If you’re self-employed, Hacienda requires you to be taxed under one of two systems to calculate the IRPF on your business. The difference isn’t just paperwork, it changes how much you pay depending on how your business works.
Direct estimation (estimación directa)
You pay tax on your real profit: what you invoice minus the expenses you can prove (rent for your premises, utilities, materials, your self-employed contribution, etc.). The more deductible expenses you have, the less you pay.
It suits you if your business has significant expenses you can back up with invoices. It’s the default system unless you can, and want to, opt into modules.
Modules (estimación objetiva)
This isn’t calculated on what you actually earn, but on indicators set by Hacienda for your type of business: the size of your premises, electrical power, number of employees, etc. You pay a more or less fixed amount, regardless of whether you invoiced a lot or a little that quarter.
Only certain activities qualify (mainly retail, hospitality and some trades), and there are turnover limits to be eligible for this regime.
It can suit you if your business has few deductible expenses and invoices consistently, because you end up paying less than you would calculating your real profit.
How to decide
There’s no single answer. It depends on your specific business, your real expenses and how much you invoice. The turnover limits and the activities allowed under modules change with each year’s regulations, so before deciding, confirm your specific case with us: we review it for free on the first call.
If you are thinking of registering, here is the complete guide to registering as self-employed: when, how and what it costs with us.