Which expenses can be deducted to freelancers with the new law?

Which expenses can be deducted to freelancers with the new law?

 

The new Law of Urgent Labor Reform became effective last 26th of October, and some measures have already been enacted, while others have been operating since January 2018.

 

Of those improvements, which affect 3.6 million freelancers, it is expected that some measures will clarify the tax law, that is to say, to facilitate and determine exactly the tax relief from expenses linked to your activity. Those changes modify the fifth rule from the second section from the 30th article from the Self Employed Law from 2006, which adds expenses linked to the freelance activity that were difficult to implement until now.

 

When are those expenses going to be deducted?

 

Freelancers can already unequivocally deduct the expenses linked to their activity since January 2018. Considering that many freelancers work from their homes, this will be a positive change for them. For the first time they will have the guarantee to be able to deduct expenses and know exactly the quantity. 

 

These are the three types of expenses freelancers are going to be able to deduct with the new law:

 

1. Deduction for freelances who work from home

 

With the new regulations, freelancers who work from their homes are going to be able to deduct supplies such as water, gas, electricity, telephone and internet. The calculation from the reduction results from applying 30% to the existent proportion between the total square meters from the total surface. 

 

How will the Treasury know that your home is your work place?

 

At the moment when you start your activity, you need to fill in the 037 Form to register as self-employed through which you need to specify the degree of affectation where you activity takes place.

 

Therefore, the self-employed have to indicate the total square meters destined to the work development/area. It is necessary that the area is the real one, otherwise you could be penalized.

 

How do we get the reduction calculation? 

 

For instance: if the freelancer uses 20% of their home for their work activity, they should declare in the 037 form that the space that it is used for working is 20 square meters. The deductible quantity is the result of calculating 30% of that area (in m2), which is the same as saying, 6%. Therefore, the freelancer will instantly know which is the quantity deductible from the consumption/use of all supplies (water, light, electricity, internet, etc).

 

2. Deductions in maintenance costs for freelancers

 

It was only possible to deduct maintenance costs that were produced out of the tax address until now. With the new law, freelancers will be able to deduct costs in diets in the same locality where they practice their activity.

 

What quantity in subsistence allowance will freelancers be able to deduct?

 

Freelancers can deduct up to 26.67 Euros in expenses in their municipality; out of the local area the amount increases to 53.34 Euros daily; and if it is abroad, they can deduct up to 48.08 Euros daily.

 

Which requirements do you need to fulfill to be able to benefit from these deductions?

 

Costs always must be produced in restaurant and hotel industries, paid with any sort of electronic payment, among the limits established in detail in the previous point.

 

3. Deductions in Insurance Premiums for Health Care  

 

The self-employed law also considers Health Insurance Premiums as deductible costs, (as the Law from 2006 did consider.)

 

This deduction includes the own freelancer Insurance, the spouse Insurance and the children Insurance before 25 years old.

 

Which is the maximum amount of money you are going to be able to deduct?

The labor regulations establish that the maximum limit to be deducted is 500 Euros for each of the members we mentioned previously. As a new feature with the current law, the deductible quantity increases to 1,500 Euros for a disabled person/member.

 

Therefore, a freelancer that has expenses in the Health Insurance for 4 members (the freelancer, the spouse and two kids) will be able to deduct 2,000 Euros; if any of the members has a disability, the quantity could increase to 3,000 Euros.

 

For any doubt or explanation, don’t hesitate to contact Virginia Cirera (virginia.cirera@cinc.es), Specialized Lawyer in Tax Code from CINC.