Feijóo proposes VAT exemption for freelancers under €85,000

Feijóo proposes VAT exemption for freelancers under €85,000

Alberto Núñez Feijóo, leader of Spain's PP party, outlined measures in his party's comprehensive plan for self-employed workers, including exempting those with annual income below €85,000 from paying VAT. The promise, made during the pre-campaign period, was met with skepticism by tax experts: freelancers do not pay VAT themselves; they collect it from clients and remit it quarterly to the Spanish Tax Agency (Hacienda). Exempting them from "paying" it effectively means exempting them from collecting it. This creates significant confusion.

What a VAT exemption really means for freelancers

VAT is an indirect tax borne by the final consumer. Freelancers act as collectors: they charge 21% (or the applicable rate) to clients, hold the funds, and deposit them with Hacienda each quarter. Failure to do so constitutes tax fraud, not merely an accounting irregularity. Thus, the promise causes bewilderment: one cannot "forgive" a freelancer money that never belonged to them. A different mechanism exists, however: franchise VAT, an EU directive allowing small businesses not to charge VAT to clients in exchange for giving up the right to deduct input VAT on purchases. In this scenario, the freelancer does not charge VAT but also cannot recover it on expenses. The client benefits by paying less; the freelancer loses out by bearing input VAT without deduction.

The EU directive Spain has not implemented

Participants in the debate agree on a key point: an EU rule allows freelancers with turnover below €85,000 to join the VAT franchise scheme, yet Spain is among the few countries that have not adopted it. Messages suggest the directive should have been applied by 2025, and delays could lead to fines for Spain. The PP now presents as its own initiative something Brussels has demanded for years. It remains unclear whether Feijóo refers to this or something else, as the announcement does not specify if it involves not charging VAT, not remitting it, or a disguised income tax cut.

The accrual issue: invoicing is not collecting

A non-ideological argument runs through the debate: VAT accrues when the invoice is issued, not when the client pays. This means a freelancer may be forced to advance VAT to Hacienda for work not yet paid for. If clients delay payment or default, the freelancer finances the state from their own pocket. Many view this as the core fiscal problem, beyond monthly fees or quarterly income tax. While exempting small freelancers from VAT does not solve this mismatch, it mitigates it for lower revenue brackets.

The threshold effect: staying just under €84,999

Any fiscal measure with a hard limit creates distortions. If benefits vanish upon exceeding €85,000, the incentive is to stay just below. This can hinder growth for small businesses, encourage fragmentation into multiple entities, or push activity toward the shadow economy. This mirrors issues with income tax brackets or simplified regime limits: people do not invoice more, they invoice differently. In a country where the shadow economy is already structural, adding another threshold seems unwise.

Social security contributions: the tax that truly hurts

For freelancers, the monthly Social Security contribution feels like a personal cost, payable regardless of work, billing, or illness. Quarterly income tax trinc. VAT, however, is perceived as foreign money passing through their hands. Consequently, many believe Feijóo's flagship promise targets the least burdensome tax while leaving the most painful one untouched. Reducing contributions would directly impact profits; altering VAT primarily benefits the end customer.

Election promises and fiscal credibility

Skepticism is widespread. Critics recall that the PP raised VAT from 18% to 21% shortly after taking office, breaking previous pledges. They also note that implementing such changes requires EU approval, as VAT is harmonized across Europe. Given this history, the promise appears more like a campaign gesture than a concrete fiscal plan. Few believe a party that previously increased VAT will eliminate it for four million freelancers without trade-offs.

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Regardless, the proposal highlights a long-standing debate in Spain: why the tax system treats a freelancer earning €20,000 the same as one earning €200,000, and why VAT accrues before payment is received. Feijóo has made a promise; what exactly he intends remains unclear.