It’s crucial for freelancers to understand the difference between Professional Activity and Business Activity. These two categories of business affect everything from:
- How you operate your business
- How you declare your income
- The taxes you need to pay
- The category you register under
Grasping the intricacies of these two activity types will save any professional money, time and bureaucratic headaches. In this article, we cover the key differences you need to know.
Professional activity: Knowledge is your main tool
Professional activities are carried out by individuals qualified to practice their professions. Whether it's through an academic degree, specialized training or membership in a professional association, people who perform these activities don’t need large infrastructures.
Their main asset is their knowledge and experience.
What does this mean?
Think of doctors, lawyers, engineers, programmers, architects and accountants. These are professionals who work independently, and whose activity relies on their expertise.
Key characteristics of professional activity:
- Income tax (IRPF) withholding: If you're a professional, you must apply a 15% withholding tax on your invoices. Good news: for the first three years, you can apply just 7%.
- Form 130: You don't have to file Form 130 quarterly if at least 70% of your income is subject to withholding tax.
- Control and decision-making: You have full control over the quality and methods of your work because everything depends on your skills.
Business activity: Structure and resources at play
Business activities, on the other hand, require a more robust structure. We're talking about human and material resources needed to produce and distribute goods or services.
What does this mean?
Retail (physical stores or e-commerce), hospitality (restaurants, bars), manufacturing, or even professional photographers with their own studios are examples of those involved in business activities.
Key characteristics:
- Production of goods and services: This involves both service provision and the production of tangible goods.
- Organizational structure: You’ll need a more complex setup with staff, resources, and defined processes.
- Significant investment: A business activity requires greater investment in technology, equipment, and infrastructure.
- Client management: Not only do you offer products or services, but you also actively manage relationships with your client base.
- Diversification: Businesses often offer a variety of products or services to adapt to different market needs and diversify income streams.
- Entrepreneurship: This includes marketing strategies, brand development and business growth.
Comparing professional activity vs. business activity
|
Characteristics |
Professional Activity |
Business Activity |
|
Definition |
Carried out by professionals with qualifications |
Carried out by business owners with complex structures |
|
Structure |
No need for business infrastructure |
Requires organization, staff and resources |
|
Production |
Mainly intellectual services |
Production of goods and services, often tangible |
|
Investment |
Lower investment in equipment |
Higher investment in technology and infrastructure |
|
Client Management |
More personal and direct client relationships |
Active client portfolio management and project planning |
|
Diversification |
Usually offers a single service |
Offers multiple products or services |
|
Income Tax Withholding |
15% (7% for the first 3 years) |
Not required to apply withholding tax |
|
Form 130 |
Not required if more than 70% of income is subject to withholding |
Required to file quarterly |
|
Quality Control |
Greater control over quality and methods |
Quality management through organized processes |
|
Entrepreneurship |
Freelancers or independent professionals |
Involves creating and managing a business |
Which activity type should you choose: Business or professional?
Choosing between registering under professional activity or business activity depends on the nature of your work. If your activities are based on your knowledge and expertise, you’ll probably fit better as a professional. However, if you're managing a business with employees, processes and diversified products or services, then business activity is the way to go.
Keep in mind, when choosing your activity type
Understanding these differences will help you not only choose the correct category for tax purposes but also manage your business and taxes more efficiently.
Still unsure which activity fits you best? Get in touch with us for personalized advice at hello@xolo.io.
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These guys literally saved my business life, after talking to many gestors for all money of the world I found Xolo and they just did everything very fast (organized the company, explained all rules, registered all taxes) and since then within almost 2 years I am happy with the support and advice for super reasonable price. Alyona S.
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How does Xolo help expats in Spain
Navigating the intricacies of freelancing in Spain can be daunting, but Xolo is designed to help. Xolo offers everything you need as an expat in Spain:
- Simplified Registration: Xolo takes care of the entire autónomo registration process, ensuring you meet all legal requirements.
- Invoicing Software: Xolo provides intuitive invoicing software that supports multiple currencies and automatically calculates VAT when needed.
- Tax Compliance: Stay on top of your tax obligations with Xolo’s expert guidance. Personalized quarterly and annual tax filings ensure you avoid any penalties.
- Priceless Support: Whether you have questions about VAT, social security contributions, or currency exchange, Xolo’s team of experts is available to provide support.
Invoicing international clients as a freelancer in Spain involves understanding VAT rules, currency conversion and legal registration requirements. For expats in Spain, Xolo offers unshakeable support, making the process of freelancing and invoicing simple and efficient.
Take the stress out of freelancing with Xolo’s comprehensive service, and focus on what you do best: your freelance work.
