Sole Trader or Limited Liability Company – Which Business Form is Better to Choose in Slovakia in 2026?
21.01.2026
At the beginning of January, entrepreneurs in Slovakia faced a noticeable increase in social and medical contributions. As a result, many of them are once again considering the question – at what income level is it more advantageous to abandon operating as a sole trader (živnostník) and re-register as a limited liability company (s. r. o.).
What Happened
In early January, the provisions of the third consolidation package came into effect, under which the Slovak government tightened the rules for social and medical contributions for the self-employed. Let us recall their key provisions:
- The “holiday” on social contributions for new entrepreneurs has been reduced: they are now exempt from payment only for the first five months of operation;
- The preferential rate for social contributions in the form of an income threshold is completely abolished;
- The minimum base for calculating social contributions has increased from 50% to 60% of the average salary in the country, which directly increases the minimum monthly payments — approximately to 303.11 euros for social insurance and about 121.92 euros for medical insurance.
These changes will result in many sole traders paying several hundred euros more in contributions annually than before. Moreover, a business with low income (for example, around 100 euros per month) may find itself in a situation where the payments exceed its profits. Consequently, the very existence of such a business will cease to make economic sense – such situations are already being discussed on Reddit.
Against this backdrop, switching to alternative forms of business organisation – primarily limited liability companies (s. r. o.) – may make practical sense. The fact is that for a sole trader, social contributions will constitute a significant part of total expenses, whereas an LLC can maintain a lower tax burden through preferential corporate tax rates.
When Should You Become an LLC?
There is no universal threshold at which transforming a business into a limited liability company is guaranteed to be more advantageous in terms of fiscal burden. The decision should depend on many different factors – the size of income, the presence of actual expenses, the obligation to pay medical contributions, the use of tax benefits, and even the entrepreneur’s family situation.
If only taxes and insurance contributions are considered, switching to an LLC may start to be beneficial with a gross monthly income of around 3,000 euros. This is because a sole trader can apply lump-sum expenses (a simplified method of tax accounting) at 60% of income, but only up to a limit of 20,000 euros per year. This limit is reached with an income of around 33,000 euros. Once exceeded, the tax burden on a sole trader begins to rise rapidly, and at certain thresholds, mandatory contributions also increase.
| Annual Income of Sole Trader | Average Monthly Income | Result |
| Up to 33,333 euros | Up to 2,778 euros | Sole trader remains the more advantageous form of business |
| From 33,333 to 33,588 euros | From 2,778 to 2,799 euros | Sole trader loses the ability to deduct lump-sum expenses but pays the minimum amount of social and medical contributions |
| From 33,588 to 36,306 euros | From 2,799 to 3,025 euros | Sole trader starts paying increased medical insurance |
| From 36,306 to 50,000 euros | From 3,025 to 4,166 euros | Sole trader starts paying increased social insurance |
| From 50 to 100 thousand euros | From 4,166 to 8,332 euros | Sole trader loses the right to lump-sum expenses and becomes a VAT payer |
| More than 100 thousand euros | More than 8,332 euros | Sole trader is subject to additional progressive taxation, resulting in total taxes and contributions potentially amounting to half of all income |
From this, it follows that with annual incomes of around 30,000 euros per year, the sole trader form remains the more preferable option: the entrepreneur pays minimal social and medical contributions, uses lump-sum expenses in full, and has the right to a tax-free portion of income.
The advantages of a sole trader begin to diminish with an annual income of more than 50,000 euros. And upon reaching the mark of 100,000 euros per year, this form effectively loses its meaning – the profit tax rate for the self-employed rises from 15% immediately to 19% or 35% depending on the size of the taxable base.
Examining Specific Cases
Let us consider a business earning between 30,000 and 50,000 euros per year – this range includes the largest number of sole traders in the country. Before examining specific examples, let us provide some important introductory notes:
- As mentioned above, a sole trader with an annual income of 33,588 euros pays minimal social and medical contributions, which then begin to increase;
- A limited liability company (s. r. o.) does not pay minimum social contributions if the manager does not pay themselves a director’s salary;
- For a sole trader, the profit tax rate is 15% with an annual income up to 100,000 euros, beyond which it increases significantly;
- A limited liability company with income up to 100,000 euros pays 10% profit tax and 7% dividend tax. With higher turnovers, the profit tax rate increases to 21% or 24%, but the dividend tax remains unchanged.
Now let us take as an example three different businesses with annual income within our range of interest. Importantly, the examples below do not consider expenses that the business may deduct for its needs – we consider only its income, as well as taxes and social contributions.
With an income of 32,400 euros per year, a sole trader will pay minimal contributions and a symbolic profit tax, retaining a net income of 27,015 euros.
The income of a limited liability company (s. r. o.) will depend on whether it is obliged to pay medical contributions. If not, its income will be 29,160 euros, and if such an obligation exists, it will decrease to 25,655 euros – that is, less than that of a sole trader.
This means that with such income, the LLC form will be advantageous only for those not obliged to pay medical contributions. Such an exception applies in several cases: the business owner must be a student, pensioner, on maternity leave or parental leave, or the necessary social contributions are made by the state.
With an income of 40,000 euros, the net income of a sole trader and an LLC owner is approximately the same — about 32,000 euros. Formally, the sole trader still slightly wins, but the difference is minimal and can be offset by the company’s actual expenses or the desire to limit personal property liability.
However, at the level of 49,000 euros per year, the LLC already noticeably wins – after paying all taxes and contributions, the company owner receives approximately 3–3.5 thousand euros more than a sole trader with the same income.
| Annual Income | Average Monthly Income | Net Income of Sole Traders and Self-Employed | Net Income of Limited Liability Company (s. r. o.) |
| 32,400 euros | 2,700 euros | 27,015 euros | From 25,655 to 29,160 euros |
| 40,000 euros | 3,333 euros | 32,272 euros | From 32,016 to 33,480 euros |
| 49,000 euros | 4,083 euros | 37,392 euros | From 40,849 to 41,013 euros |
The examples show that the increase in contributions makes entrepreneurship as a sole trader less attractive at higher incomes. Up to a level of approximately 30–35 thousand euros per year, a sole trader remains a more advantageous and simpler option. In the range of about 40 thousand euros, the choice will strongly depend on individual circumstances, and with incomes above 49 thousand euros and with actual expenses, an LLC is in most cases a financially and strategically more reasonable decision.
One of the key factors in choosing the more advantageous form of business is its actual expenses. A sole trader without expenses benefits from lump-sum deductions, whereas an LLC cannot artificially “inflate” expenses to 60%. However, if the entrepreneur has significant costs — car, equipment, rent, accounting — then the LLC can benefit with comparatively moderate incomes.
Not Just Numbers
When choosing a business form, it is important to consider not only taxes. A sole trader benefits from simplicity: registration and closure can be completed in one day, the entrepreneur often manages accounting independently, and money from clients is immediately available.
An LLC requires double-entry bookkeeping, a minimum share capital of 5,000 euros, registration in the commercial register, and more complex liquidation. Moreover, the money in the company’s accounts legally belongs to the firm, not the owner, and can only be withdrawn as salary or dividends after the approval of the financial statements.
The key advantage of an LLC is limited liability. Unlike a sole trader, who is liable for obligations with all their assets, the owner of an LLC risks only the amount of the share capital.