To Be or Not to Be: Spanish SL or Freelancer? That’s the Question
If you’re considering starting your own business in Spain, you’re pondering whether it’s better to be a freelancer or establish a sociedad limitada or SL(a limited company).
Which option has more advantages? Would you pay more taxes as a freelancer or as a Spanish SL? Which is simpler? We’ll answer all these questions and more in this article.
Differences between Freelancers and Limited Companies
To understand the differences between freelancers and limited companies, we must first distinguish between two fundamental concepts in Spanish legislation: the natural person (individual) and the legal person.
As per the law, natural persons are individuals with real and material existence, possessing attributes like name, address, marital status, assets, and nationality.
Hence, the figure of a freelancer falls under the category of a natural person. As a freelancer, you are the business entity, accountable to the government, clients, and suppliers. In other words, your business and you as the entrepreneur merge into a single entity.
Conversely, a Spanish SL is a legal entity created by law or agreement among several natural or legal persons. Therefore, when a Limited Company exists, the company is legally accountable to the government, clients, etc., not you as an individual or entrepreneur.
This distinction yields legal consequences and differences that can guide your choice between the two options.
Registration Procedures
Registering as a freelancer is straightforward and quick, primarily through a service like Companio One Spain, where you need not worry about anything. The longest part is usually waiting for the Tax Office and Social Security to approve, but typically not more than a day.
However, setting up a Spanish SL requires registering the company name with the Commercial Registry, depositing the capital, drafting the articles of association, signing a public deed, and registering with the Tax Office.
Apart from the complexity, consider the costs of these procedures. Registering as a freelancer generally involves no cost (or at least Companio One Spain provides free registration), and you can do it from home.
However, opening a Spanish SL involves costs such as incorporation fees (around €300), notarial fees (€90-100), name registration (around €16), and expenses for drafting articles and rules (€300-500).
Thus, there’s a significant difference in complexity and cost between the two.
Furthermore, the time to register as a freelancer versus setting up a Spanish SL also differs. Registering as a freelancer will take a day, but forming a Spanish SL involves a process that can take between 5 and 30 days.
Liability
While a Spanish SL has limited liability for debts, a freelancer has unlimited liability.
What does this mean? If the SL runs into debt, the company, not the individual, is responsible. Consequently, if the business closes, the owner, as an individual, isn’t liable for those debts.
In the case of a freelancer, even if you close your business, the debts remain your responsibility, and you must pay them from your personal assets.
Initial Financial Contribution
Law 18/2022 (Create and Grow) stipulates that companies can contribute a minimum capital of €1, though it used to be much higher. Previously, the minimum was €3,000.
However, registering as a freelancer is free unless a company charges you for this service (unlike Companio One Spain).
Management Costs and Accounting Obligations
In addition to initial expenses, managing a Spanish SL is costlier than managing a freelancer business, as SL accounting is more complex.
SLs must maintain more detailed accounting records, including the general ledger, the journal, the inventory ledger, and annual financial statements, among others. This demands more time and resources.
Taxes
The million-dollar question: Who pays more taxes? A freelancer or a Spanish SL?
Unfortunately, there isn’t a one-size-fits-all answer. It depends on various factors and the specific circumstances of each business.
Recall the differentiation between natural and legal persons, which applies to taxes.
While freelancers pay Personal Income Tax (IRPF), companies must pay Corporate Income Tax (Impuesto de Sociedades).
What does this entail?
IRPF is a progressive tax, meaning the more profits you have, the more you pay. Conversely, Corporate Income Tax is usually a fixed rate.
Hence, companies may bear a lighter tax burden beyond a certain amount of profits or income.
However, the matter becomes even more intricate when considering deductions based on specific requirements.
So, who pays less tax among the two?
There’s no universally correct answer. To determine whether being a freelancer or an LLC is more tax-efficient, you must analyze your business, potential profits, and eligible deductions.
Freelancer or Spanish SL: Pros and Cons
You’ve seen that the choice between the two options depends on many factors, and with so much information, it’s normal to remain uncertain about which figure to choose. So, let’s summarize the advantages and disadvantages.
| Aspect | Freelancer | Spanish SL |
| Registration | ✅ Quick ✅ Free ✅ Simple procedures | ❌ More time-consuming ❌ More costly ❌ Complex procedures |
| Liability | ❌ Unlimited (individual liable) | ✅ Limited (business liable, not individual) |
| Management Costs | ✅ Lower (simpler accounting) | ❌ Higher (complex accounting) |
| Initial Financial Contribution | ✅ €0 | ❌ €1 |
| Obligaciones contables | ✅ Fewer accounting obligations | ❌More accounting obligations (General Ledger, Invoice Register, etc.) |
| Taxes | Personal Income Tax (IRPF): based on income. ✅ Lesser tax burden with lower income. ❌ Higher tax burden with higher profits. | Corporate Income Tax (Impuesto de Sociedades): usually a fixed rate. ❌ Higher tax burden with lower income. ✅ Potential tax efficiency with higher profits. |
What’s Better? Being a Freelancer or a Spanish SL?
As you’ve seen in this article, both options come with advantages and disadvantages, but choosing one over the other will depend on the specific circumstances of your business.
Therefore, before making this decision, you must analyze your business and objectives and consult with legal and financial advisors to select the option that best suits your situation.
Unless there are compelling reasons to establish a limited company, it’s advisable that when you’re starting, you register as a freelancer. This will incur lower costs and fewer complications, and you can also benefit from the flat-rate fee during the first year.
Are you sure about registering as a freelancer? If you do it with Companio One Spain, the process is straightforward, fast, and free.
Furthermore, you’ll save time managing your accounting, invoices, and taxes, allowing you to focus on growing your business. Discover how we can assist you here.
