7% withholding for new freelancers: better cash flow, but be careful

New freelancers in Spain can apply a reduced withholding rate of 7% on their invoices (instead of the general 15%) during the year of registration and the two following years.

What is the advantage?

It improves your monthly cash flow: you collect more on each invoice because the client withholds less. But beware: it is not a real tax saving, it is a deferral.

What is the risk?

When you file your annual income tax return (June of the following year), you may owe more than expected because you have prepaid less tax during the year than you should.

Our recommendation

Apply the 7% if you need cash at the start, but set aside 5-8% of your income in a separate account for the annual return. At DPL Asesores we estimate your income tax from the first quarter.