Comparison of Ltd. vs. trade in terms of taxes and levies 2025

At the beginning of a business, an entrepreneur faces many challenges. The first crucial decision that must be made is the right choice of business form. The question of whether to set up a sole proprietorship or a limited liability company is a fairly common initial dilemma. The answer depends on a number of factors – in particular the amount of income, the expected costs, the possibility of optimising taxes and levies, but also the level of administrative burden and legal liability.

In this article, we present an up-to-date comparison of the forms of business through a sole proprietorship and with. r. o. in terms of tax burden in 2025, including specific figures, advantages and disadvantages of both forms of business. We will help you decide which legal form is more beneficial for your business.

Differences between p. r. o. and trade in terms of legal form

A trade is a form of business of a natural person where the entrepreneur is liable for his/her obligations with all his/her assets. In contrast, a limited liability company (s. r. o.) is a separate legal entity where the shareholder is liable only up to the amount of his outstanding contribution. This represents a significant difference in terms of property liability and the risk of the business as such.

In terms of legal form, a trade is a simpler and less costly way of doing business. As a rule, its establishment does not require complicated administration – it is enough to file a declaration of commencement of business at the competent district office (trade licensing department), which can also be done electronically through the slovensko.sk portal. The whole process is flexible in time and in most cases is completed within a few days.

On the other hand, setting up a limited liability company (s.r.o.) is more complex and costly. It requires the preparation of incorporation documentation, its notarisation, the fulfilment of the statutory requirements (e.g. the payment of the share capital) and the subsequent initial entry in the Commercial Register. The court fee for registration is EUR 220, however, in practice, the costs of legal services and notarial acts must also be taken into account, which may increase the total amount up to approximately EUR 1,000.00. At the same time, it is also necessary to take into account the fact that the Ltd. is obliged to keep double-entry accounting, which is generally more expensive than simple accounting or tax records kept in the case of a trade.

Trade vs. with. r. o. – taxes in 2025

Tax obligations of a sole trader

A sole trader as a natural person operating on the basis of a trade licence is subject to personal income tax in 2025 pursuant to Section 6(1) of the Income Tax Act. The tax base is the difference between taxable income and tax deductible expenses. These expenses may be claimed either in a provable amount (on the basis of tax records or simple accounting) or in the form of flat-rate expenses amounting to 60 % of the income, up to a maximum of EUR 20 000 per year.

Income tax is levied at 15%, 19% or 25% in 2025. For sole traders, the tax-free part of the tax base and other allowances (e.g. child tax bonus) also apply if they meet the legal conditions.

In addition to income tax, a sole trader is obliged to pay health and social contributions, the amount of which is based on the tax base achieved in the previous year, and the obligation to pay them arises only after exceeding a certain threshold (the threshold for compulsory social contributions in 2025 is EUR 8 580 for 2024). These obligations and their correct timing are key to optimising the overall tax and deduction burden on the sole trader.

Tax obligations with. r. o.

A limited liability company (s. r. o.) is a legal entity that is subject to corporate income tax. In 2025, the basic rate of income tax is 10%, 21% or 24%, and the tax is calculated on the tax base adjusted for items increasing or decreasing the profit or loss under the Income Tax Act. The Ltd. is obliged to keep double-entry books of accounts and to file its tax return annually by 31 March of the following year, or later if an extended deadline has been notified.

In addition to the income tax itself, the tax burden on the distribution of profits to the shareholders must also be taken into account. Dividends paid to an individual – resident in the Slovak Republic are subject to withholding tax at the rate of 7%. If dividends are paid to a legal entity, the conditions for tax exemption should be examined.

The advantage with. r. o. is the possibility to plan the tax burden efficiently by dividing the income between the salary of the managing director and the payment of the profit share. On the other hand, if set up incorrectly, the overall tax burden may be higher than for a sole proprietorship, especially for low profits.

At the same time, from January 2025, the obligation to pay the minimum corporate tax, the so-called tax licence, has been reintroduced. This tax will apply even if the company makes a tax loss or has a zero tax base. The amount of the minimum tax will depend on the amount of the company’s total taxable income (revenue) and is divided into four categories:

• EUR 340 if the taxable income does not exceed EUR 50 000;
• EUR 960 if the taxable income is between EUR 50 000 and EUR 250 000;
• EUR 1 920 if the taxable income is between EUR 250 000 and EUR 500 000;
• EUR 3 840 if the taxable income exceeds EUR 500 000.

This minimum tax will be applied on the basis of the tax return filed for the tax year beginning after 1 January 2025.

Trade vs. with. r. o. – levies in 2025

Social contributions – trade in 2025

A sole trader is only obliged to pay social contributions if his/her income for the previous calendar year exceeds the statutory limit. This is the so-called entry into compulsory insurance, which is assessed annually on 1 July on the basis of the filed tax return. In 2025, the obligation to pay social insurance will arise for those sole traders whose gross income for 2024 exceeds EUR 8 580. For the subsequent period, i.e. when considering the year 2025 for the purposes of contributions from 1 July 2026, the limit will increase to EUR 9 144.

If a sole trader exceeds this income threshold, he is obliged to pay a minimum insurance premium to the Social Insurance Institution in the amount of EUR 237.02 per month (effective from 1 July 2025). The amount of the levy may subsequently increase depending on the tax base achieved, but cannot be lower than the minimum. If the sole trader does not exceed the income threshold, he/she remains outside the compulsory social insurance system and does not have to pay these contributions at all.

Social contributions – p. r. o. in 2025

The amount of social and health contributions in a limited liability company depends on the legal relationship in which the managing director (usually also a shareholder) performs his/her function – i.e. whether it is a remunerated performance of the managing director’s function or an employment relationship as an employee of the company, and whether the remuneration is paid on a regular or irregular basis.

If the managing director receives regular remuneration for the performance of his/her duties, the following levies are payable:

• Health insurance: 15% of gross remuneration (of which 11% is paid by the company and 4% by the managing director),
• Social insurance: 33.55% (of which 24.15% by the company and 9.4% by the managing director).

If the remuneration is irregular, for example paid once a year or only occasionally, the levies are slightly lower:

• Health insurance: 15% (11% company, 4% managing director),
• Social insurance: 28.75% (21.75% company, 7% managing director).

If the managing director is also a regular employee of the company, working under a contract of employment, contributions are governed by the standard rates as for a regular employment relationship:

• Health insurance: 15% (11% company, 4% employee),
• Social insurance: 34.6% (25.2% company, 9.4% employee).

It should also be noted that social levies are not paid at all on the profit share (dividends), which can significantly affect the overall tax burden on shareholders if the remuneration is set correctly.

Health levies with. r. o. vs. sole trader in 2025

Differences in health levies between trade and s. r. o. are significant in 2025, especially in terms of the obligation to pay them and the flexibility in the level of levies. A sole trader is always liable to pay health levies, regardless of the amount of his income or profit. Unlike social insurance, there is no minimum threshold for entry into the compulsory scheme. The only exception is the so-called deferral of the obligation to pay contributions during the first year of business, with subsequent payments starting on the basis of a filed tax return. In 2025, the minimum monthly advance payments for health insurance are EUR 107.25, paid by every sole trader, unless he or she is also insured by the state (e.g. student, pensioner, person on parental leave).

In contrast, a limited liability company (Ltd.) is not automatically obliged to pay any health levies. The obligation arises only when the company pays remuneration to the managing director or wages to an employee. In this case, the amount of health insurance is based on the amount of these earnings – usually 15% of the amount paid (11% paid by the company and 4% by the recipient). The advantage of this system is that the entrepreneur (as managing director or shareholder) has a direct influence on the amount of remuneration paid and therefore on the level of contributions, which allows better control over the company’s costs.

Optimisation and possibilities to reduce the tax burden in trade vs. s. r. o.

Tax optimisation is a legitimate and essential financial management tool for both types of business – sole traders and limited companies. In the case of s. r. o. optimisation is mainly aimed at reducing the tax base through tax deductible expenses such as operating expenses, employee salaries, rent or external services. Other tools include depreciation of fixed assets, investments in research and development) with specific tax benefits, but also the correct adjustment of the amount and frequency of directors’ fees and dividend payments. For higher profits, optimization can be in s. r. o. significantly more efficient than a trade, but it requires expert set-up.

On the other hand, a sole trader also has a number of options to legally reduce the tax burden, in particular by claiming expenses directly related to the business – from the cost of materials and services to travel expenses and rent. There are also depreciation of business assets and non-taxable parts of the tax base, such as the tax-free amount per taxpayer or contributions to supplementary pension savings. Another advantage is the possibility of flat-rate expenses of 60 % of income (up to a maximum of EUR 20 000), which simplifies record-keeping for smaller businesses. In certain cases, voluntary VAT registration may also be advantageous if the entrepreneur is planning higher investments. For dynamic business growth, it is also advisable to consider a change of legal form or the use of international structures, especially if the business is also oriented outside Slovakia. Such a procedure and setup requires a thorough professional assessment so that the foreign structure also has its rational justification and is not primarily based on tax reasons. Regardless of the form of business, professional tax advice, quality accounting and careful planning are the key to legal and efficient tax optimisation.

If you are interested in this topic, please do not hesitate to contact us:

• Peter Varga, e-mail: peter.varga@highgate.sk

For more on tax and in particular tax and levy optimisation, please visit this section of our website: tax and levy optimisation

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