What is Personal Income Tax (PIT)?

All individuals resident for tax purposes in Spain, except those who have received income exclusively from personal income from work, equal to or less than 22,000 euros per year, provided that it comes from a single payer.

What is Personal Income Tax (PIT)?

It is a tax levied on the income obtained during a year by individuals resident in Spain during a calendar year. It is a progressive and direct tax.

The taxable base is made up of the different types of income that an individual can earn:

  • Income from work.
  • Income from movable capital is also subject to personal income tax. For example, dividends and interest are considered to be income from movable capital.
  • Income from real estate capital. As the name suggests, this is income obtained from tangible elements, such as leases of premises or subleases.
  • Income from economic activities is income from self-employment. Entrepreneurial activity in turn is defined as an activity that involves labour and capital together and is aimed at earning money.

Costs related to this activity can be deducted from each part of the tax base.

Personal income tax withholdings

The personal income tax withholding tax is an advance payment that the tax authorities receive from a natural person who generates income, whether an employee or a self-employed person.

In the case of an employee, the withholding is applied to the salary and in the case of a self-employed person, to the invoice.

Personal income tax for freelancers

The self-employed, as individuals, pay personal income tax on their activity. In addition, some of them must apply withholdings on the invoices they issue to their clients and declare them on a quarterly basis.

Personal income tax withholdings for the self-employed

Self-employed persons apply withholding taxes on their invoices. However, it should be noted that not all self-employed persons are required to do so.

Only those who are registered in the second and third sections of the Economic Activities Tax (IAE) and when the client is another self-employed person or company are obliged to do so (private clients are not subject to withholdings).

The withholding rate applied is 15%. However, new self-employed persons may apply a 7% withholding during the first three years of activity.

The self-employed and personal income tax bill

The IRPF on the self-employed person’s invoice consists of applying the aforementioned withholding tax: 15% on a regular basis or 7% for new self-employed persons.

The withholding tax is applied to the taxable base and entails tax obligations for the self-employed. These obligations consist of declaring the withholdings on a quarterly basis by means of Form 130 – for those who are taxed under the direct estimation system or Form 131, for those who are taxed by modules.

Income tax deductible expenses

Deductible expenses are those expenses that can be deducted for tax purposes, in this case, on the personal income tax side.

Both employees and the self-employed can deduct expenses. The former, due to their income from work. The latter, due to their professional or economic activity.

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