Start with the business model: customers, expenses, partners, employees and contractual risks. Comparing a single tax rate is misleading. Build an annual budget and decide how the owner will receive money.

Liability and owner access

CriterionŽivnosťS.r.o.
Business entityIndividualLegal entity
RecordsDepends on the permitted methodDouble-entry accounting
Access to fundsThe trader’s personal fundsPayment with a legal basis

A živnostník trades personally and bears personal liability. An s.r.o. is a separate entity; a shareholder generally guarantees liabilities up to the unpaid contribution recorded in the register. Directors remain accountable for breaches of duty. Company money is not personal spending money.

What to compare for tax

SZČO can use 15% on the relevant business tax base when taxable §6(1–2) receipts do not exceed €100,000; above this threshold progressive rates apply. Corporate rates are 10%, 21% or 24%, depending on taxable revenue. Revenue determines the rate, while the tax is charged on the tax base.

Dividends, salary and director remuneration follow different rules. The standard dividend rate for an individual receiving profits from periods starting in 2025 or later is 7%; cross-border cases need a separate check. An s.r.o. can owe minimum corporate tax even with a loss, subject to statutory exceptions.

For an s.r.o., 10% applies with taxable revenue up to €100,000, 21% above €100,000 up to €5 million, and 24% above €5 million. The profit year matters for dividends: the ordinary individual rate is 10% for 2024 profits and 7% for periods starting in 2025.

Accounting and insurance

An s.r.o. uses double-entry accounting. SZČO records depend on the expense method; check eligibility for flat-rate expenses. Include health and social insurance in the sole-trader budget. Do not assume the first year is free of social insurance in 2026: new and transitional rules apply.

Starting and closing

Paper trade notification costs €7 per free trade and €22 per craft or regulated trade. Electronic free-trade notification is free; the others cost €11 each. An s.r.o. also needs formation documents, register entry and administrative spending. Closing a company is more involved than ending a trade; suspending a licence does not dissolve the entity.

A practical decision

Prepare two budgets with identical revenue: tax, insurance, accounting, banking and the owner’s final proceeds. Assess customer claims and partner requirements separately. For foreign nationals, business registration and permission to work or reside are separate questions; account for immigration status when choosing.

SZČO calculation: flat-rate expenses are not money actually spent

Suppose a sole trader receives €40,000 during the year, spends €4,000 on the business and separately pays €5,000 in compulsory contributions. The contribution amount is an assumption for this example, not a calculation applicable to every SZČO. If paušálne výdavky are available, 60% of receipts would be €24,000, but the €20,000 cap applies. Adding eligible contributions paid gives deductions of €25,000; the partial tax base before NČZD is €15,000.

Using actual expenses, the base in the same example would be €40,000 − €4,000 − €5,000 = €31,000. This compares expense methods, not final tax: eligible allowances, other income and tax-return rules still matter. Actual cash remaining before tax is €31,000, not €15,000. A flat-rate deduction reduces the tax base without implying that the money was spent.

The 60% method is available to someone who is not a VAT payer or is a VAT payer for only part of the year; a full-year VAT payer cannot use it. With several income types under §6(1–2), you cannot freely choose flat-rate expenses for one and actual expenses for another. VAT registration can therefore change which business structure is attractive even if revenue stays the same.

S.r.o. calculation: from profit to dividends

Assume taxable revenue of €60,000, allowable costs of €20,000 and accounting profit equal to the €40,000 tax base. The company qualifies for 10% tax, giving corporate tax of €4,000 and after-tax profit of €36,000. If the full amount can legally be distributed and 7% withholding applies to the recipient, dividend tax is €2,520 and the owner receives €33,480. Combined taxes are €6,520, or 16.3% of €40,000, not 17%: the second tax applies to the remainder after the first.

This example concerns profit from a period starting in 2025 or later and an ordinary payment to an individual who is a Slovak tax resident. It assumes the reserve fund is already funded, with no previous losses or other restrictions on distribution. It does not calculate the owner’s personal health insurance, additional accounting costs or transaction tax; if these are not already included in costs, the budget needs recalculating. Current-year profit cannot be withdrawn every month as advances on future dividends.

What to check before moving from živnosť to a company

  • List existing contracts and agree the new supplier, transition date and payment details with clients. An old invoice does not automatically become an s.r.o. invoice.
  • Review equipment, licences, receivables and advances separately. Transfers between you and your company require documentation and a tax assessment.
  • Budget personal living expenses until profits can be distributed. For regular payments, establish the legal basis and full payroll cost in advance.
  • Ask your accountant to compare the first and subsequent years: SZČO contributions, accounting, minimum corporate tax and one-off costs can produce different results.

A practical stress test: reduce expected revenue by 25%, delay two large customer payments by 60 days and check whether obligations can still be paid. The structure with a lower estimated tax bill may be inconvenient for your family if personal income arrives too late.

Related guides

Official sources