The wrong choice of business form may not be apparent right from the start. Often it will only become apparent with the passage of time, in the form of unexpectedly high tax and levy burdens, increased administrative obligations or responsibilities that the entrepreneur had not originally anticipated. This is why deciding between a sole proprietorship and a limited liability company is one of the most important strategic steps when starting a business.
The choice of the appropriate legal form depends on a number of factors, in particular the amount of income, the cost structure, the possibilities of tax and levy optimisation, but also on the level of legal risk that the entrepreneur is willing to take.
In this article, we provide an up-to-date comparison of trade and s. r. o. in terms of tax burden in 2026. Based on the specific data, advantages and disadvantages of both forms of business, we will help you choose a solution that makes sense from a financial and legal perspective.
The basic difference between a sole proprietorship and a limited liability company lies in the legal form and the extent of the liability of the entrepreneur. A trade is a form of business of a natural person in which the entrepreneur is liable for his/her obligations with all his/her personal property. In contrast, a limited liability company (s.r.o.) is a separate legal person, whereby a shareholder is liable only up to the amount of his outstanding deposit entered in the commercial register. This difference is of fundamental importance in terms of asset protection and overall business risk.
From a practical point of view, a trade represents a simpler and administratively less demanding way of doing business. Its establishment does not require complex documentation – it is sufficient to declare the commencement of business at the competent district office (trade department). This step can also be done electronically through the slovensko.sk portal. The process of setting up a trade is usually quick and in most cases is completed within a few days.
Setting up a limited liability company, on the other hand, is more administratively and financially demanding. It requires the preparation of incorporation documentation, its notarial verification, fulfilment of legal conditions (in particular, the payment of the share capital) and the subsequent first entry in the Commercial Register. Court fee for registration with. r. o. to the commercial register amounts to EUR 220, while in practice it is also necessary to take into account the costs of legal services and notarial acts. The total cost of setting up a s. r. o. are often in the range of EUR 700 to EUR 1 000.
At the same time, long-term administrative obligations must also be taken into account. A limited liability company is obliged to keep double-entry accounting, which is generally more costly than simple accounting or tax records kept for a trade. This aspect may also have an impact on the overall economic efficiency of the chosen form of business.
A sole trader as a natural person operating on the basis of a trade licence is subject to personal income tax in 2026 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 can be claimed either in a demonstrable amount (based on tax records or simple accounting) or, more popular in practice, in the form of flat-rate expenses amounting to 60 % of the income, up to a maximum of EUR 20 000 per year.
The personal (and business) income tax rates in 2026 are 15%, 19%, 25% , 30% or 35%.
For sole traders, the tax-free part of the tax base (EUR 5 966.73 per year) and other reliefs (e.g. tax bonus for children) also apply if they meet the legal conditions. However, from the new year 2026, the non-taxable part of the tax base per taxpayer is reduced proportionally according to the amount of the tax base, and from a tax base of EUR 48,441.43 per year, the non-taxable part of the tax can no longer be applied even to sole traders, or it is EUR 0.
A limited liability company (Ltd.) is subject to corporate income tax. In 2026, the basic rate of income tax is 10%, 21% or 24%, with the tax calculated on the tax base adjusted for items increasing or decreasing the profit or loss under the Income Tax Act. The Ltd. is required to keep double-entry accounts and to file its tax return annually by 31 March of the following year, or later if an extension has been notified.
In addition to the income tax itself, the tax burden on the distribution of profits to 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 effectively optimise the tax burden in different ways. On the other hand, if set up incorrectly, the overall tax burden can be higher than for a sole proprietorship, especially for low profits.
At the same time, there is an obligation to pay a minimum corporation tax, the so-called tax licence. 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:
From 2026, a shortened “levy holiday” for start-ups applies. Consequently, if a sole trader exceeds the income threshold of EUR 9,144.01 for 2025, he/she is obliged to pay a minimum contribution to the Social Insurance Institution of EUR 303.11 per month. The amount of the contributions may subsequently increase depending on the tax base reached, but cannot be lower than the minimum.
If the sole trader has not exceeded the income threshold of EUR 9,144.01 for 2025, he is obliged to pay a monthly premium to the Social Insurance Institution in the amount of EUR 131.34. In the case of a new sole trader, he/she has to pay a social insurance premium of EUR 131.34 per month, after the expiry of the “shortened levy holiday”.
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 whether he/she is also employed 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:
If the remuneration is irregular, for example paid once a year or only occasionally, the levies are slightly lower:
If the managing director is also a regular employee of the company who works under an employment contract, contributions to the extent of the salary from the employment relationship are governed by the standard rates as for a regular employment relationship:
It should also be noted that social levies are not paid on the profit share (dividends), which can significantly affect the overall tax burden on shareholders if the remuneration is set correctly.
Differences in health levies between trade and s. r. o. are significant in 2026, especially in terms of the obligation to pay them and the flexibility in the level of levies. A self-employed person is always liable to pay health levies, regardless of the amount of his/her income. There is also no minimum threshold for joining the compulsory scheme.
In 2026, the minimum monthly advance payments for health insurance are EUR 121.92, which are payable by every self-employed person, unless he/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. The amount of health insurance in this case is based on the amount of this income – usually 16% of the amount paid (11% paid by the company and 5% by the recipient).
The advantage of this system is that the entrepreneur (as a director or shareholder) has a direct influence on the amount of remuneration paid and therefore on the amount of levies, which allows better control over the company’s costs.
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.
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