Truths and lies about self-employed taxes

This week, the self-employed were the center of political and economic debate. The reason? A proposal by the Spanish government to increase their Social Security (SS) contributions over the next six years. This time, they've achieved a rare feat: getting the entire opposition to agree against them. The truth is, the internet has been filled with fallacies, so we're shedding some light.

Self-employed workers have three main obligations to the State: VAT and personal income tax (with the Treasury), as well as social security contributions. However, is VAT really a tax burden for the self-employed? The answer is no. VAT is a neutral tax where the self-employed worker (like any business) acts as a tax collector for a period. When this period ends, the difference between the VAT paid and the amount collected is calculated. In practice, it is false to say that the self-employed worker receives €10,000 on an invoice; in reality, they invoice €7,900 plus VAT. They certainly collect €10,000, but collecting an amount is not the same as actually disposing of it.

On the other hand, we find personal income tax, which is a straightforward tax, just like any worker pays. The difference is that personal income tax is calculated on net income, that is, after subtracting costs. Let's imagine a painter earning €1,000 for his work but incurring material costs of €300. In that case, personal income tax would be paid on the remaining €700.

And finally, we come to the topic of the week: Social Security contributions, which are intended to be progressive based on income. However, by 2025 (not counting increases in the coming years), a person earning up to €670 a month will pay a contribution of €230, while someone earning more than €6,000 will pay €542. You'll tell me where the progressiveness lies, especially when in neighboring countries the contribution is 0, at least up to a certain high income level.