Two words you will meet on day one
Working for yourself in Spain means registering as an autónomo: a self-employed individual, taxed through personal income tax and paying a monthly social security contribution of your own. The alternative is a sociedad limitada, usually shortened to SL: a private limited company with its own tax number, its own accounts and its own corporate tax return. Everyone arriving from the UK, the United States or the Netherlands recognises the second shape. Very few realise that in Spain the first one carries a fixed monthly cost whether you invoice anything or not.
The conversation almost always opens the same way: I bill around 60,000 a year, should I set up a company? Turnover decides nothing. What decides is your net profit — what is left after real costs — and above all how much of that profit you need to draw out. Two people invoicing exactly the same can sit on opposite sides of the line. Bill 80,000 € against 50,000 € of genuine costs and you earn 30,000 €, and a company makes no sense. Bill 80,000 € against 8,000 € of costs and you earn 72,000 €, and now there is something to discuss.
The two tax systems, side by side
| Autónomo | Sociedad limitada | |
|---|---|---|
| Which tax | Personal income tax, a progressive scale on your profit | Corporate income tax, a flat rate on the company's profit |
| How it climbs | In bands: the more you earn, the higher the rate on your last euro | Flat, with a reduced rate for newly created entities in their first two profitable years |
| Getting at the money | It is already yours: you are taxed and you spend it | You have to extract it, and extracting it is taxed again |
| Social security | Contributions based on actual earnings, trued up the following year | Company-director rate, with a minimum contribution base of its own |
| Liability | Unlimited: your personal assets answer for the business | Limited to the capital, with the usual carve-outs for a director who behaves badly |
| Paperwork | Books of record | Full commercial accounts, annual accounts and filing them at the Companies Registry |
The costliest mistake when comparing is to look only at the corporate rate and celebrate that it sits below your top personal rate. Money earned by the company is not yours: it belongs to the company. To reach your bank account it has to come out, as salary or as a dividend, and that is taxed again in your own return. Stack the two steps and the advantage narrows sharply — sometimes it disappears altogether.
When the company genuinely starts to win
An SL gains ground in three situations, and none of them has anything to do with turnover.
- When you do not need to take it all out. If you live on 40,000 € and the activity earns 90,000 €, the 50,000 € left inside is taxed once, at the corporate rate, and funds growth. That is the case where a company makes economic sense rather than cosmetic sense.
- When the activity carries real risk. Construction, hospitality, anything with exposure to third parties. Here the argument is not a tax argument at all: it is about protecting what you own.
- When you intend to sell the business one day. Selling shares and selling a sole trader's client list are not the same thing, legally or fiscally, and buyers know it.
And it loses in the opposite case, which is by far the most common: a professional who takes out everything earned, because that is what there is to live on. There the company adds two layers of tax, a set of accounts, a filing obligation and a management cost, to land on a result that is similar or slightly worse.
What nobody puts in the company column
The recurring costs are real and they never appear on the back of the envelope:
- Incorporation: notary, registry, share capital, and the weeks until the definitive tax number is actually working. Nothing can be invoiced in the meantime.
- Commercial accounting, which is not the same as keeping books of record. It means the Spanish general accounting plan, annual accounts and an annual filing at the Companies Registry.
- The director's social security: you keep paying a monthly contribution, on a minimum base of its own that differs from the ordinary autónomo one. The company does not switch that cost off.
- Related-party rules. Everything you charge your own company has to be at market value and documented. This is not a formality: it is one of the areas that generates the most enquiries, and the burden of justifying the value sits with you.
- Winding it up, if one day you want out. Leaving costs more than arriving.
Invoicing your own company for services that in reality only you can perform, with no staff and no structure behind it, is precisely the arrangement the tax authorities have been unwinding for years among professionals. A corporate wrapper does not turn personal work into a business. Building the structure for the tax saving alone, with no other substance, is building on sand — and the adjustment, when it comes, lands on the individual.
The middle option almost nobody considers
Before making the jump there are levers inside the autónomo regime that are rarely exhausted: checking that every deductible cost is actually being deducted, attributing correctly the part of your home that is genuinely used for work, aligning your contribution base with real earnings rather than leaving it at the default, and looking at whether any reduction is being left on the table.
In a fair number of cases, doing that properly gets you close to what the company promised, without its costs and without its obligations. Not always — but it is worth checking before you have paid for a notary rather than afterwards.
Two things that change the answer for a foreign owner
- Where your clients are. If you invoice businesses in the EU or outside it, the VAT rules and the registrations you need are a separate question, and they apply to both shapes. We set them out in invoicing inside or outside the EU.
- Whether you came in under a special regime. Someone on the inbound expatriate regime of article 93 of the Personal Income Tax Act is in a different calculation altogether, and setting up a company can interact badly with it. That one is worth looking at before, not after: Beckham or the general regime.
The in-between case: sole trader or limited company: which one suits you
There is an in-between situation the table does not carry and which turns up here every few weeks: the autónomo who already has the company and is still registered in his own name as well, invoicing part through himself and part through it. Sometimes it arrives that way as a leftover from an earlier stage, and sometimes because somebody said that «splitting» would bring the bill down. The second is almost never true, and it does multiply the obligations: two sets of books, two sets of returns and, above all, the need to justify why each item of income goes where it goes. If the authorities take the view that the split is artificial, they put the whole thing back together. Where that situation exists the conversation is not sole trader or company: it is which of the two is being closed, and how to close it without cost.
A third possibility is missing from the table too: invoicing your own company as a sole trader. It is legitimate, but it requires the transaction to be valued at market price and documented. It is among the points that generate the most enquiries.
And one that belongs specifically to our readers: the foreign company that already exists. Somebody arriving with a limited company in the United Kingdom, an LLC in the United States or a BV in the Netherlands often assumes the Spanish question is whether to open a second one here. Usually it is not. The question is where that existing company is actually managed from once you live in Spain, and what that means for it. That is a prior conversation, and a different one. What the other country does with the same company is for your adviser there; we will tell you what Spain sees.
What to look at before deciding on sole trader or limited company: which one suits you
With these seven things in front of us the decision is taken in one conversation. Without them it is not taken, it is guessed:
- Your real net profit for the last closed year, not your turnover.
- How much you need to draw each year to live on. It is the input that weighs most and the one almost nobody brings.
- What part of the work is personally yours and what part somebody else could do with the company's resources. Whether the structure stands up depends on that.
- Whether your activity carries exposure to third parties, and how large it is.
- Whether you plan to sell the business, bring somebody in or seek finance.
- Your region. The regional bands of personal income tax are not the same everywhere, and the same profit produces different results.
- Which deductible costs you are letting slip today. In a fair number of cases, putting those in order gets you close to what the company promised, without its costs.
A warning about the arithmetic itself: any comparison is a photograph of today taken under today's rules. Rates, bands and reliefs change, and a structure built to save a thousand euros a year becomes uncomfortable the moment one of those numbers moves. That is why the question we ask is not only how much you save, but how much this will annoy you if the saving disappears.
Our method with sole trader or limited company: which one suits you
With your figures, not with an example. We run both scenarios on your real profit and on what you actually need to withdraw each year, including the social security contribution in both columns and the company's recurring costs in its own. What comes out is a concrete annual difference, and the decision follows from that.
When the difference is small we say so: below a thousand euros a year a company is not worth incorporating, if only because the cost of keeping it alive eats the saving. And when it is large, we also say what has to be true for the structure to stand up, which is the part usually left out.
This is a calculation with your numbers and the warnings that go with it, not a promise of an outcome. The full picture is on self-employed in Spain, and the form asks exactly what we need to run it.