Sole trader or private limited company?

03.07.2025

14 min.

We receive this question from our freelancers almost every day. To address this, we have prepared a brief summary of the advantages and disadvantages of operating as a sole trader versus a private limited company.

Are you thinking about starting a business but don’t know where to begin or what to consider? At TITANS, we utilised the extensive knowledge of our CFO, Michal Brigant, to create a comprehensive overview of the key differences between being a sole trader and a private limited company.

It’s important to note from the outset that there is no one-size-fits-all answer regarding which business structure is more advantageous. You need to assess your individual situation. Regardless of the form of business you choose, TITANS is here to support you and help you launch your career.

Basic Information about Sole Traders and Private Limited Companies

A natural person may choose to conduct business as a sole trader by obtaining a trade license, which can cover one or more activities. The chosen activity should align with the nature of the business. Generally, these are categorized as free trades, which do not have specific requirements regarding education or experience. In contrast, craft and regulated trades require proof of professional competence to carry out.

Alternatively, a natural person may opt to establish a business as a commercial company. This guide focuses on private limited companies (spoločnosť s ručením obmedzeným – s. r. o.). A private limited company can be founded by an individual or jointly by several people. This type of company is a separate legal entity authorised to carry out business activities under its own registered name in the business register. The founder of the company may serve as a partner, managing director, or employee of their private limited company.

Starting a Business as a Sole Trader or a Private Limited Company

The process of starting a business as a sole trader is generally faster and less administratively complex. The individual must obtain a sole trader license from the Trade Licensing Department at their local district office. To qualify, the individual must be at least 18 years old and have a clean criminal record.

For free trades, it is possible to commence business activities on the same day the registration is completed. Registration as a sole trader can be done either in person or online at www.slovensko.sk. Additionally, there are companies that offer services to handle the entire registration process for a minimal fee (approximately EUR 30).

In the case of a private limited company, business activities can only begin after the company is entered in the business register. This process is more administratively demanding and time-consuming. Firstly, you need to prepare and sign a set of founding documents and then apply for a trade license (which is also required for private limited companies). Subsequently, an application for entry in the business register must be submitted, accompanied by a court fee of EUR 220.

You can also opt for turnkey company establishment services, which will set up your private limited company for a fee of around EUR 300. Additionally, it’s important to consider the minimum share capital requirement of EUR 5,000. Generally, the entire process for establishing a private limited company takes up to two weeks.

Liability or Risks Associated with the Business

As a sole trader, the individual is personally liable for all business obligations with their entire asset portfolio, including personal assets. While this might seem daunting, obtaining liability insurance can mitigate the risks. The insurer will cover potential accidents and damages, protecting the individual from financial claims they would otherwise have to pay out of pocket.

In the case of a private limited company, liability is limited; however, it is essential to understand the following points:

As a separate legal entity, a private limited company is liable for its business obligations with all of its assets (for example, a vehicle registered to the company).

A partner in a private limited company is liable for the company’s obligations up to the amount of their unpaid contribution recorded in the business register. Typically, these contributions are fully paid, and the partner is not liable beyond this amount.

A managing director of a private limited company must perform their duties with professional care and in the best interests of the company as a legal entity. In cases of bankruptcy involving the company’s assets, creditors may, according to Section 135a (5) of the Commercial Code, seek damages from managing directors who fail to demonstrate that they acted with professional diligence, potentially leading to the seizure of their personal assets.

Contributions

In the first year of business, sole traders are exempt from paying social security contributions, however, they are required to pay health insurance contributions at the minimum rate (in 2025, this amount is EUR 107.25 per month). In subsequent years, sole traders pay monthly contributions based on their income, while still adhering to the minimum contribution rate (the minimum contribution to the Social Insurance Agency in 2025 is EUR 237.02 per month).

For private limited companies, various options apply depending on how remuneration is structured for a partner, managing director, or employee.

If a natural person is an employee of a private limited company, they pay 13.4% of their gross salary in contributions, and the company also pays 36.2% in employer contributions (the total of the gross salary and employer contributions is referred to as the super-gross salary).

If the managing director receives regular remuneration, they pay 13.4% in contributions, while the company pays 35.15%.

If the managing director’s remuneration is irregular, the contributions are 11.0% from the director, with the company paying 32.75%.
- Note: A managing director receiving EUR 3,000 for the first quarter and EUR 9,000 for the remainder of the year is considered to have regular remuneration.

The share of the company’s profits paid to a partner (dividend) is exempt from social security and health insurance contributions.

Income Tax for Sole Traders and Private Limited Companies

If you found the various contribution rates complex, brace yourself for the income tax rates that follow.

A sole trader has a set annual income limit of EUR 100,000, which determines the applicability of three different income tax rates:

If the annual income of a sole trader doesn’t exceed the above limit, a 15% rate is applied to the income tax base

If the annual income of a sole trader exceeds the above limit, the following rate applies:
- 19% on the income tax base up to EUR 48,441.43
- 25% on the income tax base exceeding EUR 48,441.43

For private limited companies, the corporate income tax bands depend on the company’s annual revenue. The rates apply to the entire tax base within each band:

10% for turnover up to EUR 100,000

21% for turnover from EUR 100,000 to EUR 5,000,000

24% for turnover exceeding EUR 5,000,000

However, for private limited companies, the situation regarding taxation does not end with the taxation of company profits. At the time of payment of the share of after-tax profits to a partner in the company, this income is subject to withholding income tax (for profits generated in 2025, this tax rate is 7%). The tax is paid by withholding at source, meaning that partners receive their profit shares after the tax has been deducted, and the company pays the tax directly to the tax authority.

That’s it for income tax rates. But how is the tax base for the above rate calculated?

When it comes to sole traders, we have two options:

The tax base is the income of the sole trader minus flat-rate expenses and social security and health insurance contributions.
- Flat-rate expenses can be claimed at 60% of the total income, up to a maximum of EUR 20,000, provided that the trader is not a VAT payer.
- In practice, this means that for incomes above EUR 33,333, flat-rate expenses no longer provide a tax shield for sole traders, and every additional euro earned is subject to income tax in full.
Alternatively, a sole trader can deduct actual business-related expenses from their income when calculating their tax base.
- This method is mandatory for sole traders who are VAT payers.
- However, achieving the tax shield level with flat-rate expenses can be particularly challenging for sole traders, especially those in the IT sector. It should also be remembered that the claimed expenses must be paid and directly related to the business operations. Further information on tax-deductible expenses is available below.

In addition, when calculating the tax base or tax liability, a sole trader may apply a non-taxable portion of the tax base to themselves or their spouse. They can also claim a tax bonus for a child or deductions for home loan interest.

At first glance, calculating the income tax base for private limited companies may seem simpler, but the devil is in the details:

The income tax base is determined by the company’s accounting profit before tax, but adjustments must be made for tax calculation purposes. These adjustments involve both additions and deductions.
- Additions are typically non-tax-deductible expenses (e.g. entertainment costs), but also tax-deductible expenses that only qualify after they have been paid (e.g. consulting services, rent, etc.).
  - Have you ever heard someone say, “I’ll put that on the company account”? We all have different levels of tolerance for adrenaline, and maybe some people enjoy tax audits. Regardless, it’s important to remember the provisions of the income tax law: tax-deductible expenses must be incurred to attain, provide for, or maintain the company’s income. Non-business-related costs also impact VAT.
- Deductible items may include proceeds exempt from income tax, e.g. a share of profits paid out by a subsidiary.

For smaller companies, it is often simpler to align accounting depreciation with tax depreciation. This eliminates the need to reconcile any discrepancies when calculating the tax base.

In the case of legal entities—in our case, a private limited company—there is also a minimum income tax or tax licence that the company must pay even if it has a negative tax base. For revenues up to EUR 50,000, it amounts to EUR 340, and for revenues up to EUR 250,000, it is EUR 960. For revenues up to EUR 500,000, the minimum tax is EUR 1,920, and for higher revenues, it is EUR 3,840.

Transaction Tax

At this point, there surely should be more than enough tax and contribution payments already, but hang in there, we’re almost done. The consolidation package for public finances in Slovakia for 2025 has introduced a new measure in the form of a transaction tax for legal entities and sole traders.

Simply put, companies and sole traders operating in Slovakia have started paying a tax on their expenses as of 1 April 2025, specifically, 0.4% of each payment made via bank transfer (with a maximum transaction tax of EUR 40 per payment; this maximum is reached with a payment of EUR 10,000). In addition, cash withdrawals from ATMs are taxed at a rate of 0.8% of the withdrawal amount, with no limit on the amount of tax. Payments to the state treasury (VAT payments, income tax and contribution taxes), transfers between accounts of the same entity within one bank, and payments made by payment card are exempt from the tax.

What does this mean for sole traders? Until recently, they could use a private bank account for business purposes, but from 1 April 2025, they must have a separate business bank account. Setting it up is easy. All you need is an extract from the trade register and your ID card, and ideally, the bank will complete the setup in 15 minutes. It is beneficial to open a business account at the same bank where you have your private account, as this will exempt transfers from your business account to your private account from transaction tax.

In the case of private limited companies, it has always been mandatory to have a separate bank account for business purposes. However, when dividends are paid into your private bank account, you cannot avoid the transaction tax.

We have one additional little piece of advice for you regarding the transaction tax. We don’t recommend using “workarounds” such as opening an account with Revolut or a foreign bank. While Slovak banks calculate and deduct the tax on your behalf, if you use a foreign bank, the obligation to manage the tax falls on you as the business entity operating in Slovakia.

Accounting and Administration

In this case, we’ll start with private limited companies, which are required to keep double-entry accounting. They must record expenses that are substantively and temporally related to the reported revenues, manage payroll records, prepare inventories, and compile financial statements. In addition, it is necessary to organise general meetings and document them in the minutes.

Last but not least, the relationship between the legal entity and the partner/managing director must be based on a contract. At first glance, this may seem overwhelming, but it’s always possible to outsource accounting to an experienced accounting firm. Depending on the complexity and number of transactions, you can expect monthly costs ranging from EUR 150 to 300 for a smaller private limited company. It should be noted, without exaggeration, that a good accountant is priceless.

Unlike private limited companies, a sole trader can choose from four accounting methods, ranked from the most expensive to the cheapest and least time-consuming: double-entry accounting, simple accounting, tax records, or simplified tax records for flat-rate expenses.

For simplified tax records, you must summarise your income for the previous year by March 31 of the following year for flat-rate expenses. Paying your contributions and preparing your tax return shouldn’t take more than half an hour. If you prefer not to handle your tax return yourself, an experienced tax advisor will prepare it for you for a fee of about EUR 200.

Can’t find or choose an accountant? Contact us and we’ll advise you. In any case, keep in mind that the accountant will only work with the documents you provide, and you are responsible for their accuracy and completeness.

Terminating the Business

In the best-case scenario, all’s well that ends well. Terminating a business as a sole trader is relatively straightforward. A sole trader can cancel their business by filling out a simple form free of charge. A sole trader also has the option to suspend the trade after providing notice for a nominal fee. During the suspension period, the sole trader is exempt from paying social security contributions or health insurance.

Dissolution of a private limited company is a more complicated process. It can only be completed by removing the company from the business register at least six months after it enters liquidation. As part of the liquidation process, an advance payment of EUR 1,500 must be deposited with a notary, but this will ideally be refunded once the liquidation is complete. In addition, expect a EUR 50 fee for registering the private limited company for liquidation. A faster process may be to sell the company, but caution must be exercised with regard to the terms of the purchase agreement.

Conclusion

That’s it, unfortunately, in a nutshell. The tax and administrative burdens on entrepreneurs in Slovakia can be significant, but don’t let that discourage you. If you are launching a start-up business with expected annual revenues of up to EUR 50,000, consider starting with the more flexible option of a sole trader license. If your business proves successful, you can always switch from being a sole trader to a private limited company. However, it is advisable not to offer the same services simultaneously as both a sole trader and a private limited company, as this can lead to complications with the tax authority.

This article provides information about conducting business and the current legislation in Slovakia.

This text does not constitute tax advice or provide a complete description of the procedures, factors, and actions associated with the individual areas described above. If you have any questions or concerns, we strongly recommend seeking professional assistance from an accountant or tax advisor.