in Spain), you have no choice but to file your taxes or returns in the country of your residence. In fact, you have to reside in Spain in order to be able to set you up as "autónomo".

However, if you set up a private limited Company in UK, nothing will compel you to set up as "autónomo" in Spain; you will be able to invoice through your UK-based Company. You will have to pay:

1. 20% of Company tax in UK (on income - bills and expenses)
2. 19% on dividends in Spain (if you make profit and decide to draw them)

Bear in mind that dividends paid do not count as an expense (you pay Company tax on them; it's not like a salary).



Hi Merab,

Just wondering about the legality of setting up a private limited company in the UK, but doing the actual work in Spain.

Also, I suppose I'd still have to pay the monthly contribution for national insurance in Spain (which, by the way, I would gladly do).

Michael


However, you are not forced to register in RETA until you reach the 655 x 14 threshold. You can buy a private insurance.


 
Andy Watkinson
Andy Watkinson
Spain
Local time: 11:41
Member
Catalan to English
+ ...
Invariable Oct 5, 2016

Kirsten Bodart wrote:

Seems to be pretty low to me, especially for someone earning more than roughly €1,000 a month. Without really looking into it, Wikipedia mentions 23.6% of revenue in SS contributions with a minimum reference revenue for post graduates of €1,051.10 which amounts to €248-odd in social security contributions for pension and accidents (excl. unemployment, etc.). This sounds much more realistic to me.

So in all likelihood, you'll be paying €30,000 * 23.6% = €590 per month in SS. Obviously the maximum reference revenue for this is €3,425.70, which means that anything above that will be entirely yours (though your profits will go up, cue more income tax, I guess).


If I understand correctly, you're assuming that SS payments increase with income, which is not the case.

You can earn €100,000 a year and still pay only €250/260.

You'd be foolish to do so with that kind of income because by paying a higher SS contribution you'd get unemployment benefits and a larger pension.
But it's voluntary.


 
Rosalind Haigh
Rosalind Haigh  Identity Verified
United Kingdom
Local time: 10:41
German to English
+ ...
Slight clarification Oct 5, 2016

Kirsten Bodart wrote:

With corporation tax at least you even have 9 months after filing your accounts to actually pay up, so even if your client doesn't pay their last invoice on time, you have 9 months to get that money (and even if that doesn't happen, you can still make it up if it's not that big an amount).



You actually have 9 months to pay up from the end of the financial year in question. You can file your accounts later than this, but sadly it doesn't extend the payment period.


 
Merab Dekano
Merab Dekano  Identity Verified
Spain
Member (2014)
English to Spanish
+ ...
@Michael Oct 5, 2016

Michael Joseph Wdowiak Beijer wrote:

Merab Dekano wrote:

If you are a sole trader ("autónomo" in Spain), you have no choice but to file your taxes or returns in the country of your residence. In fact, you have to reside in Spain in order to be able to set you up as "autónomo".

However, if you set up a private limited Company in UK, nothing will compel you to set up as "autónomo" in Spain; you will be able to invoice through your UK-based Company. You will have to pay:

1. 20% of Company tax in UK (on income - bills and expenses)
2. 19% on dividends in Spain (if you make profit and decide to draw them)

Bear in mind that dividends paid do not count as an expense (you pay Company tax on them; it's not like a salary).



Hi Merab,

Just wondering about the legality of setting up a private limited company in the UK, but doing the actual work in Spain.

Also, I suppose I'd still have to pay the monthly contribution for national insurance in Spain (which, by the way, I would gladly do).

Michael


Hi Michael

There is nothing wrong with it. Your LTD is a separate entity. When you invoice, it’s not you who is making money but your company.

I went one step further:

1. I explicitly asked my UK-based accountant what if instead of paying myself dividends, I actually paid myself a salary from my UK company as an “employee” in Spain.
2. My UK-based accountant, after having consulted with HRMC, informed me that there would be no problem at all; I could just pay myself a salary in Spain and expense it as a cost in my UK company. No further action would be required in the UK (as I am not residing there).
3. I went to “gestora” in Spain and asked them to set up my “employment” at “Hacienda” and “Seguridad Social”.
4. La "gestora”, after having consulted with the said entities, informed me that according to “Seguridad Social” there would be no activity in Spain (as I have no shop, warehouse, restaurant, i.e. physical brick & mortar premises).
5. I couldn’t believe it; I wanted to pay my contribution to social security and they just said no, don’t pay.
6. So, the only option is to pay 19% on dividends.

Also, bear in mind one thing, and this is important. The Spanish government has been taking money from the pensions 'pot'. There was little money there anyway, but it’s been spent on other stuff. In a decade or so, the elderly in Spain will be left with nothing, no pension, no aids, nothing. Think twice before moving everything to Spain. I am telling you this being Spanish, and I don’t feel happy about it, but that’s the reality.

So, to answer your question tax-wise. If you set up a company in the UK (unfortunately, you cannot act as a sole trader based in the UK and reside in Spain), you can move to Spain (or to Botswana, if you like) and keep invoicing through your UK company. You will have to pay:

1. 20% company tax in the UK (on income – business bills and expenses), once a year, with very generous payment periods (my company tax was due on 01 March 2017, but I already paid it. I could have waited, though, for another 6 months or so).
2. 19% on dividends if you make profit and decide to draw them.

Bear in mind, as I said, that dividends are not expenses. This means that you pay company tax on them in the UK, and 19% in Spain on top of the UK company tax (and therefore, you pay no income tax, of course). Therefore, it’s in your best interest to only draw the necessary amount as dividends (and keep the rest on your business account in the UK).

Should you need further details, don’t hesitate to write me to my private email: [email protected]


 
Michael Wetzel
Michael Wetzel  Identity Verified
Germany
Local time: 11:41
German to English
What is the tax benefit of a UK Ltd? Oct 5, 2016

Just to keep the math simple:

Say your company earns 100,000 euros.
You pay 20% company tax in the UK, leaving 80,000 euros.
You then pay 19% dividend tax at whatever point you pay yourself those 80,000 euros from the company.
That leaves 64,800 euros.
Doesn't that effectively mean an "income tax" of 35.8%, regardless of how much you are earning? That might sound alright if someone really is earning €100,000 per year, but at €25.000 or €35,000 per year
... See more
Just to keep the math simple:

Say your company earns 100,000 euros.
You pay 20% company tax in the UK, leaving 80,000 euros.
You then pay 19% dividend tax at whatever point you pay yourself those 80,000 euros from the company.
That leaves 64,800 euros.
Doesn't that effectively mean an "income tax" of 35.8%, regardless of how much you are earning? That might sound alright if someone really is earning €100,000 per year, but at €25.000 or €35,000 per year with two dependents, it seems like a ton.

I would also think that private health insurance only saves money if someone is young, healthy and single. Responsibly privately saving for your retirement is also crazily expensive ... wouldn't it be to Michael's advantage to pay into the public system?
Collapse


 
Merab Dekano
Merab Dekano  Identity Verified
Spain
Member (2014)
English to Spanish
+ ...
Just a small thing Oct 5, 2016

Michael Wetzel wrote:

Just to keep the math simple:

Say your company earns 100,000 euros.
You pay 20% company tax in the UK, leaving 80,000 euros.
You then pay 19% dividend tax at whatever point you pay yourself those 80,000 euros from the company.
That leaves 64,800 euros.
Doesn't that effectively mean an "income tax" of 35.8%, regardless of how much you are earning? That might sound alright if someone really is earning €100,000 per year, but at €25.000 or €35,000 per year with two dependents, it seems like a ton.

I would also think that private health insurance only saves money if someone is young, healthy and single. Responsibly privately saving for your retirement is also crazily expensive ... wouldn't it be to Michael's advantage to pay into the public system?


You don't pay company tax on income. Rather, you pay it on your profit. Your home office is an expense, your ProZ membership is an expense, your PC and all the programmes are all expenses, travel, etc. More realistically, out of 100,000 you will spend about 35,000 as bills and expenses. Therefore, 65 000 * 0.8 = 52,000 net.

You draw, say, 1500 a month as dividends (18,000) on which you will have to pay 19% (3420).

The rest you keep on your business account.

However, it's not only about taxes. In case of a UK company, you only have to do everything once a year, no VAT, no monthly and quarterly returns, etc. UK is for doing business. Spain is for suffering. Sadly so.


 
Michael Wetzel
Michael Wetzel  Identity Verified
Germany
Local time: 11:41
German to English
Spanish income tax paid on total revenues? Oct 5, 2016

Spanish income tax is paid on profit and not sales revenues, isn't it?

The €100,000 in my example were meant as profit and not sales. I assumed that all the same business expenses are also deducted before calculating your income tax in Spain, so those would be the comparable figures. That has to be right, doesn't it?

And actually, I assume that there would be another round of personal income tax deductions for things like childcare, school tuition, donations and whate
... See more
Spanish income tax is paid on profit and not sales revenues, isn't it?

The €100,000 in my example were meant as profit and not sales. I assumed that all the same business expenses are also deducted before calculating your income tax in Spain, so those would be the comparable figures. That has to be right, doesn't it?

And actually, I assume that there would be another round of personal income tax deductions for things like childcare, school tuition, donations and whatever other kinds of deductions the Spanish government recognizes. I would assume that most or all of these could not be deducted in the case of the dividend tax. That would mean that the relevant amount for the income tax is actually less than the profit of the business.

And even if you keep the rest of the money in your business account, you'll want to withdraw it some day, won't you? And that means you'll end up paying dividend tax on it at some point. Or am I missing something there?

From what I've seen at ProZ about the Spanish tax system, I can certainly understand the advantage of avoiding it altogether. So I can theoretically understand choosing to pay higher taxes to make it easier to run your business, but that is not going to help Michael to reduce his tax burden.
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Merab Dekano
Merab Dekano  Identity Verified
Spain
Member (2014)
English to Spanish
+ ...
Company Oct 5, 2016

Michael Wetzel wrote:

Spanish income tax is paid on profit and not sales revenues, isn't it?



Correct



And even if you keep the rest of the money in your business account, you'll want to withdraw it some day, won't you? And that means you'll end up paying dividend tax on it at some point. Or am I missing something there?



It's more on the side of "missing something there", since your company actually can buy, say, property in Spain (or in Botswana) some day. You can say it's an office. In this case, you will not have to pay taxes (except, of course, the taxes to buy a property, which you would have to pay anyway as a natural person (in fact, companies pay less, in some cases). Etc.



From what I've seen at ProZ about the Spanish tax system, I can certainly understand the advantage of avoiding it altogether. So I can theoretically understand choosing to pay higher taxes to make it easier to run your business, but that is not going to help Michael to reduce his tax burden.



If Michael (or just anybody else) is a kind of person who has very clear idea of the country he wants to live in for good, then no, UK company thing is probably not the best solution. However, if one doesn't know where the life is going to toss him/her in, say, two years, well, then UK company seems to be a better choice. This will reduce signifivcantely the person's administrative burden (set up as "autónomo" here, become a "sole trader" there and what not).

Also, if you decide to work less or just stop working altogether for 6 months or so, you just do it and will not have to pay 270 or so euros a month. You could also go for "dormant company" mode. The fact is that with UK company you pay on what you earn as a profit (variable cost), as opposed to pay anyway ("autónomo").

[Edited at 2016-10-05 12:43 GMT]


 
Angie Garbarino
Angie Garbarino  Identity Verified
Local time: 11:41
Member (2003)
French to Italian
+ ...
I confirm Oct 6, 2016

Sheila Wilson wrote:

Putting it simply - and no doubt in a very misleading way - I'd say the following figures are closer:
- €250 a month social security, unless you want extra cover for unemployment and sickness benefits, insurance for accidents causing loss of limbs etc.
- 20% tax on NET autónomo earnings (after deducting Soc Sec, asesor, all normal business expenses etc), paid quarterly
- 20% tax on any other income (pensions, investments etc) within the family unit, NET of various allowances


I am an "autonomo" in Spain and can confirm,

BTW, 50% applies to Italy (perhaps country confusion?)


 
Michael Wetzel
Michael Wetzel  Identity Verified
Germany
Local time: 11:41
German to English
€25.000 Oct 7, 2016

So if someone earns a profit of around €25.000/year they could pay €250/month in social security (€3000/year) and then about another 20% on their net income after all personal deductions (including the social security payments). Let's say the latter adds up to 20% of €20.000 = €4000/ year. That would mean 28% of gross income goes to social security and income tax. Is that about right?

Is it true that most self-employed people in the UK only pay a national insurance contrib
... See more
So if someone earns a profit of around €25.000/year they could pay €250/month in social security (€3000/year) and then about another 20% on their net income after all personal deductions (including the social security payments). Let's say the latter adds up to 20% of €20.000 = €4000/ year. That would mean 28% of gross income goes to social security and income tax. Is that about right?

Is it true that most self-employed people in the UK only pay a national insurance contribution of 9-10%? I think there is an issue in a lot of countries (it is certainly the case in Germany) that the system is designed in such a way that the self-employed end up having to also play the employer's half of social security contributions. Public health insurance alone would cost around 16% of your income in Germany. Private insurance can be a good alternative, particularly if you get in at a young age and before you have had any medical problems, plan on never having any dependents and also plan on dying shortly after you stop working full time (at whatever age that may be). You would have to pay close to 20% of your income to buy into public retirement insurance. I don't think anyone does that, but you would probably have to invest at least that much to have a realistic chance of completely funding your retirement by means of private investments.

It would be fairly easy to end up with around 50% of your income going to (private or public) health insurance, your (private or public) retirement plan and income tax in Germany, but Spain sounds more like the UK, doesn't it?
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Álvaro Espantaleón Moreno
Álvaro Espantaleón Moreno  Identity Verified
Spain
Local time: 11:41
Member (2015)
English to Spanish
Not exactly Oct 7, 2016

Michael Wetzel wrote:

So if someone earns a profit of around €25.000/year they could pay €250/month in social security (€3000/year) and then about another 20% on their net income after all personal deductions (including the social security payments). Let's say the latter adds up to 20% of €20.000 = €4000/ year. That would mean 28% of gross income goes to social security and income tax. Is that about right?

Is it true that most self-employed people in the UK only pay a national insurance contribution of 9-10%? I think there is an issue in a lot of countries (it is certainly the case in Germany) that the system is designed in such a way that the self-employed end up having to also play the employer's half of social security contributions. Public health insurance alone would cost around 16% of your income in Germany. Private insurance can be a good alternative, particularly if you get in at a young age and before you have had any medical problems, plan on never having any dependents and also plan on dying shortly after you stop working full time (at whatever age that may be). You would have to pay close to 20% of your income to buy into public retirement insurance. I don't think anyone does that, but you would probably have to invest at least that much to have a realistic chance of completely funding your retirement by means of private investments.

It would be fairly easy to end up with around 50% of your income going to (private or public) health insurance, your (private or public) retirement plan and income tax in Germany, but Spain sounds more like the UK, doesn't it?


Is more complicated than that. There are exempt amounts that you have to deduct. And they are not deducted from the tax base but from the payable amount. And you also have to deduct expenses (including rent). Maybe you can try with a simulator https://www2.agenciatributaria.gob.es/es13/s/dacoda4rs00w


 
Michael Beijer
Michael Beijer  Identity Verified
United Kingdom
Local time: 10:41
Member (2009)
Dutch to English
+ ...
Thanks for the link to the simulator! Oct 7, 2016

Alvaro Espantaleon wrote:

Michael Wetzel wrote:

So if someone earns a profit of around €25.000/year they could pay €250/month in social security (€3000/year) and then about another 20% on their net income after all personal deductions (including the social security payments). Let's say the latter adds up to 20% of €20.000 = €4000/ year. That would mean 28% of gross income goes to social security and income tax. Is that about right?

Is it true that most self-employed people in the UK only pay a national insurance contribution of 9-10%? I think there is an issue in a lot of countries (it is certainly the case in Germany) that the system is designed in such a way that the self-employed end up having to also play the employer's half of social security contributions. Public health insurance alone would cost around 16% of your income in Germany. Private insurance can be a good alternative, particularly if you get in at a young age and before you have had any medical problems, plan on never having any dependents and also plan on dying shortly after you stop working full time (at whatever age that may be). You would have to pay close to 20% of your income to buy into public retirement insurance. I don't think anyone does that, but you would probably have to invest at least that much to have a realistic chance of completely funding your retirement by means of private investments.

It would be fairly easy to end up with around 50% of your income going to (private or public) health insurance, your (private or public) retirement plan and income tax in Germany, but Spain sounds more like the UK, doesn't it?


Is more complicated than that. There are exempt amounts that you have to deduct. And they are not deducted from the tax base but from the payable amount. And you also have to deduct expenses (including rent). Maybe you can try with a simulator https://www2.agenciatributaria.gob.es/es13/s/dacoda4rs00w


Sadly, I took one look at it and felt unwell. I just pay a tax accountant £250 a year to handle all my tax details here in the UK. Of course, this does mean that I don't really understand how it all works below the surface. I suppose, therefore, that if I were to move to Spain, I would need to factor a good (English-speaking) tax accountant into my total annual tax burden.

Michael


 
Álvaro Espantaleón Moreno
Álvaro Espantaleón Moreno  Identity Verified
Spain
Local time: 11:41
Member (2015)
English to Spanish
:) Oct 7, 2016

Michael Joseph Wdowiak Beijer wrote:

Alvaro Espantaleon wrote:

Michael Wetzel wrote:

So if someone earns a profit of around €25.000/year they could pay €250/month in social security (€3000/year) and then about another 20% on their net income after all personal deductions (including the social security payments). Let's say the latter adds up to 20% of €20.000 = €4000/ year. That would mean 28% of gross income goes to social security and income tax. Is that about right?

Is it true that most self-employed people in the UK only pay a national insurance contribution of 9-10%? I think there is an issue in a lot of countries (it is certainly the case in Germany) that the system is designed in such a way that the self-employed end up having to also play the employer's half of social security contributions. Public health insurance alone would cost around 16% of your income in Germany. Private insurance can be a good alternative, particularly if you get in at a young age and before you have had any medical problems, plan on never having any dependents and also plan on dying shortly after you stop working full time (at whatever age that may be). You would have to pay close to 20% of your income to buy into public retirement insurance. I don't think anyone does that, but you would probably have to invest at least that much to have a realistic chance of completely funding your retirement by means of private investments.

It would be fairly easy to end up with around 50% of your income going to (private or public) health insurance, your (private or public) retirement plan and income tax in Germany, but Spain sounds more like the UK, doesn't it?


Is more complicated than that. There are exempt amounts that you have to deduct. And they are not deducted from the tax base but from the payable amount. And you also have to deduct expenses (including rent). Maybe you can try with a simulator https://www2.agenciatributaria.gob.es/es13/s/dacoda4rs00w


Sadly, I took one look at it and felt unwell. I just pay a tax accountant £250 a year to handle all my tax details here in the UK. Of course, this does mean that I don't really understand how it all works below the surface. I suppose, therefore, that if I were to move to Spain, I would need to factor a good (English-speaking) tax accountant into my total annual tax burden.

Michael


You can do the same in Spain! And for a similar amount. IRPF is not the complicated bit though; there are three-monthly declarations of VAT, withholdings, etc. which are quite tricky and can be a real pain. Hopefully, there are "gestores" available to handle all this for you. Of course, some are good and some are not that good. You have to choose wisely.


 
Michael Wetzel
Michael Wetzel  Identity Verified
Germany
Local time: 11:41
German to English
general figure Oct 7, 2016

Alvaro Espantaleon wrote:

Is more complicated than that. There are exempt amounts that you have to deduct. And they are not deducted from the tax base but from the payable amount. And you also have to deduct expenses (including rent). Maybe you can try with a simulator https://www2.agenciatributaria.gob.es/es13/s/dacoda4rs00w


I know it's more complicated than that. Maybe I should have said 25-30%, because 28% suggests that I was trying to be exact. I figured around €400 (or the taxes on €2000 of income) in addition to the social security contributions would be gained through personal exemptions. That obviously depends a lot on a tax payer's individual circumstances, so that is a very approximate figure.

Is that a vaguely accurate figure for someone with a fairly typical personal situation? I also looked at the calculator, but it was too complicated for me, I'm just trying to get a general idea.

I was also talking about €25,000 income/profit (= after business expenses) and not sales.


 
Álvaro Espantaleón Moreno
Álvaro Espantaleón Moreno  Identity Verified
Spain
Local time: 11:41
Member (2015)
English to Spanish
Around 5000 EUR Oct 7, 2016

Michael Wetzel wrote:

Alvaro Espantaleon wrote:

Is more complicated than that. There are exempt amounts that you have to deduct. And they are not deducted from the tax base but from the payable amount. And you also have to deduct expenses (including rent). Maybe you can try with a simulator https://www2.agenciatributaria.gob.es/es13/s/dacoda4rs00w


I know it's more complicated than that. Maybe I should have said 25-30%, because 28% suggests that I was trying to be exact. I figured around €400 (or the taxes on €2000 of income) in addition to the social security contributions would be gained through personal exemptions. That obviously depends a lot on a tax payer's individual circumstances, so that is a very approximate figure.

Is that a vaguely accurate figure for someone with a fairly typical personal situation? I also looked at the calculator, but it was too complicated for me, I'm just trying to get a general idea.

I was also talking about €25,000 income/profit (= after business expenses) and not sales.


 
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