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Investment and business

Sole trader or limited company in Spain: criteria for deciding

By Humberto Franco Díaz de León, Mexican lawyer (professional licence 6538816), founder of Franco & Asociados. Published on 26 October 2026.

The choice between being a sole trader (autónomo) and setting up a limited company (sociedad limitada) does not depend only on the tax rate: liability for debts, the tax paid on profit, Social Security contributions, the way the owner is paid and the yearly obligations all change at once. This article sets out those criteria; it does not recommend one form or calculate savings.

First: whether you can work on your own account

There is a prior question for anyone who does not hold Spanish nationality and is not covered by the European Union regime (Article 1 of Organic Law 4/2000). That law requires foreign nationals over sixteen to hold prior administrative authorisation to reside and work if they are going to carry out any gainful, employed or professional activity (Article 36.1), unless they already hold one that entitles them to do so. Choosing one form or the other does not remove that requirement: review your immigration status before you start working.

Liability: who answers with their assets

As a general rule, a sole trader answers for their obligations with all their assets, present and future (Article 1911 of the Civil Code). In a limited company, the shareholders are not personally liable for the company's debts (Article 1.2 of the Capital Companies Act).

That protection covers the shareholders, not the person who manages the company. Directors answer to the company, the shareholders and the creditors for damage caused by acts or omissions contrary to the law or the articles of association, or by breaching the duties of the office, with intent or fault, and fault is presumed, unless proven otherwise, if the act is contrary to the law or the articles (Article 236). In addition, directors who fail to call the general meeting within two months of a legal or statutory cause for dissolution arising are jointly liable for the company's later obligations, unless within that period they notify the court of restructuring negotiations or apply for insolvency proceedings (Article 367).

Taxes: two different taxes on profit

This comparison assumes that you are tax resident in Spain: under Article 9.1 of Law 35/2006 on Personal Income Tax, you are if you stay more than 183 days in the calendar year or if the main centre or base of your activities or economic interests is in Spain, directly or indirectly (either circumstance is enough). If you are not, the rules change and must be reviewed separately.

A sole trader pays personal income tax (IRPF) on a progressive state (Article 63) and regional (Article 74) scale. A limited company pays corporate income tax, with a general rate of 25% (Article 29.1 of Law 27/2014), with lower rates, subject to conditions and exclusions, for entities with net turnover below one million euros in the preceding period (Article 29.1 and the forty-fourth transitional provision) and, in the first period with a positive taxable base and the next one, for newly created entities starting a business activity (Article 29.1). For example, an entity is not new if it continues the activity carried on, in the year before its incorporation, by an individual holding more than 50% of the company.

These rates are not a direct comparison: the company's profit is taxed in the company, and what the owner takes out is then taxed in their personal income tax. That is why we give no savings figures and no profit threshold above which one form pays off.

Social Security: a company does not always avoid the sole-trader contribution

Setting up a company does not, in general, avoid contributing as a sole trader if you manage or provide services to it and control it. Article 305.2.b) of the General Social Security Act includes in the self-employed scheme those who perform the management functions of a director or administrator, or provide other services to a capital company, for gain and on a habitual, personal and direct basis, provided they hold effective control, direct or indirect, of the company. That control exists in any event where the holding is at least half of the capital, and is presumed, unless proven otherwise, where at least half of the capital is held by shareholders with whom they live and to whom they are related by marriage or by blood, affinity or adoption up to the second degree, where the holding is one third or more, or where it is one quarter or more and they also hold management functions. If none of these applies, the authorities may prove control by any means.

Anyone included by this route cannot contribute on a monthly base below the minimum base of contribution group 7 (Article 308.1.a), rule 4), which in 2026 is 1,424.40 euros a month (Article 3 of Order PJC/297/2026), although anyone already included in 2025 may keep their provisional base from that year during 2026 (Article 18.4 of the Order). As a general rule, a sole trader who is a natural person has no such floor: they choose their base according to their forecast net income (Article 308.1). The bases change every year.

How the shareholder is paid

The company's money does not belong to the shareholder. It reaches them mainly in two ways.

The first is pay as a director: the office is not remunerated unless the articles of association provide otherwise and set the remuneration system (Article 217 of the Capital Companies Act). For personal income tax, it is employment income (Article 17.2.e of Law 35/2006).

The second is the dividend. Dividends may be paid out of profit or of reserves available for distribution only if net equity is not, and after the distribution does not become, lower than the share capital (Article 273.2). For personal income tax, a dividend is income from movable capital (Article 25.1.a) and forms part of savings income (Article 46).

Setting up and yearly obligations

A company requires a public deed registered in the Commercial Registry (Article 20) and acquires legal personality on registration (Article 33). How to set one up from abroad is explained in the article in this section on setting up a Spanish limited company from abroad.

Every year, the directors must prepare the annual accounts within three months of the end of the financial year (Article 253.1) and file them for deposit in the Commercial Registry within the month following their approval (Article 279.1). A sole trader keeps registers or accounts depending on the activity and the method used to determine income (Article 68 of the Personal Income Tax Regulations).

Common mistakes

  1. Thinking a company is always cheaper. Contributions and yearly obligations also count.
  2. Believing a company avoids the sole-trader contribution. Whoever manages or provides services to the company for gain and controls it contributes as a sole trader, on a base no lower than the group 7 minimum.
  3. Forgetting that the director is liable. The shareholders' protection does not extend to the director's own acts.
  4. Leaving work authorisation to the end. You must first settle whether you can work on your own account.

Sources

General information as at the date of publication. It does not replace advice on a specific case.

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