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Self-employed or Company: the tax advantages of self-employment

Dear Customer,

We are pleased to inform you about a crucial issue in the tax field: the choice between working as a freelancer or forming a self-employed or incorporating a company. This decision has important tax implications and we are here to help you understand the tax benefits and which option is best for you.

Taxes Paid by the Self-Employed

A self-employed person is a natural person who carries out an economic activity independently,
without being linked to a company. The taxes payable are divided into two main categories: personal income tax and VAT.

Personal Income Tax (IRPF)

  • Descripción: It taxes the income obtained by the self-employed.
  • Calculation: The taxable base is calculated by subtracting deductible expenses from income.
  • Tax rate: It varies between 19% and 47%, according to the scale of brackets established by law.

Value Added Tax (VAT)

  • Description: Taxes the consumption of goods and services.
  • Declaration: The self-employed person passes the VAT on to his customers and declares it quarterly.
  • VAT rates: Depends on the activity and can be 4%, 10% or 21%.
  • Deduction: The self-employed can deduct the VAT borne on their purchases and expenses related to their activity.

Taxes Paid by a Company

A company is a legal entity that carries out an organized economic activity. The main tax it pays is corporate income tax. Below, we will tell you more about this tax:

Corporate Income tax

  • Description: Taxed on the profits obtained by the company.
  • Tax rate: Generally 25%, although it may vary according to the size and legal form of the company.
  • Calculation: The taxable base is calculated by subtracting deductible expenses from income.

Like the self-employed, companies must charge and declare VAT, with some differences in the deduction depending on the percentage of income subject to VAT and the special VAT regime.
differences in the deduction according to the percentage of income subject to VAT and the special regime of the group of entities.

What Are the Tax Advantages of Being Self-Employed?

Being self-employed offers certain tax advantages compared to incorporating a company. Here are some of the main ones:

  • IRPF reduction: 20% reduction in the IRPF taxable base during the first two years of activity.years of activity.
  • Deduction for Amortization: Deducts up to 30% of the net income of its activity in concept of amortization of the tangible and intangible fixed assets related to the activity.
  • Expenses of Maintenance and Stay: Deducts the expenses of maintenance and stay derived from the development of your activity, with certain limits.activity, subject to certain limits and conditions.
  • Supplies Expenses: Deducts 30% of the expenses of supplies (water, electricity, gas, telephone and
    Internet) and the percentage of the expenses of the Real Estate Tax or community tax that
    affecting the part of the habitual residence destined to the development of the activity.

For proper tax optimization and to ensure that you are making the best decision for your specific situation, it is advisable to seek advice on the subject.specific situation, it is advisable to seek advice on the matter. At Lexcam, we offer expert advice on tax regulations and we are here to help you maximize your tax benefits and meet all legal
tax benefits and comply with all legal obligations. For more information, do not hesitateto contact us.

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