B Law & Tax
22 August 2023

Tax advisor: Who can apply to the objective valuation regime for the self-employed?

When a self-employed person must comply with Personal Income Tax (IRPF), there are three methods available: the standard direct valuation, the simplified direct valuation and the objective valuation, also known as the module system. We will focus on the latter option.

Although it has faced debates and proposals for elimination, the module system is still in force and is used by more than 400,000 self-employed in the country. This methodology simplifies tax and accounting administration by exempting the self-employed from keeping accounting records. In addition, those who pay taxes through this system know in advance the amount to be paid each quarter.

As mentioned above, the objective estimate is one of the three alternatives available to self-employed workers when filing Personal Income Tax (IRPF) returns.

Under this modality, self-employed workers pay taxes based on predefined percentages. Instead of calculating personal income tax based on the income and expenses generated by their professional activity, certain percentages derived from indicators known as “modules” are applied. This methodology simplifies the accounting and tax processes.

These indicators or modules take into consideration various aspects and characteristics of the business, such as the size of the premises, the number of employees, electrical capacity, among others. In addition, corrective indexes are included that are adjusted according to the population density in the area where the business is located.

Although self-employed individuals using this system are not obligated to maintain accounting records, they are required to keep and organize all invoices issued and received. These documents should be numbered, sorted by date, and separated by quarters, and must be retained on file for at least four years.

On the other hand, it is not required to keep an accounting record, except in two circumstances: it is necessary to keep a record of investment assets when acquiring goods intended for the business with a useful life of more than one year, since their depreciation can be deducted; in addition, if an activity is carried out in which the net income is determined according to the operations carried out during the fiscal year, a record of sales and income must be kept.

The election to be taxed by modules is optional, but is subject to certain requirements:

– The activity must be contemplated in the Order of the Ministry of Finance.

– It cannot be applied if the activity is directly under normal or simplified direct estimation.

– It is not possible to have previously waived this system if the requirements are met.

– It must not be excluded from simplified VAT or IGIC regimes, nor have waived the REAGP.

– The activity must be carried out mainly in Spain, except in certain cases of transport.

– The volume of purchases of goods and services must be consistent with this activity.

B Law & Tax International Tax & Legal Advisors.

 https://www.blaw.es/

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