Starting a business involves many responsibilities, including complying with the relevant tax framework. This article will help you gain a clearer understanding of the most important taxes.
The fiscal dimension is one of the fundamental pillars in managing any business, regardless of its legal form. Proper knowledge and compliance with tax obligations not only help you avoid penalties and surcharges, but also contribute to the financial sustainability of your business. In addition, proper tax planning allows you to optimize resources, anticipate costs, and make better-informed decisions.
Main taxes affecting a Limited Liability Company (SL)
In Spain, SLs are subject to several taxes that must be managed periodically (mainly quarterly and annually). The most relevant include:
- Corporate Income Tax (IS): This tax is levied on the company’s profits. The general tax rate is 25%, although reduced rates apply in certain cases, such as for new entities (15% or 20% in the first tax period with a positive base and the following one) or small businesses in their early years.
- Business Activity Tax (IAE): Before starting activity, the company must register for this tax. However, payment is only required if annual revenue exceeds one million euros. Companies below that threshold are exempt.
- Value Added Tax (VAT): An indirect tax on the sale of goods and services. The company must include VAT in its prices and subsequently pay it to the Tax Agency, acting as an intermediary in its collection.
- Withholdings and payments on account: SLs must apply withholdings on certain payments (e.g., to freelancers, real estate leases, or financial returns) and remit them to the tax authorities (AEAT) within the established deadlines.
- Social Security contributions: The company must pay both the employee and employer portions of social contributions. This is part of fulfilling labor and social obligations.
Main taxes affecting a self-employed person in Spain
Just like companies, self-employed individuals must meet several tax obligations from the moment they begin their activity. Knowing these taxes well not only ensures compliance but also helps anticipate costs and optimize business management.
Key taxes for the self-employed include:
- Personal Income Tax (IRPF): Self-employed workers pay income tax on their profits, filing quarterly returns and an annual summary. There are two main methods to calculate the tax base: direct estimation (normal or simplified) and objective estimation (modules), depending on activity and income level.
- Value Added Tax (VAT): Most self-employed workers must include VAT on their invoices and file quarterly returns, deducting input VAT on purchases. Exemptions apply to those in non-taxable or VAT-exempt sectors (e.g., formal education, healthcare).
- IRPF withholdings on invoices: Certain professionals (e.g., registered or creative freelancers) must apply an IRPF withholding (usually 15%, or 7% during the first three years) on invoices issued to companies or other freelancers. These amounts are then paid to the tax agency on their behalf.
- Business Activity Tax (IAE): Registration is mandatory when starting activity, but payment is only required for annual turnover over one million euros. Most self-employed individuals are exempt from payment.
- Social Security contributions: Self-employed workers must pay their monthly Social Security fee based on their chosen contribution base. Since 2023, the new income-based tier system adjusts the contribution to actual declared earnings.
There are certain reductions and discounts on Social Security contributions. The main one is the so-called “flat rate for new self-employed”, which allows you to pay a reduced fee of €80 for 12 months (extendable for another 12 months). Without this reduction, the self-employed fee may vary depending on your income, from a minimum of €200 (income under €600), to €291 (income between €1,166–€1,300), or €350 (income between €1,700–€1,850). More info available here.
In both cases—limited company or self-employed—there may be other applicable taxes depending on the activity or location of the business (e.g., municipal license fees, environmental taxes, etc.).
If you have questions about the fiscal aspects of your business, our team of specialized advisors is available to help you with no obligation. Contact us by filling out this form and receive personalized guidance.
