Andrés Vidal and his brother Julián set up a building renovation limited company in Valladolid. Andrés holds 40 % of the capital and is a joint and several director; he runs the jobs, hires the tradesmen and signs the quotes. Julián holds 35 % and works in the office. The remaining 25 % belongs to an investor who takes no part in management. The company is already invoicing, and Andrés wonders whether, because the company pays contributions for its employees, he is covered, or whether he has to register somewhere.
He has to register in the RETA (the Spanish Social Security scheme for the self-employed). This is what is known as an autónomo societario, a company self-employed person, and although he registers under the same scheme as an ordinary self-employed person, his contributions follow their own rules.
When the director comes within the RETA
Article 305.2.b of the General Social Security Act includes in the RETA anyone who performs management functions as a board member or director, or provides other services for a capital company, for profit and habitually, personally and directly, provided they have effective control of the company, whether direct or indirect.
The law gives one fixed rule and several presumptions:
| Circumstance | Effect |
|---|---|
| A holding of at least half the capital | Effective control in all cases |
| At least half the capital held by relatives up to the second degree who live with the person | Control is presumed, unless proved otherwise |
| A holding of one third or more | Control is presumed, unless proved otherwise |
| A holding of one quarter or more together with management functions | Control is presumed, unless proved otherwise |
| None of the above | The authorities may prove control by other means |
The brothers' case, step by step
- Andrés holds 40 %, which is more than a third: his effective control is presumed.
- He is also a director and runs the business: he would also pass the threshold of a quarter with management functions.
- Julián holds 35 %, also above a third: his control is presumed even though he is not a director, provided he provides services to the company habitually.
- The family presumption requires the relatives with whom half the capital is reached to live with the person concerned. If Andrés and Julián do not live together, this route does not apply, but it is no longer needed.
- The investor, with 25 % and no management functions or services to the company, does not come within the RETA because of this holding.
All the presumptions can be rebutted, but proving that a partner with 40 % who is also a director does not control his company is, in practice, very difficult. A decision not to register while relying on that proof should be taken in full knowledge of the risk: if the Inspectorate considers that there was control, the registration will be made by the authorities, with the consequences described in registering late.
How his contributions differ
The company self-employed contribute on actual earnings like other self-employed people, but with three differences that the law sets out expressly in article 308:
A higher floor for the base. Under rule 4 of article 308.1.a, he cannot choose a base lower than the minimum base for common contingencies of contribution group 7 of the General Scheme set by the State Budget Act. And in the annual regularisation the definitive base cannot fall below that figure either. It is enough to have been registered in this situation for ninety days during the year being regularised. That is why the company self-employed cannot use the lowest brackets of the reduced table even if the company is making losses.
Fewer general expenses. In calculating the relevant earnings, the ordinary self-employed person subtracts 7 % for general expenses; the company self-employed, 3 %, under rule 2 of article 308.1.c.
Other earnings that are added. Rule 1 of the same provision counts, in addition to what he is paid for his work in the company, the earnings from his holding in the equity of entities in which he holds at least 33 % of the capital, or at least 25 % if he is a director. In practice, that includes dividends.
It is common to think that, by drawing a low salary and paying out profits as dividends, the contribution base goes down. Under the wording in force, earnings from the holding in the company are counted when those percentages are reached, on the terms set by the regulations. Any planning of the director's pay must start from this fact and cannot guarantee a saving on Social Security.
Some illustrative figures for Andrés
Suppose Andrés is paid 24,000 € a year by the company for his work and receives 6,000 € in dividends, and that no other activity gives him earnings:
- Pay for his work in the company: 24,000 €.
- Dividends from a company in which he holds 40 % and is a director: 6,000 €.
- Total counted: 30,000 €.
- Deduction for general expenses of 3 %: 30,000 × 0.97 = 29,100 €.
- Monthly average: 29,100 ÷ 12 = 2,425 €.
With that figure the bracket is looked up in the year's general table, as any self-employed person would do, except that the definitive base will never fall below the group 7 minimum. The details of the general calculation, and of the regularisation that comes with the figure from Hacienda (the Spanish tax office), are in how much the contribution is and in the guide on contributions based on actual income.
Can the director have the tarifa plana?
Yes, with the same requirements as anyone else. Article 38 ter.9 of the Self-Employed Workers' Statute Act extends the reduced contribution, the tarifa plana, to partners in capital companies covered by the RETA. If Andrés has never been registered as self-employed, or has not been in the previous two years, he could request it on registering. The conditions and exclusions are in the tarifa plana.
What does not change with registration in the RETA
The director's registration with Social Security does not make him a business owner for Hacienda's purposes. The one that invoices is the company, with its own tax number (NIF), its own Modelo 036 and its own corporation tax. Andrés, as an individual, does not normally file a 036 of his own for his work in the company, unless he also carries on another economic activity on his own account.
What he is paid by the company will be taxed in his IRPF (Spanish personal income tax) according to the nature of the pay, and the company will withhold whatever applies. How the pay of a partner who works for his own company is classified is governed by specific rules in the IRPF Act and should be reviewed together with the articles of association, because whether the expense is deductible for the company depends on what they say about the director's pay.
Before registering the partners
It is worth having to hand the deed of incorporation, the articles of association, the breakdown of the capital, the appointment of the directors and a description of what each partner does. With that it can be decided who must be in the RETA, from what date and with what minimum base. You can send us that documentation through the self-employed registration form so that we can review how it fits before anything is filed.
If instead of a company you are considering starting as an individual, the differences in registration are explained in what I need to register as self-employed and in the guide to self-employed registration step by step.
At Salama Tax we work on the tax side of the activity of individuals and of the partner who invoices on his own account. When the case is that of a company director, we review how his IRPF and his contribution base interact, because both come from the same pay figures.