If you are starting as an individual entrepreneur, the law does not require you to provide a certain amount of capital. In other words, it’s a free process. On the other hand, the formation of a company entails a number of associated costs at the time of registration, and this is not only the capital provided.
When establishing a company (for example, LLC or S.L.), it is necessary to deposit 3/000€ as share capital. This money can be used to run the day-to-day business of the firm.
In addition, opening a company requires compliance with a number of additional formalities, much more complicated than when creating an IP.
So, it is necessary to draw up a charter, register in the Commercial Register, sign a public document with a notary, etc. And, obviously, all this has a price.
On the other hand, individual entrepreneurs have a more simplified process in the registration procedure. It is enough to register with the social security and tax authorities and it’s free!
Both individual entrepreneurs and companies will monthly pay a certain amount to the social fund. insurance. The difference lies precisely in the amount in question.
Individual entrepreneurs will pay much less, especially in the case of a fixed tariff, which is the most popular in the country and provides for a system of discounts for newly created autónomo:
1st year – 60€
from 13 to 18 months – 141.65€
from 19 to 24 months – 198.31€
On the other hand, the company will have to make more financial efforts, the administrator and owner of the company must pay about 350€ per month.
Another important factor that will require an investment of time and effort is accounting.
Of course, at the very beginning, you cannot do without a gestor (accountant) who will submit all your declarations.
Costs vary from company to company, in the case of services provided by ProSpain Consulting, the cost of maintaining an IP is 60 euros per month, including Russian-speaking support. In the case of a newly created company or already functioning ones, the cost is slightly higher from 150 euros per month, but the company’s accounting is also more complicated and confusing.
The convenience of being able to communicate with an accountant in Russian makes it much easier to understand the specifics of Spanish taxes, and our specialists will be able to convey to you all the nuances that may be useful in your bookkeeping.
Have you already dealt with Spanish taxes and accounting? Let us know in the comments if you still have unanswered questions from your accountants.
This is one almost decisive factor when choosing a form of work in Spain.
So, in case of registration as an individual entrepreneur, the following taxes are applied:
– IRPF (Individual Income Tax), i.e. progressive income tax. The higher the profit, the higher the applicable tax rate.
– Wealth tax (IP), which is paid once a year. For example, if you have so many computers or so many mobile devices, you will pay tax according to those assets.
– VAT (IVA), which is added to the cost of the service or product and paid to the Treasury. The rate depends on the type of activity, although in most cases a general 24% applies.
In the case of a company, consider:
– Corporate income tax (IS), which is levied on profits and is calculated based on income less VAT and other taxes. It is paid once a year at the end of the calendar year.
The rate is 25% in most cases. But there is an exception: for newly created companies, 15% applies for the first two years.
– VAT (IVA)
— IRPF retenciones withheld from IP
As a general rule, if you are looking for a small profit, then the best alternative is to work as an individual entrepreneur. However, at high income levels, starting from 50.000 euros, it will be the best option to open a company, since a flat rate of 25% (15%) will make the tax burden less than if we were based on a progressive IRPF.
Both at the start of a business and when it begins to operate successfully, applying for bank financing is usually a routine procedure. But getting access to such financial resources for individual entrepreneurs will not be as easy as for a company.
The fact that the organization is much more established on a legal level, and above all, the fact that it has accounts that clearly show the assets and financial position of the company, hence its solvency, are guarantees that a sole trader cannot offer.
However, incorporation of the company means limiting liability to only the contributed capital. The bank, in order to issue a loan, will ask for a guarantee, usually co-founders. That is why, if you are registered as a company, you will have to contribute some of your personal assets to perform this function.
In the long run, setting up a company, of course, remains a winner. The fact that it consists of blocks of shares or shares makes managing partners and raising capital much easier.
There is no single option that is better than the other. The decision to form a company or work as an individual entrepreneur will depend on the specific situation and on which of the factors has the greatest weight.
However, usually the process begins with the fact that at first there is registration as an individual entrepreneur, and over time it passes into a company.
What is the reason for this sequence? If you start as an individual entrepreneur, you can always move to a company, while if you start with a company, then closing the company can be more bureaucratic.
We can say that in terms of ease of registration, ease of accounting and cash payments under social security, IP is the best way.
If you consider limitation of liability and asset protection, bank financing and the possibility of expansion, then the creation of a company will be the option to choose.
Do you need advice on how to set up in Spain or registering as an individual entrepreneur or company? Contact us and we will help you, our specialists have extensive experience in both cases.