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Are you an expatriate in Spain and planning to start a business?
One of the first fundamental steps is to decide how to legally structure your activity:
Do I register as self-employed or create a Limited Liability Company (SL)?
Both options are perfectly valid, but they imply different tax, accounting and
legal obligations. In this updated guide we explain how each works in 2025 and
what you should consider, especially in terms of VAT, income tax, tax deductions
and key formalities.
VAT (Value Added Tax): how does it work for self-employed
and SL?
Self-employed
● You must apply 21% VAT (or a reduced rate of 10% or 4% if you belong to
certain sectors such as culture or education).
● You are obliged to file:
○ Form 303 (quarterly tax return)
○ Form 390 (annual summary)
● You can deduct VAT on expenses directly related to your activity:
office rent, telephone bills, computer equipment, marketing, etc.
Limited Company (SL)
● Applies VAT in a similar way.
● You must also file forms 303 and 390, but in this case the accounting is
more detailed and rigorous.
● It has more room to deduct VAT, including assets, third party services,
supplies, and even employee expenses.
Important: The SL has more facility to justify extensive deductions because it has
an official accounting with obligatory accounting books.
Note: For services rendered to self-employed or companies residing outside the EU,
VAT is not applied on invoices.
IRPF vs. Corporate Income Tax: what income taxes are paid?
Self-employed
● Self-employed persons are taxed by IRPF (Personal Income Tax).
● The tax rate is progressive, from 19% to 47% depending on your income.
● You are obliged to present:
○ Quarterly Form 130 (if you do not apply withholding on your
invoices).
○ Annual tax return (Form 100)
● You can deduct many personal expenses related to your professional
activity.
SL
● The company pays Corporate Tax:
○ 15% during the first two years with profits
○ 25% from the third year onwards
● If you, as a partner, decide to distribute dividends, you will pay an additional
19% to 26% income tax on this personal income.
● As a director you can assign yourself a salary, which the SL deducts as an
expense.
For US expatriates: you must report your income to the IRS. You can benefit from
the Foreign Tax Credit or the Foreign Earned Income Exclusion (FEIE).
Deductible expenses: many deductions are subject to interpretation by the IRS. Good bookkeeping
is key to avoid penalties.
Social Security and contributions
Self-employed
● Contribute to the RETA (Special Regime for Self-Employed Workers).
● There is a flat rate benefit of 80 EUR per month for the first year as
self-employed.
SL
● The administrator of the SL must contribute as a corporate self-employed,
with a higher minimum base:
○ Approximate quota of 310 €/month in 2025.
● If you hire employees, the SL must also pay the corresponding employer’s
contributions.
Which option is best for me?
Profile or situation Recommendation
Freelancers starting out with low risk: Freelancer
Projects with partners or higher turnover: Limited Company
Professionals who work alone and have a low
turnover: Self-employed
Foreigners seeking legal security and
protection: SL.
Looking for access to subsidies or investment: SL
Advantages and disadvantages at a glance
Self-employed
✔ Easy and quick to start
✔ Lower accounting burden
✘ Higher tax burden if you earn a lot.
✘ Less protection of assets.
SL
✔ Lower taxation on high profitability.
✔ Protects your personal assets
✔ More professional image in front of clients and investors.
✘ Greater accounting and legal complexity.
✘ More upfront costs
What if I am an artist, writer or creative?
● Many cultural professionals can benefit from reduced VAT rates (10% or
4%).
● You can choose to be self-employed or SL, but public subsidies usually
require SL or legally constituted associations.
● Consult grants from the Ministry of Culture, ICEX, or regional and
municipal calls for proposals in your area.
Do you need help to make a decision?
At Entre Trámites we help expatriates and entrepreneurs in Spain:
● Register as self-employed or set up an SL.
● Manage your VAT, IRPF and monthly accounting
● Get tax advice as a foreign citizen
● Comply with all legal obligations and avoid penalties.
Join our global community of expats and professionals who trust us to simplify
their tax matters. If you’re ready to ensure compliance and optimize your tax
situation, schedule a consultation today and let’s get started!