Sole trader or limited company in Spain? When each pays in 2026

Two ways of taxing the same profit

A sole trader adds the profit from their business to the general base of personal income tax (IRPF), which is taxed on a progressive scale with a state portion and a regional portion. In the Community of Madrid, the combined marginal rate is 18% in the first band, rises to 27.8% between €20,200 and €35,200 of taxable base, to 35.9% between roughly €35,400 and €57,300, to 43% from €60,000 and reaches 45% above €300,000.

A limited company (SL) pays corporation tax, with a general rate of 25%. For periods starting in 2026, Law 7/2024 sets a rate for micro-enterprises (turnover below €1 million in the previous year) of 19% on the first €50,000 of taxable base and 21% on the rest; smaller companies with turnover under €10 million pay 23%. Newly created companies can apply 15% in their first period with a positive taxable base and in the following one.

The point that is often forgotten is that the company's profit is not the shareholder's money. If it is paid out as a dividend, it is taxed again in the shareholder's income tax, in the savings base: 19% up to €6,000, 21% up to €50,000, 23% up to €200,000, 27% up to €300,000 and 30% above that. A euro taxed at 19% in the company and a further 19% as a dividend bears 34.4% in total; at 21% on both levels, 37.6%. In other words, if everything is paid out, the burden is very close to a sole trader's marginal income tax. The real advantage of a limited company lies in what stays inside it.

Social security: sole trader versus company director

In 2026 self-employed contributions still follow the 15-band system based on net earnings, with a contribution rate of 31.5%. To find your band, you take the net earnings from the activity and deduct 7% for generic expenses (3% for company directors). The minimum contribution ranges from €205.88 a month in the lowest band to €607.35 in the highest, for earnings above €6,000 a month. New self-employed workers can apply the flat rate of €80 a month for their first 12 months.

A shareholder who controls and runs the company registers as a self-employed company director (autónomo societario). Their minimum contribution base in 2026 is €1,424.40, which means at least €448.69 a month even if their earnings are low. In addition, both the pay they receive from the company and their dividends count towards their band when they hold at least 33% of the share capital, or 25% if they are also a director. As contributions are reconciled every year with Tax Agency data, paying dividends also increases them.

Minimum monthly contributions for a sole trader according to annual profit before contributions:

• €30,000 profit: band 9, €401.47 a month.
• €50,000: band 13, €504.41 a month.
• €70,000: band 14, €545.59 a month.
• €80,000 or more: band 15, €607.35 a month.

Liability: what a company really protects

A sole trader is liable for the debts of the business with all their present and future assets. The limited liability entrepreneur scheme protects the main home against certain business debts, subject to requirements and value limits, but not against the Tax Agency or Social Security.

In a limited company, shareholders are liable only up to the capital they have contributed. That protection has well-known gaps: personal guarantees; the liability of a director who fails to call for dissolution when losses reduce net assets below half of the share capital, who then answers for subsequent debts; and the transfer of tax and Social Security debts if the business is wound down irregularly. If the company was set up with less than €3,000 of capital, shareholders are also liable for the shortfall up to that amount if it is liquidated with insufficient assets.

Set-up and running costs

Setting up an SL no longer requires a large outlay: the minimum capital has been €1 since Law 18/2022, the name availability certificate costs about €16 and, with standard articles of association and capital of up to €3,100 filed online, notary and registry fees are fixed at €60 and €40 respectively. With bespoke articles and an adviser, the usual total is €300 to €1,000. Incorporation is exempt from capital duty.

What does weigh is the running cost: accounts under the Spanish General Accounting Plan, legalisation of the company books, preparation and filing of annual accounts, corporation tax and its instalment payments, withholding on the director's pay and mandatory electronic notifications. In practice, a company usually adds between €1,000 and €2,500 a year in advisory and registry costs compared with a sole trader. In this guide's example we use €1,500.

How the shareholder gets paid: director's pay and dividends

For the director's salary to be deductible for corporation tax, the articles of association must state that the post is remunerated and the general meeting must set the maximum annual amount. Pay received for acting as a director is subject to 35% withholding, or 19% if the company's turnover is below €100,000. Where the company provides professional services and the shareholder carries them out while registered as self-employed, that pay is treated for income tax as business income. In every case it is a related-party transaction and must be at market value.

Dividends require profits approved by the general meeting and the legal reserve must be funded first: 10% of profit until it reaches 20% of share capital, or 20% if the capital is below €3,000. They are subject to 19% withholding. Taking money out without documenting it as salary, dividend or loan causes serious trouble in a tax inspection.

Worked example at five profit levels

Assumptions: resident in Madrid, no children, under 65 and no other income. As a sole trader, simplified direct assessment with a 5% allowance for hard-to-justify expenses (maximum €2,000) and contributions at the minimum base for the band. As an SL, a micro-enterprise that is not newly created, a director's salary of €35,000 treated as employment income, director's contributions deducted in their income tax and €1,500 of additional costs. The burden includes income tax, contributions, corporation tax, tax on dividends and those costs.

• €30,000: as a sole trader you pay €4,818 in contributions and €4,007 in income tax, a burden of €8,824 (29.4%), leaving you €21,176. With an SL, even if you take everything as salary (€28,500), the burden rises to €10,111 and your net falls to €19,889. The sole trader wins.
• €50,000: sole trader, €15,606 burden (31.2%) and €34,394 net. SL retaining the surplus: €14,519 burden, €24,546 in your pocket and €10,935 kept in the company. Paying everything out: €17,142 burden and €32,858 net.
• €70,000: sole trader, €23,289 (33.3%) and €46,711 net. SL retaining: €18,319 burden and €27,135 retained. Paying everything out: €24,700 and €45,300 net.
• €100,000: sole trader, €36,612 (36.6%) and €63,388 net. SL retaining: €24,289 and €51,165 retained. Paying everything out: €36,275 and €63,725 net.
• €150,000: sole trader, €58,112 (38.7%) and €91,888 net. SL retaining: €34,789 and €90,665 retained. Paying everything out: €55,860 and €94,140 net.

Where the tipping point lies

On these assumptions, if you need to take out all the profit, a limited company barely pays off until around €100,000, and even at €150,000 the gain is about €2,250 a year. By contrast, if you can leave a meaningful part inside, the company lowers the burden from around €45,000 to €50,000 of profit: about €1,100 less at €50,000, almost €5,000 at €70,000 and more than €12,000 at €100,000. Bear in mind that much of that saving is a deferral: if you distribute those funds later, they will be taxed as dividends.

In the first two profitable years, the 15% rate for newly created companies improves the result: at €70,000 of profit with retention, corporation tax falls from €6,365 to €5,025. Before deciding, it is also worth reviewing these factors:

• The risk of the activity and whether you will sign personal guarantees, which cancel out part of the protection.
• Whether there will be several partners, investors or a need for financing, where an SL is almost essential.
• Transferring the business: clients, contracts, assets and VAT should be planned to avoid unnecessary costs.