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The cost of living and self-employment in Spain
As someone who has been living and working in Spain for over ten years, I have been told many times how lucky I am. Often, people think that living in a Mediterranean climate is all beer and sunshine with a few hours work a day to help pay the bills.
Nothing could be further from the truth, particularly if you live on one of the Costas and work in any trade largely reliant on tourism. For it is when the weather is at its best that you work the hardest and longest hours. When you finally have the time to enjoy some days off, you may be unemployed and, though the sun does shine, the days are short and the night-times cold. And if you’re hoping for any government support you’d better hope that you had at least a six-month contract before you signed on, or you’ll get nothing. If you were self-employed for any length of time you’ll get no support.
You might think that bar work would be a great way to enjoy the daytime sunshine and soak up a few beers in the evening, but if you want a living wage be prepared to work eight hours or more a night, seven nights a week.
The minimum wage in Spain varies from job to job. Hence, a waiter may be on a different minimum wage to shop staff. In any case, the real minimum wage is probably less than half that which you would expect to find in the UK.
However, the cost of living can be lower in Spain than in the UK, if you can adapt your diet to take advantage of cheaper produce. It is not easy to make a like-for-like comparison of foodstuffs as the typical diets of the two countries are vastly different. Similarly, it isn’t easy to make a like-for-like comparison of lifestyles for the majority of people in Spain live in apartment blocks unlike the British, so Spanish towns can be a lot more compact and have a completely different atmosphere.
If you’re thinking of moving to Spain and becoming self-employed, bring plenty of money with you as a buffer to tide you over. As one old-timer told me when I started, “In Britain, you plant a seed, you help it grow and when it bears fruit, you pay taxes. In Spain, when you plant a seed, they want the fruit straight away.”
In the UK you can start a business on a shoestring without any kind of regulation, but you’d better not even consider doing that in Spain if you don’t want some hefty fines. All businesses should be registered from day one and that means many things, not just signing up at the local tax office.
First off is your “NIE” (Foreigners Fiscal Identification Number), which needs to be applied for before you do anything – if you want to buy property, buy a car, rent a flat, or do any kind of job that’s not cash in hand, you will need this. You can get this via your lawyer if, for example, you are buying a property first. You can also get it direct from the “Commissaria” (Police) at the nearest city to where you live. It might take a couple of weeks and a couple of visits to get it sorted out but it’s not expensive. Alternatively, you can get it via a “gestor” (no translation).
Gestors are accountants and more than accountants. They are peculiar to Spain. They are bureaucracy experts, and therefore the people to speak to if you want to start your own business. They will do all the work for you, prepare all the documentation and all you have to do is sign several documents and pay them.
Above all, your gestor can register you for “Autonomos” (Social Security payments), Income Tax and “IVA” (VAT). Again, you can do this yourself but if your language skills are poor and if you don’t know what you’re doing it’s worth a few hundred Euros for the time-saving alone.
In respect of income tax, there are two different schemes available to the self-employed. One is quite similar to the UK system in terms of accounting, in that you keep all your receipts, expenses, etc and submit them to your gestor so that they can prepare your accounts. The other system (“modulos”) involves you agreeing to pay fixed amounts of tax based on the kind of business you are in. The advantage of modulos is that you don’t need to prepare regular accounts, saving you fees if you don’t do your own. The disadvantage is that you pay the tax every three months whether you’ve earned the money or not. The tax year runs from 1st January to 31st December and end of year returns are usually completed during the spring/summer following the year end. Late returns at any time are punished severely with a fine and late payments too, usually with an instant 20% increase in cost plus interest on a daily basis.
Social security payments for the self-employed are steep by UK standards. You will need to have in excess of 260€/month and this will grant you rights to free healthcare and pension benefits. They count for nothing if you become unemployed, however. A scheme introduced in 2013 allows for reduced payments of just 50€/month for the newly self-employed. There are caveats, such as not being self-employed before in the previous five years, and more besides, so its not something to be relied on without further investigation. There are several Spanish language websites that may help you calculate your obligations, including this one.
With quarterly tax returns, monthly social security payments and the annual declarations, you will be making regular payments to your gestor to keep your accounts in order, so keep a budget of several hundred Euros a year free for this. Its worth asking them from the outset if they offer to charge an annual fee to cover everything so you can budget more easily.
If you want to open a shop or office, and assuming you have found a suitable premises, there will be an opening license fee which will depend on the popularity of the street and the previous use of the premises. If, for example, the shop was previously a hairdressers and you want to sell earthenware, then you will pay the full rate to change its use. If, you want to open a nail-painting parlour, then it is likely that the fee will be much reduced as its not much different. The fee is payable to the local “ajuntamiento” (Town Hall) though again, this can be handled by your gestor if you want to pay them to do it for you.
As for the premises that you have chosen to take on, it’s normal to make the first year’s rent in full in advance, less a “retention”, plus VAT. The retention (19% in 2010) is a tax on the landlord which they don’t receive and so you, as the leaseholder, pay it to the Government. With VAT at 21% (from 2013), they more or less cancel one and another out until you get the reminder from your gestor to pay the retention every three months (or all at once if you paid your year’s rent in one hit).
There are likely to be other costs of keeping a shop – a relatively small council tax (by UK standards) for one, ostensibly for rubbish collection and street cleaning. This tax also applies to households, of course and its value will vary from street to street.
For some, market trading is an option. But, even more so, now that the economic recession is biting very deep in Spain (with in excess of four million officially unemployed in a population of forty million), getting a pitch is difficult. Most towns have busy weekly markets and some have an organized collector’s fair or flea market but, in most cases, you will still need to be registered for social security and taxes to stand a chance of getting onto them. Come-as-you-like car boot sales are few and far between, except perhaps in some areas highly populated with British ex-pats. The Spanish don’t have a tradition of re-using secondhand goods, preferring to throw out the old and buy new rather than buy and sell used items. In recent years, there has been a rise in the number of "recycling" markets, which are a little more casual, but don't expect to get good prices for your goods!
Advertising your business is a difficult matter. As a shopkeeper myself, many people say to me, “You should go and give out leaflets” or “Go round all the hotels”. The first option is a definite no-no. You will be fined heavily for leafleting in the street in most towns. Taking leaflets to hotels is feasible but the spaces available in hotels for this purpose are normally owned by specialist companies who will throw your leaflets out if they find them in their racks. If you pay them to distribute for you, you’d better get a good return as prices are not for the squeamish. Assuming you have a tourist-related business, the best form of advertising is to get friendly with the Tourist Information Officers who will stock your leaflets and help promote you at no cost. For the non-tourist-related business, word of mouth, recommendations and local newspaper and radio provide the best possibilities.
There is, of course, rather more to it than I have included in this article. If I have missed anything obvious that I should have included, I will be glad to try to include it should you care to comment below.
For more specific information on the law in Spain, I recommend David Searl’s book “You And The Law in Spain”, published by Santana, annually.