Being self-employed means exercising an economic activity independently, which has tax and legal implications that vary according to the legal figure under which they are governed. There are different types of self-employed persons and companies, determined by the activity they carry out or the regime under which they are taxed.
If you are thinking of starting a business in Spain, here are the different types of self-employed workers you can register with, and the main advantages of self-employment.
Self-employed workers
Also known as "self-employed", this is the most common form of self-employment. This class refers to individuals who exercise their activity independently, i.e. without being bound by an employment contract.
In turn, self-employed workers are divided into two groups, depending on the type of activity they perform, they can be classified as follows:
- Self-employed workers who pay business activity taxes (IAE). For example, cab drivers, transporters, hairdressers, hotel and restaurant owners, etc.
- Artists and athletes, such as actors, musicians, circus performers, soccer players, tennis players, etc.
Freelance or self-employed professionals
These are self-employed persons who practice their profession independently and who may or may not have employees under their charge. Normally freelancing consists of workers carrying out their activities from home, but they can also do so from an establishment or a shared work space such as a coworkingsuch as, for example, any of our coworkings in Barcelona. Take a closer look at what is a freelancer and the advantages of working as a freelancer.
This class of self-employed is divided into two categories:
- Members: Workers who must be members of a Professional Association, and make contributions through this and not through the Special Regime for Self-Employed Workers (RETA). For example, lawyers, veterinarians, pharmacists, architects, etc.
- Non-members: Professionals who do not need to be members of a professional association to carry out their activity, and are included in the Economic Activities Tax (IAE). For example, translators, publicists, make-up artists, designers, programmers, etc.
Self-employed or entrepreneurs
These are professionals who have set up a commercial company through which they carry out their economic activity. Unlike the types of freelancers who work individually and operate as individuals, the corporate freelancers carry out their activity under the legal form of a company.
Some of the most common commercial companies in Spain are:
- Limited Liability Company (SL): In this type of company the liability of the partners is limited to the capital contributed, i.e., they shall not be liable with their own assets in any case.
- Sociedad Anónima (SA): It is a company formed by participations in which the capital is divided into shares, and the liability of each partner is proportional to the capital contributed.
Self-employed collaborators
This class of self-employed includes all those professionals who work with their spouse or direct family members up to the second degree of consanguinity. In this case, the holder must be registered as self-employed in order to be able to hire a family member as a collaborating self-employed person.
The main difference between this and the other classes is that the collaborator is not obliged to file the Value Added Tax (VAT) return or the fractioned payment of Personal Income Tax (IRPF).
Economically dependent self-employed or TRADE
A self-employed worker is considered economically dependent (TRADE) when at least 75% of his income comes from a single client, but he does not have a commercial contract with that client.
Some of the requirements that must be met to be within this class of self-employed are:
- Not to have workers in their charge, nor to subcontract to third parties.
- To have the necessary materials, infrastructure and resources to carry out the professional activity.
- Invoice the client for the remuneration of their services.
Self-employed farmers
Self-employed workers who are exclusively engaged in agricultural activities are called agricultural self-employed. This type of workers pay contributions through the Special System for Agricultural Self-Employed Workers (SETA). Some of the requirements that professionals must meet in order to contribute to the SETA are:
- Ownership of a farm, and obtain at least 50% of the income from it.
- To personally carry out the agricultural activity on the farm.
Characteristics and main advantages of being self-employed
Some characteristics that define a self-employed worker, and that represent the main advantages of this labor regime, are as follows:
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Flexibility and autonomy
Self-employed workers have the freedom to set their own goals and make decisions about the work they do. They also have the possibility to set their own schedule, which allows them to reconcile their personal and professional lives.
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Work from anywhere
Similarly, freelancers can decide where they will carry out their activity. Whether from home, a coworking space such as the different coworking spaces in Madrid that we offer, or traveling around the world, they have the flexibility to choose the space that best suits their needs and objectives.
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Choice of projects and clients
Employees generally cannot decide the type of projects or clients they work with, however, the freelancer has the option to decide who to collaborate with and the type of projects they wish to work on in order to develop their skills, specialize or diversify their area of expertise, and achieve their overall career goals.
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Growth potential
By being the owner of their personal brand, freelancers have the possibility to scale their business and grow, hire a team, participate in multiple projects and increase their earnings. At the same time, they can have continuous professional development, diversify their work experience and explore new areas of expertise.
Profitability of self-employment VS partnership
When starting a business, you must choose the appropriate legal form for it, and register as a self-employed individual or create a company. This will depend on factors such as the type of economic activity you will develop, the expenses and income associated with the activity, and the objectives you have in mind for your business, among others.
Here are some parameters you can consider to evaluate the profitability of both options and choose the one that best fits your business:
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Financial responsibility
Self-employed persons have unlimited economic liability, i.e., they are liable with their personal assets for the debts and obligations of their business, which may represent a financial risk. On the other hand, in a company the liability is limited, the partners and shareholders are liable only with the capital contributed to the company, thus protecting their personal assets.
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Taxation
The activity of the self-employed is regulated by the Personal Income Tax (IRPF), which is a progressive tax and implies that as the profits of the business grow, the tax to be paid will also increase. While companies are regulated by the Corporate Income Tax (IS), which is a flat tax of 25%, but it is often lower due to the deductions that companies can access under this legal figure.
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Costs
In general, being self-employed implies less costs and bureaucratic procedures, both at the time of registration and during the management of the business. For example, in order to register in either of the two legal entities it is necessary to register with the tax authorities, but in the case of a company it is also necessary to incorporate it in the commercial registry. In addition, both must adapt to technological changes such as the mandatory or recommended implementation of digital systems, such as electronic invoicing, which may require additional initial investments but significantly improves administrative efficiency. On the other hand, the business structure of a company can make it easier to obtain external financing or to attract investment.ffrequently asked questions about the types of self-employment
How is the self-employed category determined?
There are different regimes and categories for self-employed workers that depend mainly on the type of economic activity to be developed and the estimated income level.
Here I tell you a little bit about these two main factors that determine the freelance category and that could help you choose the one that best suits your business:
- Economic activityThe type of activity to be carried out is an important factor because there are categories that are linked to a specific activity. For example, the agricultural self-employed, who pay contributions through the Special System for Agricultural Self-Employed Workers (SETA), instead of the Special Regime for Self-Employed Workers (RETA), like other self-employed who provide professional services.
- Estimated income: The level of projected income can help determine the category of a self-employed person. For example, if 75% or more of your business income comes from a single client, you are classified as economically dependent (TRADE). On the other hand, the regime in which you must pay contributions can also change if you exceed a certain threshold of annual income.
What regime does a self-employed person have?
The regime to which self-employed workers are attached in Spain is the Special Regime for Self-Employed Workers (RETA). When registering to exercise an economic activity independently, self-employed workers must contribute to the RETA.