Employer of Record vs Setting Up a Spanish Entity

Setting up your own entity usually means incorporating a Sociedad Limitada, the Spanish equivalent of a limited company. You become the registered employer, open your own payroll and social security accounts, and take on the full set of employer and company obligations.

An Employer of Record Spain flips that around. The EOR is already a registered Spanish employer, so it employs your chosen person on its own entity and handles the contract, payroll, and compliance. You direct the work; the EOR carries the legal side. If the model itself is new to you, our explainer on what an Employer of Record is is the place to start.

Incorporating a Sociedad Limitada is not hugely expensive to set up, but the running costs add up. Expect roughly 600 to 1,500 euros to incorporate, covering the name certificate, the notary, and the Registro Mercantil. The larger number is the ongoing cost: accounting, quarterly filings, annual accounts, corporate tax work, and the director’s social security typically run to several thousand euros a year even before you pay anyone.

An EOR replaces all of that with a single monthly fee per employee, on top of the salary and the statutory employer costs you would pay either way (employer social security is around 30% of salary in both models). For one hire or a small team, that usually makes the EOR the lower total cost, because you are not funding a whole company’s overhead for one or two people.

Incorporating an SL usually takes two to four weeks once you have the pieces in place, and it assumes the directors already hold a Spanish tax number (NIE). You need a company name certificate from the Registro Mercantil Central, a notarial deed of incorporation, a tax ID (CIF), registration for tax and social security, and entry in the provincial Registro Mercantil. Only then can you open payroll and hire.

Since the 2022 Crea y Crece law you can form an SL with as little as 1 euro of share capital, which lowered the barrier to entry, though special reserve rules apply until capital reaches 3,000 euros. With an EOR, none of this sits on your critical path: the entity and payroll already exist, so a compliant employee can start in days rather than weeks.

This is where owning an entity really shows its weight. A Spanish company has to file corporate tax at 25% on profits (reduced rates apply to some new and small companies), submit quarterly VAT and withholding returns, keep proper accounting records, file annual accounts, and run its own payroll and social security every month. The director’s own social security, often under the self-employed regime (RETA), is a further monthly cost.

With an EOR, those obligations sit with the EOR, not with you. It runs payroll, files IRPF and social security, applies the correct collective agreement, and keeps up with changes in the law. You get a compliant employee without becoming a Spanish taxpayer and filer yourself.

• Corporate tax return and 25% on profits (own entity only).
• Quarterly VAT and withholding filings (own entity only).
• Annual accounts filed at the Registro Mercantil (own entity only).
• Monthly payroll, IRPF and social security (EOR handles this for you).
• Director’s social security under RETA (own entity only).

The decision usually comes down to scale and intent. If you want one person in Spain, a small team, or you are testing the market before committing, an EOR gives you a compliant hire quickly and cheaply, with an easy exit if plans change.

If you are building a larger, permanent operation in Spain, need a registered local presence for other reasons, or want full control of the structure, your own entity earns its overhead because it is spread across many employees. Many companies start with an EOR and set up an entity later, once the headcount justifies it. If your next question is the practical how-to, our step-by-step guide to hiring in Spain walks through the registrations in detail.