As a freelancer or business owner in Spain, you may already know that operating as an autónomo (self-employed) comes with high taxes and limited financial flexibility. But there’s an alternative: setting up a Spanish company. While it may seem more complex, the potential savings and financial advantages are well worth the effort. Let’s break it down and see how you could save over €14,000 for every €100,000 in income by switching from being an autónomo to owning a company.
The Tax Burden of an Autónomo
As an autónomo, you’re subject to Spain’s progressive income tax rates, which range from 19% to 47%, depending on your income. On top of that, you’re responsible for social security contributions, which start at around €300 per month but can climb as your earnings increase.
For higher-income earners, this system can quickly become a burden:
- Income Tax: Earnings over €60,000 are taxed at 45% or more in most regions.
- Limited Deductions: Your ability to deduct expenses is restricted compared to businesses.
- Social Security: A flat percentage applies, regardless of your actual income.
At €100,000 of income, a typical autónomo might lose over 40% to taxes and contributions, leaving little room to optimize or reinvest in your work.
Advantages of a Spanish Company
Operating through a Spanish company (commonly an SL, or Sociedad Limitada) offers more ways to manage your finances strategically. Here's why it’s a game-changer:
1. Lower Corporate Tax Rates
Companies in Spain pay a flat corporate tax rate of 25%. For smaller businesses, the first €120,000 of profit might even qualify for a reduced rate of 15% during the initial years.
2. Dividends and Salary Splits
With a company, you can pay yourself a combination of salary and dividends.
- Salary: Deducted as a business expense, reducing taxable corporate profits.
- Dividends: Taxed at lower rates (19%–23%), allowing you to withdraw profits efficiently.
This flexibility enables you to lower your overall tax burden significantly.
3. Increased Deductible Expenses
Unlike an autónomo, a company can deduct a wider range of expenses, including:
- Office costs, even for home offices.
- Employee salaries (including your own).
- Travel, training, and professional services.
- Larger equipment purchases, amortized over time.
This not only reduces your taxable income but also allows you to reinvest in your business.
4. Reduced Social Security Costs
As a company owner, you pay into the autónomo system only on the salary you declare, not on the full business income. This can result in significant savings compared to an autónomo paying contributions on all their income.
5. Earnings Retention
A company can retain earnings to reinvest in growth or to defer taxes on profits, giving you greater financial flexibility.
The Numbers: How Much Can You Save?
Let’s compare a simplified example:
As an Autónomo:
- Income: €100,000
- Tax rate: ~45% (varies by region)
- Social security: ~€10,000 annually
Net Income: ~€69,000 after taxes and contributions.
As a Company:
- Income: €100,000
- Corporate tax: €25,000
- Salary (e.g., €40,000): Taxed at 20%, with reduced social security (€3,000).
- Dividends (€35,000): Taxed at ~19%.
Net Income: ~€83,000 after taxes and contributions.
By operating as a company, you could save over €14,000 on €100,000 of income, thanks to lower tax rates, deductible expenses, and social security optimization.
When Does It Make Sense to Incorporate?
Switching to a company structure isn’t for everyone. It’s generally more beneficial if:
- You earn over €50,000 annually.
- You want to reinvest earnings or grow your business.
- You have significant business expenses to deduct.
If your income is lower or your operations are minimal, the costs of maintaining a company—such as accounting fees and compliance—might outweigh the benefits.
How to Get Started
Setting up a Spanish company involves several steps:
- Register the company name and prepare the bylaws.
- Obtain a CIF (tax ID number) for the business.
- Open a corporate bank account and deposit the required capital (often €3,000).
- Register for corporate taxes and social security.
While the process might seem intimidating, a good tax advisor can simplify it for you, ensuring compliance and maximizing your savings.
Conclusion
Operating as an autónomo in Spain might be the simplest option, but it’s far from the most tax-efficient. By setting up a Spanish company, you gain access to lower tax rates, better expense deductions, and strategic financial tools like salary-dividend splits. These benefits could save you over €14,000 for every €100,000 you earn—money that you can reinvest in your business, travel, or lifestyle.
If you’re serious about optimizing your taxes and growing your wealth, transitioning to a company structure is worth exploring. Consult a professional to see if it’s the right move for you.
