When a worker is going to register for the first time in the Special Regime for Self-Employed Workers (RETA), they encounter many doubts, among which the activity or activities they have to register for stand out.
This is the first major procedure that the self-employed person has to carry out when filling out the census form 036 or more commonly 037 at the Tax Agency. At that time, it is necessary to choose between dozens of activities and epigraphs of the Tax on Economic Activities which one is more in line with your work, grouped into different categories: professional activities and business activities.
The problem increases when you see that many activities are in both one group and another. Which one do I have to choose? How are professional and business activities different? What are the implications of choosing between one and the other?
What are professional activities
They are those activities that are carried out according to your qualification or knowledge and are fundamentally based on your personal work and around it is your entire work structure. There are very clear examples of this type of activity such as lawyers, doctors or notaries, in which their income is based on the free exercise of their profession, that is, in the practical application of their knowledge. But there are many other examples, in which it is not so clear how to differentiate them?
In professional activities, there is no business organization. You don’t have to be a company to have a structure; a freelancer can have an organization or employees to carry out activitybut in the case of professional activities, this is not the case, since it is mainly based on personal work, choosing their schedule and the means they rely on to achieve it.
The main fiscal implication is that professional activities are subject to withholding. The general rate is currently 15%, although professionals who start activity can apply a reduced rate of 7% in the year they start the activity and the following two. In addition, if up to 70% of your income is subject to withholding, you will be exempt from submitting Form 130 for quarterly IRPF payments, if not, you will have to make these quarterly advances.
Finally, depending on the activity (there are exempt such as artistic activities, education, medical…), in most cases all your invoices will apply the corresponding VAT.
What are business activities
business activities focus on business development and company organizationand are derived from, among others, the following activities: extractive, mining, manufacturing, clothing, construction, wholesale and retail trade, food services, transportation, hospitality, telecommunications, etc.
Just as there are very clear professional activities, there are also business activities that by their very nature have no discussion, such as hospitality, manufacturing, etc. The work of business activities is not billed with personal income tax withholding, nor do payments have to be made on account of this tax through the quarterly model 130.
But then, when is it a professional activity and when is it a business activity? There are many activities that can be professional or business, for example, professional services. If they are provided by a single person applying their knowledge, it will be professional, but if they have employees, schedules or a structure in which to carry out the activity, these services will be a business activity. Although it is difficult to distinguish between professional and business activity, it is important that you do it properly in order to be able to file taxes correctly and to be able to properly apply the deductible expenses for your activity.