Modelo 130 Explained in Plain English

What it is

Employees in Spain have income tax withheld from every payslip. The self-employed have no payslip, so the law asks them to pay their own tax in instalments, four times a year. That instalment is form 130. It is not an extra tax: everything paid through it is deducted from the final bill in the annual return.

It applies to individuals who carry on a business or professional activity under the direct assessment methods. Those taxed under the objective method use a different form.

The calculation

The return does not look at the quarter in isolation. Each time, it takes the whole year to date:

1. Income invoiced from 1 January to the end of the quarter.
2. Less deductible expenses for the same period.
3. 20 % of that profit.
4. Less the instalments already paid in earlier quarters of the year, and less any tax clients have withheld from your invoices.

The result is what you pay this quarter.

Because it is cumulative, a bad quarter reduces what you pay next, and a correction to an earlier quarter flows through automatically.

Who is excused

Professionals do not have to file form 130 if, in the previous year, at least 70 % of their professional income was subject to withholding. That is typical of someone who invoices Spanish companies, which deduct 15 % (7 % in the first years of activity) from each invoice and pay it to the tax agency.

Foreign clients do not withhold Spanish tax. A freelancer whose clients are mostly abroad therefore almost always has to file. This is the single most common omission we find among foreigners in their first year in Spain.

Losses and nil returns

If the year to date shows a loss, the return is still filed, with a nil or negative result. A negative figure is not refunded during the year: it reduces later instalments, and any excess is settled in the annual return.

Deadlines are the first twenty days of April, July and October, and 1 to 30 January for the fourth quarter. Late filing without a request from the tax agency carries a surcharge that starts at 1 % and grows by a point each month.

How it ties into the annual return

In the annual income tax return the year's profit is taxed on the progressive scale, together with any other income, after personal allowances. The four instalments, and any tax withheld by clients, are subtracted from that bill. If they add up to more than the tax, the difference is refunded. If less, the balance is payable in June, with the option of splitting it into two payments.

For a freelancer earning a modest amount with a family allowance, 20 % can overshoot and produce a refund. For someone with a profit of €60,000 or more, 20 % is well short of the real rate and the June payment is substantial. Knowing which case you are in during the year is what allows you to set money aside.

Points foreigners tend to miss

• Foreign income outside the activity (rent abroad, dividends, a pension) is not part of form 130, but it is part of the annual return and pushes the rate up.
• Tax withheld by a foreign client does not reduce form 130. It is dealt with in the annual return, under the treaty.
• In Ceuta, Melilla and some special cases the percentage is lower.
• A reduction is available on form 130 for those with low net income in the previous year.
• Those paying a mortgage on a main home bought before 2013 may deduct a small additional amount.