More and more self-employed workers in Spain are facing the same dilemma: stay as a sole trader or set up a limited company (Sociedad Limitada, SL)?
Since 2021, three out of four newly registered self-employed workers have chosen to register as company directors (autonomos societarios) rather than as individuals.
The shift reflects a growing desire for greater legal protection, tax planning flexibility and business structure.
But what many wonder is how much you need to earn before it’s worth switching to an SL.
The €40,000-€50,000 threshold
According to Angela Cal, Business Director at tax and legal advisory firm Talenom in Galicia and Asturias, there isn’t a single magic number, but it generally starts to make sense when annual recurring net profit exceeds €40,000 to €50,000.
However, she stresses that income alone isn’t the key factor.
‘If the autonomo needs to withdraw almost all profits to live on, the tax advantage of setting up a company is greatly reduced,’ she told Diario AyE.
‘But if they can reinvest part of the profit, plan their remuneration or leave earnings in the business, then a company structure becomes much more attractive.’
How income is taxed differently
A sole trader (autonomo persona fisica) pays income tax (IRPF) on all profits under the general tax scale. Once income climbs into higher brackets, rates can reach 37%, 45% or even 47%.
By contrast, a company pays Corporation Tax (Impuesto de Sociedades), which can be lower:
- New companies pay 15% for the first three years
- Micropymes pay 21% on the first €50,000 and 22% up to €1 million
- Companies billing between €1 million and €10 million pay 24%
Further reductions are planned for 2026 and 2027.
If structured correctly, income from an SL can be divided into:
- Salary (taxed via IRPF but deductible for the company)
- Dividends (taxed under the savings base at lower rates)
- Retained profit (taxed only at corporation level until distributed)
Sandra Hernanz, another tax law expert, added that once a sole trader consistently hits income levels that push them above 30% in IRPF, it may be worth considering incorporation.
Risk factors to consider
One of the biggest reasons entrepreneurs switch to an SL is personal asset protection.
A sole trader is personally liable for all debts. In an SL, liability is generally limited to the company’s share capital, although directors still carry certain responsibilities.
This becomes particularly important for entrepreneurs with significant personal assets or operating in higher-risk sectors such as consultancy, data management, construction, technical services or businesses exposed to penalty clauses.
While an SL does not provide total immunity, it does create a significant protective layer.
Hiring staff
You don’t need to create a company to hire employees, but as businesses grow and teams expand, the SL structure often becomes more practical.
Experts note that a limited company can provide:
- Greater organisational structure
- Clearer separation between the individual and the business
- Increased credibility with employees and clients
With staff comes greater legal and labour risk. A company format helps manage that exposure more effectively.
Image, funding and growth
Beyond tax and liability, strategic considerations often drive the switch.
Large corporations and public administrations frequently prefer – or even require – contracting with companies rather than individuals.
Many public tenders and grant programmes are structured around corporate entities.
An SL can also:
- Improve access to bank financing
- Attract investors more easily
- Strengthen negotiations with partners and suppliers
- Appear more professional to international clients
For foreign partners, the SL format is often clearer and more recognisable than Spain’s autonomo system.
So when should you switch?
If annual net profits exceed €40,000-€50,000 and you don’t need to withdraw every euro to survive, incorporation may start to offer tax planning advantages.
If you are hiring staff, entering contracts with higher legal exposure, seeking funding or working with larger clients, the structural and reputational benefits may justify switching earlier.
Read more Andalucia news at the Spanish Eye.
