How to report commission income to the Internal Revenue Service and Social Security?

Surely, one of the most frequent doubts you have as a freelancer is about how to report commission income to the different entities. In order to declare this income you must perform an economic activity where you act as an intermediary between a potential customer and the product or service sold by a company. To find out how to declare income from commissions, stay with us, as we will be telling you everything related to this topic.

First, what is commission collection and what is a commission agent?

Commission agents are individuals who provide intermediary services between a company and a buyer. As a result of these services, they receive a fixed amount or percentage of the transaction. This percentage is commonly referred to as a commission and is the basis of the commission agent’s income.

A commission agent’s contract is intended to regulate sporadic, not regular, operations. 

For example, when a company wants to increase its sales, it often contacts a commission agent who sells its products in exchange for a commission. Even if no written contract is signed, there may be an agency contract or a commission contract. And, depending on whether it is one or the other, the rights and obligations of the parties are very different.

That said, it is important to know that not all people who charge commissions are commission agents. There are also commercial agents, who are intermediaries and charge commissions, just like commission agents. 

The difference is that the commission agent works occasionally for a company and the commercial agent works on a regular basis.

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How to report commission income?

In order to know how to declare income from commissions, you must take into account that all individuals who receive income must be registered in the Special Regime for Self-Employed Workers (RETA). When issuing invoices for the transactions you carry out, you must declare everything to the Tax Authorities.

Now, if you work on commission, you must register as self-employed and pay Social Security contributions. Likewise, you must also comply with the payment of the IRPF and VAT that corresponds to you.

If, in your case, you are a professional who works on commission within a company, it is not necessary for you to be registered as self-employed, nor declare this extra, since it should already be reflected in your paycheck.

Requirements to declare income from commissions and comply with your tax obligations.

To know how to declare income from commissions and comply with your tax obligations after starting your economic activity as a self-employed worker. The first thing you must do is to register with the Tax Authorities Form 036. 

You can also use Form 037 if you are not included in any of the special VAT regimes or if the economic activity you carry out is intra-community.

After you have completed your registration as self-employed, you have to make the invoices of all the income you receive derived from your activity. This will depend on what type of payment you receive and what type of payers will generate the invoice. Some of the cases may be:

It is important to remember that declaring income properly is your responsibility. That way, the company or organization that pays you commissions will never be at risk and will always remain active.

Can you charge commissions without being self-employed?

In order to collect commissions, regardless of whether you are a commission agent or a sales agent, you must become self-employed. But, why? Well, since this has become your usual activity, you are obliged to register with the Social Security and the Tax Authorities.

In case your activity is sporadic, the most advisable thing to do is to consult the labor inspectorate. There, they will analyze your situation and decide whether or not you should register with the RETA. However, regardless of your economic activity, you must declare your income to the tax authorities.

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What should you do with Personal Income Tax?

All invoices you issue to your commission payer must include income tax withholding. The latter varies depending on your situation. If you are a self-employed person who has just registered, the withholding tax is 7% for the first year. But, if your annual income is less than 15,000 euros, the withholding is 15%.

Another point you should be clear about is that if you apply withholdings to 70% or more of your invoices, you will not be obliged to file quarterly Personal Income Tax Form 130.

What about VAT?

When it comes to VAT you must consider a withholding of 21% on the corresponding amount of the income you have received. Also, from the moment you start issuing VAT invoices, you will have to declare this tax on a quarterly basis by means of Form 303.

Even in those cases in which you did not have any income during the whole quarter, you will also have to file an annual VAT return. By means of Form 390 you will confirm the quarterly data you filed.

Tax forms to follow in the process of declaring income from commissions

In the course of all the text we have been mentioning how to declare income from commissions and the models that must be presented at the time of doing so. That is why we tell you in more detail about these models and what they are:

If you comply with these models correctly, you will be able to keep control over your movements and comply correctly with your obligations with the Treasury. In addition, you should never forget to invoice for every payment you receive in your commissions, including income tax and VAT. 

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To learn more about how to declare income from commissions. I invite you to contact us, through our email tasconsultoria@tas-sl.es. We have the best team specialized in tax issues, which have the best professionals who can accompany you throughout this journey. Do not miss the opportunity to request your free trial and boost you as an entrepreneur.