It is a difficult question to answer because, although a limited company enjoys more tax benefits, it is true that it generates more economic costs. Autonomous workers or self-employed, however, work in a simple way, but must face a strong tax system.
It is time to analyze both figures and review their pros and cons in detail, as far as the tax authorities and other expenses are concerned.
Limited Company (LC) and Autonomous Workers
Limited Company: It is the most popular the type of business company used in Spain by small independent businessmen that limit their responsibility to the paid-in capital, saving their personal equity, as they do not have to respond with it facing the debts acquired from their businesses.
To incorporate a company, an initial contribution (as capital stock) of 3,000 Euros must be made, which can be used for company’s expenses once it is deposited into the bank account. In general, the costs for incorporation are affordable (close to 600 €, without considering the paid-in capital).
The minimum number of partners is one and there is no maximum limit, they can be working partners and/or funding partners and it is necessary to notarize the contribution of each one to the capital of the company.
When we refer to autonomous workers, we are talking about people who perform an economic activity for their own profit without being bound by a work contract. Their responsibility towards the business they perform is unlimited, so they must respond with their personal assets in case of any eventuality (there is no separation between personal and company assets).
Taxes: autonomous workers or Limited Companies
The LC must comply with tax obligations, as they are taxed by corporate tax, having to pay a general tax of 25% over the tax base. A fixed reduced rate of 15% is applied for a period of two years to new companies.
To register, an autonomous worker does not need any initial investment, but must declare the IRPF (Income Tax Return for Individuals, for its acronym in Spanish), which means that the payment will be progressive depending on the income. Table of applicable taxes:
|Tax Base||Type applicable|
|Up to 12,450€||19%|
|Between 12,450 and 20,200€||24%|
|Between 20,200 and 35,200€||30%|
|Between 35,200 and 60,000€||37%|
|More than 60,000€||45%|
If you look closely, and analyze the payments, you can infer initially that it is better to incorporate a Limited Company because the rate applicable will soon exceed the IRPF; however, this matter should be analyzed in more detail.
Other differences between autonomous workers or Limited Companies
The accounting and management of a Limited Company is slightly more complex than that of an autonomous worker, thus, requiring higher consulting expenses.
Companies also have greater access to bank credits since they offer banks more information about their operations and provide a better image.
Social Security: Limited Companies and Autonomous Workers
The fee before Social Security is significantly higher in some cases.
In 2016, autonomous workers paid a minimum of 267.03 Euros per month, while companies paid 319.15 Euros.
The difference of the fees between both in 2016 was 20%, which represents close to 625 Euros per year in case of a LC, without considering bonuses like the flat rate that increases the difference even more.
Flat rate for Autonomous Workers:
It is a temporary reduction (a measure that initially had a duration of 6 months and was later extended to one year) of the fee that autonomous workers must pay to the Social Security at the time of registration.
It is worth mentioning that only those autonomous workers who have chosen the minimum contribution base (health care coverage, retirement contribution, without unemployment coverage and professional work accidents) will benefit from the flat rate. If you choose a higher coverage, you will enjoy a reduction of 80% of the fee.
When we mentioned the flat rate compared to the LC we referred to the payment of only 50 Euros as a monthly fixed fee, which implies a monthly saving of 217.03 €, since the normal rate for 2016 is € 267.03, increasing the payment gap between both figures.
The amount for 2017 has not been disclosed yet, but it is expected to increase 8% in the case of the quota for corporate partnerships while it can be frozen for autonomous workers (“pending the General Budgets”).
Back to the initial question: Autonomous Worker or Limited Companies?
Your situation will offer the best answer to this question, upon evaluation of benefits and bonuses such as:
The recent expansion of family options to collaborate with autonomous workers may encourage the same to register to be able to hire parents, children, siblings, partners, grandparents, in-laws, grandchildren, sons-in-law and daughters-in-law.
And in the case of women as autonomous workers, they can benefit from the flat rate of 50 Euros for the entire year following their re-incorporation after becoming mothers after child-birth, by adoption, fostering and guardianship (they choose to quote the minimum base).
Generally, “if the profit exceeds € 40,000” it is time to consider the incorporation of an LC. Since with this amount the taxes decrease in comparison with those that the autonomous worker must pay (remember that the corporate tax rate is fixed, 25%), while the income tax rates of the IRPF are progressive, so you pay more the more you earn.
However, it is important to analyze every detail of the regulations stipulated in the income tax return statement and other bonuses that may benefit each professional role or figure.
If you live in La Axarquía, in municipalities such as Competa, Frigiliana, Vélez-Málaga or Torre del Mar, you can contact us for accounting or solicitor services related with create a company as an autonomous worker or Limited Company.
The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues.
Solicitor in Torre del Mar , Velez-Malaga and Torre del Mar
(Legal and Tax Help | Accountant | Lawyers | (Malaga – Andalusia)
Author: Rosana Tejada
Biographical Info: Rosana Tejada Crespo is a tax advisor holding a Master’s Degree in International Taxation. She specialises in companies and freelancers, tax regulations concerning foreign employees (Beckham Law), non-resident tax, inheritance tax and Spanish income tax. She is one of the founders of Legal & Tax Help (2000), which comprises a group of English speaking solicitors, economists and architects.