How the same profit is taxed: personal income tax or corporate tax

Lola, a software consultant in Madrid, expects a profit of 60,000 € next year. Her accountant cousin says an SL would pay far less tax, because corporate tax for small companies starts at 19 %. Her friend says the difference disappears once the money reaches her pocket. Both have a point, and the comparison only makes sense if it is done in the right order.

Two taxpayers, two taxes

A sole trader's profit is his own income from an economic activity. It is added to his other income and taxed in personal income tax, the IRPF, together with his salary or rents if he has any. There is no separate business taxpayer: the tax follows the person.

An SL is a separate taxpayer. Its profit is taxed in corporate income tax, the Impuesto sobre Sociedades, governed by Ley 27/2014, whatever the personal situation of its partners. The money reaches the partners by two routes that the law treats differently, as shown below: a salary as director or a distribution of dividends.

That second step is the heart of the question. Comparing the tax of a sole trader with the corporate tax of an SL compares two different things: the first is the final tax on money the person can spend, the second is a tax on money that still belongs to the company.

This course is limited to the common territory. The IRPF Act and the Corporate Income Tax Act apply without prejudice to the foral systems of economic agreement, concierto and convenio, of the Basque Country and Navarre, under article 4.2 of Ley 35/2006 and article 2.2 of Ley 27/2014. Their own rules fall outside the course.

The sole trader: a progressive scale in two halves

Article 63 of the IRPF Act sets the general state scale, applied in brackets to the general taxable base. Up to 12,450 € the rate is 9.50 per cent; then 12 per cent up to 20,200 € and 15 per cent up to 35,200 €.

Above that, the state rate is 18.50 per cent up to 60,000 €, 22.50 per cent up to 300,000 € and 24.50 per cent beyond. The Act publishes the scale as a table giving, for each threshold, the tax already due on the amount below it, which makes the calculation quick.

The state scale is only half of the tax. Article 74 of the same Act applies, on the same base, the regional scale approved by each autonomous community.

Regional rates differ from one community to another, so the total income tax of a sole trader in Madrid is not that of one in Barcelona or Seville. This course reads only the state half and says so each time it gives a figure.

Article 63 also explains how the personal minimum works: the scale is applied to the whole base, then the result is reduced by the scale applied to the part of the base that corresponds to the personal and family minimum. The examples below stop before that reduction, which depends on each family.

The SL: corporate tax rates in 2026

Article 29 of Ley 27/2014 sets the general rate at 25 per cent. It then provides a lower scale for entities whose net turnover in the previous tax period was below one million euros, which covers almost every small business.

For periods starting in 2026, the forty-fourth transitional provision of the Act sets that scale at 19 per cent on the first 50,000 € of taxable base and 21 per cent on the rest. When the tax period is shorter than a year, the 50,000 € slice is reduced in proportion to the days.

The same transitional provision shows that the rates are moving: 21 and 22 per cent in 2025, 19 and 21 per cent in 2026, while the permanent text of article 29 already announces 17 and 20 per cent. Anyone planning over several years must reread the Act each year rather than rely on the rate of the year of incorporation.

New companies carrying on economic activities pay 15 per cent in the first tax period in which their taxable base is positive and in the following one, unless a lower rate applies. A loss-making first year therefore does not use up the benefit.

The Act closes the obvious loophole. An activity is not considered new when it was carried on in the year before incorporation by a natural person holding, directly or indirectly, more than 50 per cent of the new company, or when related parties transferred it to the company.

That exclusion matters directly for someone who is already self-employed. An autónomo who transfers his running business to an SL he controls does not create a new activity in the sense of article 29, and the company cannot use the 15 per cent rate. The reduced rates also do not apply to asset-holding entities.

Putting the two side by side

The examples below, and Lola's case, apply the state scale to the profit as if it were the general taxable base. This is a simplifying assumption. Article 50.1 derives that base after the reductions of articles 51, 53, 54 and 55, and article 30.2.4 allows hard-to-justify expenses under simplified direct assessment. None is applied here.

For the same 60,000 € taxed as a sole trader's income, the state half gives 4,362.75 € on the first 35,200 €, plus 18.50 % of the remaining 24,800 €, that is 4,588 €. It comes to 8,950.75 € before the personal minimum: 2,649.25 € less than the SL's 11,600 €.

The state half alone therefore cannot settle the question. Which tax is higher depends on the regional half, which this course does not read: if it exceeds 2,649.25 €, the sole trader's income tax overtakes the SL's corporate tax on the same amount; if it stays below, the reverse holds.

Either way, the 11,600 € leaves 48,400 € inside the company. If Lola takes it as a dividend, that payment does not reduce corporate tax: article 15.a of Ley 27/2014 excludes the remuneration of equity from deductible expenses. The dividend is then taxed again in her IRPF, as income from movable capital.

A salary as director follows another route. Article 15.e does not treat as a gift the pay for senior management functions or other functions under an employment contract with the company. It is an expense that reduces the corporate tax base, and it is taxed only once, in Lola's IRPF.

The 48,400 € therefore describe only the dividend route. A salary paid during the year lowers the 60,000 € base before the SL's tax is calculated. The final tax depends on the split between salary and dividend, which this course does not quantify.

The comparison therefore favours the SL mainly when a significant part of the profit can stay in the company, to be reinvested or kept as a reserve. When all the profit is needed to live, the gap narrows, and the extra costs of the SL can absorb it.

Here too the state half settles nothing. If the regional half, which this course does not read, exceeds 1,917.25 €, the sole trader's income tax overtakes the SL's corporate tax; if it stays below, the reverse holds. The SL's fixed costs and the tax on the money that reaches the partner still have to be added.

The two examples show the shape of the question. The progressive scale of the IRPF is mild on low incomes and steep on high ones, while corporate tax is nearly flat. The higher the profit that can stay in the company, the stronger the case for the SL on tax grounds alone.

Timing the choice

The choice is not made once and for all, but changing course has a cost. An autónomo who later moves an established activity into an SL he controls loses the 15 per cent rate for new companies, and the transfer of the business itself raises tax and legal questions that deserve advice.

Starting directly with an SL keeps the new company rate available, but imposes the fixed costs from the first year, when the profit is often small or negative. Many founders therefore start as autónomos to test the activity, accepting that a later move will not benefit from the new company rate.

Whichever path is chosen, the figures of this module belong to 2026. The corporate tax scale for small companies changes each year under the transitional provision, and the income tax scale can change with any budget. A comparison made today should be redone before each major decision.

What the comparison leaves out

• The regional half of the income tax scale, which depends on the autonomous community
• The personal and family minimum, which reduces the sole trader's tax
• The tax on the dividends and salary that take the money from the SL to the partner, and the reduction of the corporate tax base that this salary brings
• The reductions that separate the profit from the sole trader's general taxable base, articles 30.2.4 and 50.1 of Ley 35/2006
• The running costs of an SL: notary, registration, annual accounts, filing, often an adviser
• The Social Security contributions, due in both cases for a controlling partner-director
• The liability and protection questions covered in the previous module

Social Security deserves a special mention. A partner who controls the SL and works in it stays in the self-employed scheme, as the previous module showed, so choosing the SL does not remove the monthly fee. It only changes the floor of the contribution base, which cannot fall below that of contribution group 7.

Each of these items can move the result by thousands of euros in either direction. A decision taken on the headline rate alone, 19 per cent against a top rate that the sole trader may never reach, is the most common mistake in this choice, and the most expensive one to undo.

The corporate tax return itself adds a date to the calendar. Article 124 of Ley 27/2014 requires it within the twenty-five calendar days following the six months after the end of the tax period. For a company whose year ends on 31 December, the return falls in July of the following year.