Freelancer's Dictionary: +50 Tax and Business Terms Explained

#Why do you need this dictionary?

When you start out as a freelancer, you are bombarded with terms that no one explains to you: income tax, taxable income, withholding tax, tax form 303, input VAT… And if you move in the startup world, add runway, burn rate, bootstrapping and a long etcetera.

The problem: Not understanding these terms costs you money. Literally.

This dictionary is meant for you to keep and refer to when you need it. No unnecessary technicalities, with real examples and organized by category.

*This dictionary grows with your suggestions. If you miss any term, write us and we will add it

#Basic tax terms (the ones you need to master)

#IRPF (Personal Income Tax)

What it is: The tax you pay on your profits as an individual. It is progressive: the more you earn, the higher percentage you pay (from 19% to 47%).

Why you care: It is the main tax you pay as a self-employed person. Every euro you save in taxable income is money you don’t tax.

Example: If your taxable base is 30.000€, you will pay approximately 6.500€ of personal income tax.

Related: IRPF 2025 Calculator

#Taxable base

What it is: The amount on which your taxes are calculated. It is your actual profit: income minus deductible expenses.

Why you care: Reducing your taxable income = paying less tax. That’s why it’s crucial to know deductible expenses.

Example:

• Income: 50.000€
• Deductible expenses: 15.000€
• Taxable income: 35.000€ (you pay tax on this, not 50.000€)

#VAT (Value Added Tax)

What it is: Indirect tax that you add to your invoices (usually 21%) and then pay to the IRS. You are an intermediary: you collect it and pay it.

Why you care: VAT is not yours. The most common mistake of novice freelancers is to spend the VAT collected thinking it is profit.

Types of VAT in Spain:

• General: 21%
• Reduced: 10% (food, transportation, hospitality)
• Superreduced: 4% (basic products, medicines)
• Exempt: 0% (healthcare, education, insurance)

#Input VAT vs. output VAT

INPUT VAT: The VAT YOU pay when you buy something for your business (expenses).

VAT charged: The VAT YOU collect when you issue an invoice (income).

Why you care: Every quarter you file form 303 where you calculate: output VAT - input VAT = what you pay (or get back).

Example:

• You have invoiced 10.000€ + 2.100€ VAT (output VAT)
• You have spent 3.000€ + 630€ VAT (input VAT)
• You pay to the tax authorities: 2.100€ - 630€ = 1.470€

#Withholding tax (IRPF)

What it is: A percentage that is “withheld” from your invoice by the client and paid directly to the IRS in your name. It is an advance on your IRPF.

Why you care: If you invoice companies or freelancers (not individuals), you normally apply 15% withholding (or 7% if you are new).

Example:

• 1.000€ invoices to a company
• Withholding 15%: 150€ (paid by the customer directly to the tax authorities)
• You receive: 850€ + VAT

Advantage: On your income tax return, those 150€ you have already “paid”. If your total IRPF is lower, you get the difference back.

#Direct estimation vs Objective estimation (modules)

Direct estimation: You are taxed on your actual profits (income - expenses). It is the most common regime.

Objective estimation (modules): You are taxed on a fixed amount estimated according to your activity, meters of premises, employees, etc. It does not matter how much you actually earn.

Why it matters to you: In modules you cannot deduct actual expenses. It may suit you if you bill a lot more than the module estimates, but you’re going in blind.

#RETA (Special Regime for Self-Employed Workers)

What it is: The Social Security system where you register as self-employed. You pay a monthly fee that covers your retirement, medical leave, etc.

Why you care: The self-employed fee is mandatory (217€-796€/month in 2026 depending on income). It is a fixed expense that you have to contemplate.

Related: Quota de autónomos 2026

#Self-employed quota

What it is: What you pay each month to Social Security for being registered as self-employed.

What it is in 2026:

Good news: The fee is 100% deductible from your taxable income.

#Model 303

What it is: The quarterly VAT return. You file each quarter (April, July, July, October, January) the VAT you have collected minus the VAT you have paid.

Dates:

• 1Q (January-March): until April 20
• q2 (April-June): up to 20 July
• q3 (July-September): up to 20 Oct
• q4 (October-December): up to January 30

#Form 130

What it is: The IRPF installment payment. Each quarter you advance 20% of your profits (income - expenses) on account of the annual IRPF.

Why you care: If you do not have withholdings (invoices to individuals), it is mandatory. If 70% of your income has withholding, you are exempt.

#Model 036/037

What it is: The census declaration. The 036 is the full version, the 037 is simplified (for most self-employed people the 037 will do).

What is it for:

• Register with the tax authorities
• Modify data (activity, address, VAT regime)
• Cancel your registration

#IAE epigraph

What it is: The code that identifies your economic activity. You choose it when you register and it determines some tax obligations.

Examples:

• 861: Painters, sculptors
• 763: Programmers
• 651: Retail trade
• 722: Advertising agencies

Why you care: Some activities have mandatory withholding, others do not. Some are exempt from VAT.

#Billing terms

#Simplified invoice (ticket)

What it is: A reduced invoice that you can issue on transactions under 400€ (or 3.000€ in certain cases). It does not need all the recipient’s data.

When to use it:

• Sales to individuals of low amount
• Hospitality, retail trade
• Transportation of people

Limitation: The customer cannot deduct VAT from a simplified invoice if he does not include his VAT number.

#Corrective invoice

What it is: An invoice that corrects errors in a previous invoice or reverses a transaction (return, subsequent discount).

When to use it:

• Error in original invoice data
• Return of product/service
• Discount granted after invoicing

Important: You should always reference the original invoice you correct.

#Verifactu

What it is: The new mandatory electronic invoicing system in Spain. Your invoicing software must generate a verifiable QR code and send the data to Hacienda.

When it is mandatory:

• Companies: July 1, 2026
• Self-employed: January 1, 2027 (recently postponed)

Why you care: You will have to use Verifactu certified software or risk penalties.

Related: All about Verifactu

#Invoice number

What it is: The unique, sequential identifier for each invoice. It must be sequential within each series.

Rules:

• Must be sequential (1, 2, 3… you can’t skip numbers)
• You can have several series (F-001, R-001 for rectifications)
• If you issue a wrong invoice, you must rectify it, not delete it

#Accrual

What it is: The moment when the obligation to declare an income or expense for tax purposes arises. It is not when you collect, but when the transaction takes place.

Why you care: If you invoice in December but collect in January, the income is from December (previous year).

Exception: Cash basis (if you have availed yourself).

#Cash criterion

What it is: A special VAT regime where you only declare VAT when you charge/pay, not when you invoice.

Advantage: If a customer doesn’t pay you, you don’t advance VAT out of your pocket.

Disadvantage: More complex accounting and your customers can’t deduct VAT until they pay you (they don’t like it).

#Business terms and entrepreneurship

#Corporate self-employed

What it is: A self-employed person who is the administrator of a company (SL, SA). He pays the same fee as a normal self-employed person, but works through his company.

Difference: Even if you have a company, if you are an administrator, you are obliged to register with the RETA.

#Limited Company (SL)

What it is: A legal form where the company is a separate entity from you. Your liability is limited to the capital contributed.

Advantages:

• Limited liability (if the company goes bankrupt, you are not liable with your assets)
• More professional image
• Fiscally better from ~150.000€ profit

Disadvantages:

• Incorporation costs (500€-3.000€)
• More bureaucracy and more expensive agency
• Double taxation when making profits

Related: Self-employed or SL? Complete Guide

#Share capital

What it is: The money (or assets) you contribute when you create a company. It is the initial “cushion” of the company.

Minimum for SL: 1€ (from 2024), although 3.000€ is recommended.

Why it matters: If you contribute only 1€, you should reserve 20% profit until you reach 3.000€.

#Bootstrapping

What it is: Create and grow a business without outside investment, only with your own resources and the income it generates.

Advantages:

• You keep 100% of your company
• You do not depend on investors
• You make all the decisions

Disadvantages:

• Slower growth
• Limited resources
• Higher personal risk

Opposite: Raise investment rounds.

#Runway

What it is: How long your business can survive on the money it has before running out of cash.

How to calculate it: Money available ÷ Monthly expenses = Months of runway

Example:

• You have 15.000€ in the bank
• You spend 3.000€/month
• Runway: 5 months

Why it matters: If your runway is short, you need to bill more, reduce expenses or seek financing.

#Burn rate

What it is: The rate at which your business “burns” money. How much you spend per month (or lose if you are not yet profitable).

Types:

• Burn rate gross: Total monthly expenses
• Burn rate net: Expenses - Income (what you actually lose)

Example:

• Expenses: 5.000€/month
• Income: 3.000€/month
• Burn rate net: 2.000€/month

#Break-even

What it is: The moment when your income equals your expenses. You neither win nor lose.

Why it matters: It is the first milestone of any business. From there, you start to be profitable.

How to calculate it: Fixed costs ÷ (Selling price - Variable cost per unit)

#MRR (Monthly Recurring Revenue)

What it is: Monthly Recurring Revenue. Money that comes in every month on a predictable basis (subscriptions, fees).

Why it matters: It is the star metric of subscription business. High and growing MRR = healthy business.

Example:

• 100 customers paying 50€/month
• MRR: 5.000€

#ARR (Annual Recurring Revenue)

What it is: MRR × 12. Annualized recurring revenue.

What it is for: Compare with companies that report annually and value the business.

#Churn (cancellation rate)

What it is: The percentage of customers who cancel or stop buying from you in a period.

Why it matters: High churn means you lose customers faster than you gain them. Serious problem.

How to calculate it: (Customers lost in the month ÷ Customers at the beginning of the month) × 100

Example:

• You start the month with 100 customers
• 5 leave
• Churn: 5%

#LTV (Lifetime Value)

What it is: The total value a customer brings to you throughout their relationship with you.

Why it matters: If you know how much a customer is worth, you know how much you can spend to get them.

Simple formula: Average revenue per customer × Average dwell time

Example:

• A customer pays 50€/month on average
• Stays 24 months on average
• LTV: 1.200€

#CAC (Customer Acquisition Cost)

What it is: What it costs you to get a new customer. Includes marketing, sales, discounts, etc.

Formula: Expenditure on acquisition ÷ New customers gained

Example:

• You spend 1.000€ on ads
• You get 20 customers
• CAC: 50€

Golden rule: Your LTV must be at least 3 times your CAC (LTV > 3×CAC).

#LTV/CAC Ratio

What it is: The ratio of what a customer is worth to what it costs to get them.

Interpretation:

• < 1: You lose money with every customer (serious problem)
• 1-3: Tight business, low margin
• 3-5: Healthy business

• 5: Very efficient (or you could invest more in growing)

#MVP (Minimum Viable Product)

What it is: The most basic version of your product that allows you to validate if there is real demand before investing a lot.

Philosophy: Launch fast, learn from real users, iterate.

Example: Instead of developing a full app for 6 months, you launch a simple version in 1 month and see if people pay.

#Product-Market Fit

What it is: The magic moment when your product fits perfectly with what the market needs. The demand grows with hardly any effort.

Signs that you’ve got it:

• Customers recommend you without you asking for it
• You grow faster than you can manage
• People complain when there are problems (they care)

Without product-market fit: No matter how much you invest in marketing, it doesn’t work.

#Pivot

What it is: Changing the direction of your business based on what you have learned. It can be changing the product, target customer, business model, etc.

It is not: Quitting and starting from scratch. It is using what you have learned to reorient yourself.

Famous examples:

• Instagram started as a check-ins app (Burbn)
• Slack was a video game
• YouTube was a dating site

#Scalability

What it is: The ability of your business to grow without costs growing proportionally.

Scalable business: Software (you sell to 100 or 10,000 with almost the same cost).

Little scalable business: Hourly services (to earn more, you have to work more).

Why it matters: Investors are looking for scalability. You should too if you want freedom.

#Gross margin

What it is: What you have left after subtracting direct product/service costs, before overhead.

Formula: (Revenue - Cost of sales) ÷ Revenue × 100

Example:

• You sell a service for 1.000€
• It costs you 300€ to provide it (tools, outsourcing)
• Gross margin: 70%

#Net margin

What it is: What you actually have left after ALL expenses (including taxes).

Formula: Net profit ÷ Revenue × 100

This is the actual figure: The gross margin may be high, but if you have a lot of fixed expenses, the net may be low or negative.

#EBITDAsuggested by Jesús

What it is: Earnings Before Interest, Taxes, Depreciation and Amortization (Earnings Before Interest, Taxes, Depreciation and Amortization).

Why it matters: Shows the pure operating profitability of your business, unaffected by financial (debt) and accounting (depreciation) decisions.

Formula: Revenue - Operating expenses (excluding interest, taxes, depreciation and amortization)

Example:

• 100.000€ invoices per year
• Operating expenses:60.000€
• EBITDA: 40.000€

Eye: It is useful for comparing businesses, but can hide problems. A heavily indebted company may have good EBITDA but be in trouble because of the interest it pays.

#Cash flow

What it is: The actual movement of money in and out of your business. It is not the same as profit.

Why it matters: You can be “profitable” on paper but run out of money if customers don’t pay on time.

Example:

• 10.000€ invoices in January
• You get paid in April
• Profit in January: 10.000€. Cash flow in January: 0€

#Leverage

What it is: Using external resources (debt, investment) to amplify your ability to generate results.

Types:

• Financial: Using loans to invest more than you have
• Operating: Having high fixed costs but high margins per unit

**Risk:**If things go wrong, losses are also amplified.

#Angel investment (Business angel)

What it is: A private investor who puts money into very early startups in exchange for equity stakes. He usually also brings experience and contacts.

Typical amounts: 10.000€ - 100.000€

Difference with VC: Angels invest their own money and at earlier stages.

#Venture Capital (VC)

What it is: Investment funds specialized in startups. They invest third-party money in companies with high growth potential.

Typical amounts: 500.000€ - several million

What they are looking for: Companies that can multiply their investment by 10x or more.

#Investment round

What it is: The process of raising funding from investors. They are named in order: Pre-seed, Seed, Series A, B, C…

Typical phases:

• Pre-seed: Very early idea or MVP (€50k-200k)
• Seed: Working product, first customers (€200k-1M)
• Series A: Product-market fit demonstrated (€1M-5M)
• Series B and beyond: Scale aggressively

#Dilution

What it is: The reduction of your ownership percentage when new investors come in.

Example:

• You have 100% ownership of your company
• An investor puts in 100.000€ for 20%
• Now you have 80%

Why it matters: Each round dilutes you. If you’re not careful, you can end up with very little of your own company.

#Valuation (pre-money / post-money)

Pre-money: The value of your company BEFORE receiving the investment.

Post-money: The value AFTER receiving the investment (pre-money + investment).

Example:

• Pre-money valuation: 400.000€
• Investment: 100.000€
• Post-money valuation: 500.000€
• Investor has: 100,000 ÷ 500,000 = 20%

#Equity

What it is: The ownership or shares of a company. To have equity = to own a percentage.

Uses:

• Give equity to founding partners
• Give equity to key employees (stock options)
• Sell equity to investors

#Stock options

What it is: The right to buy company stock at a fixed price in the future. Used to retain key employees.

How it works:

1. The company gives you options on X shares at Y price
2. Some time passes (vesting, usually 4 years)
3. You can buy the shares at price Y even if they are now worth more
4. If the company is successful, you earn the difference

#Vesting

What it is: The period during which you “earn” your shares or options gradually. It prevents someone from walking away on day 1 with all the equity.

Typical structure: 4 years with 1 year cliff.

**Cliff:**Initial period (usually 1 year) where you earn nothing. If you leave earlier, you are left with nothing.

#Confusing terms (and their differences)

#Turnover vs Revenues vs Profits

• Invoicing: Everything you invoice (including VAT)
• Income: What you invoice excluding VAT (taxable base of your invoices)
• Benefits: Income - Expenses (what you actually earn)

Example:

• 12.100€ Invoices (VAT included) → Invoicing
• Excluding VAT: 10.000€ → Revenue
• Expenses: 4.000€
• Benefit: 6.000€

#Expenditures vs Costs vs Investment

• Expense: Disbursement required to operate (rent, electricity, administrative fees)
• Cost: The price to produce/provide your service (materials, subcontracting)
• Investment: Outlay you expect to more than recoup (training, equipment, marketing)

Trick: Expenses are deducted in the year. Investments are amortized over several years.

#Salary vs Dividends (in SL)

• Salary: You are paid as an employee of your company. You are taxed for full income tax.
• Dividends: You distribute company profits. They are taxed at 19-28% (but the company already paid Corporate Income Tax).

Optimal strategy: Combination of low salary + dividends to minimize total taxation.

#Self-employed vs Freelance vs Entrepreneur

• Autónomo: Spanish legal term. You are registered in the RETA.
• Freelance: More international term. Freelancer who provides services to various clients.
• Entrepreneur: Someone who creates a business with a vision for growth (can be self-employed, SL or have nothing formed yet).

In practice: Many freelancers are self-employed, and many freelancers are entrepreneurs.

#Checklist: Have you mastered the basic lingo?

Before closing this page, make sure you understand:

Taxes (mandatory):

• Personal income tax and how to calculate it
• Taxable income and how to reduce it
• Input vs. output VAT
• What are withholdings
• Forms 303 and 130
• What is the RETA

Business (highly recommended):

• Runway and burn rate
• Break-even
• Cash flow vs. profit
• Gross vs. net margin

If you are going to grow:

• MRR and churn
• LTV and CAC
• What is bootstrapping vs raising investment

#Conclusion: Knowledge is power (fiscal)

Understanding these terms is not optional if you want your business to work. Every concept you master is a better decision you can make.

My recommendation:

1. Bookmark this page
2. Come back when you come across a term you don’t understand
3. Ask your manager when in doubt (it’s cheaper than getting it wrong)

And remember: the goal is not to be a tax expert, but to understand enough to not lose money due to lack of knowledge.

#Do you want to simplify your invoicing?

At BeeL.es we make billing easy, even if you haven’t mastered all this jargon:

• Verifactu-compatible e-invoicing
• Automatic VAT and income tax control
• Clear reporting for your manager
• No surprises on the quarterly return

#Sources and references

Last updated: Dec. 11, 2025

• Tax Agency - Self-employed Regime
• Social Security - RETA
• BOE - Personal Income Tax Law
• Infoautónomos - Tax guides