When you create an invoice, you need to add the correct IVA percentage to your subtotal (the price of your services). There are three main IVA rates in Spain:
- General Rate (21%): This is the most common rate and applies to the vast majority of professional services. If you are a consultant, designer, programmer, translator or provide most other business services, you will almost certainly use the 21% rate.
- Reduced Rate (10%): This rate is for specific goods and services, including passenger transport, hospitality (hotels and restaurants) and certain cultural events like museum and gallery entrance fees.
- Super-Reduced Rate (4%): This rate applies to essential goods like bread, milk, eggs, fruits, vegetables, books and medicine.
For most freelancers providing professional services, the answer is simple: you will apply the 21% IVA rate.
When don't you apply IVA?
There are specific situations where your invoice might be exempt from IVA or subject to different rules.
- IVA-Exempt Activities: Certain professional activities are exempt from IVA by law. These include most medical services, educational services (like tutoring for school subjects) and some artistic services. If your activity is IVA-exempt, you should not add any IVA to your invoice. Instead, it's good practice to include a note stating that the service is exempt under Article 20 of the Spanish IVA Law (Ley 37/1992).
- Invoicing Clients in the EU (Reverse Charge): If you are providing services to a business client located in another European Union country (and registered in the VIES database), you will use the "reverse charge" mechanism (inversión del sujeto pasivo). In this case, you do not add Spanish IVA to your invoice. Your client is responsible for handling the VAT in their own country. Your invoice must include a note specifying this, such as "Operation subject to reverse charge."
- Invoicing Clients Outside the EU: When you invoice a client outside of the European Union, the service is generally considered an export and is not subject to Spanish IVA.
Understanding IRPF on your invoices
IRPF, or Impuesto sobre la Renta de las Personas Físicas, is the personal income tax. As an autónomo, a portion of your income is often withheld by your clients and paid directly to the tax agency on your behalf.
This is basically a pre-payment of your annual income tax.
Whether you need to apply an IRPF withholding on your invoice depends on two things: who your client is and what your professional activity is.
Who needs to apply IRPF?
You must apply an IRPF withholding on your invoices if you meet these two conditions:
- Your client is another Spanish company or autónomo.
- You are registered under a "professional" activity code (epígrafe profesional) in Section Two of the IAE (Impuesto sobre Actividades Económicas).
If your client is an individual (particular) or a foreign company, you do not apply IRPF withholding.
What are the IRPF rates?
There are two main IRPF withholding rates for professionals:
- General Rate (15%): This is the standard rate that most established professional freelancers apply to their invoices.
- Reduced Rate (7%): This rate is available to new autónomos for the year they register and the following two calendar years. It is designed to help ease the financial burden when starting out. You are not obligated to use the 7% rate; you can choose to apply the 15% rate from the beginning if you prefer.
Choosing between 7% and 15%
- Applying the 7% rate means you receive more cash upfront from each invoice, but you will likely have to pay more when you file your annual income tax return (declaración de la renta).
- Applying the 15% rate means less cash per invoice, but you are pre-paying more of your annual tax bill, which could lead to a smaller payment or even a refund at the end of the tax year.
- Read this article for more information.
