Business or professional activity: are they the same? Which one to choose when registering as self-employed

For a variety of reasons, more and more people are deciding to work on their own account, whether because they want to fulfill a dream, they are true entrepreneurs, or they have lost their job and need to find a source of income.

One of the first questions that self-employed workers usually face when registering with the tax authorities is what type of activity they will carry out on their own account: a business activity or a professional activity. One of the fundamental requirements for registering as self-employed is choosing the Business Activities Tax (IAE) heading that most closely matches your activity. This is a necessary and binding step for carrying out that activity. But do you know whether you carry out a business activity or a professional activity? Below we explain what each one involves and what obligations each entails with respect to the Spanish Tax Agency (AEAT).

What professional activities are

A professional activity is one that an individual carries out personally and directly. In other words, these are activities that an accredited professional performs by putting into practice the knowledge acquired during their training, on which their entire work structure is built.

Their main characteristic, therefore, is that they do not need to be set up as a company in order to operate, because they do not require a corporate or business structure: their structure is the activity itself, and that is why professionals themselves choose their working hours, the place where they will work, the means they will use to do so… A clear example of self-employed workers carrying out professional activities would be lawyers, architects, or notaries who freely practice a profession for which they have trained and use their own means to do so.

What business activities are

Business activities, for their part, are those carried out within a business structure. They stem from fields such as manufacturing, garment making, construction, trade, transportation, or hospitality.

That is, a business activity is one that has a business structure: infrastructure, employees, a work plan, and means of production. An example of a business activity would be running a restaurant, a hair salon, a grocery store…

The main tax differences

Now that you know the difference between a professional activity and a business activity, the question is: what are the tax implications of each? They are as follows:

• Invoices for professional activities are subject to withholding, generally at 15% (although there are certain reductions for self-employed workers starting an activity and for certain professional activities). This withholding applies only when invoicing businesses, not private individuals.  

• In business activities, the invoices issued are not subject to withholding, and therefore there is no obligation to withhold Personal Income Tax (IRPF).

It is important to note that a professional activity may become a business activity at any time if the self-employed worker decides to organize their work on a business basis, for example by hiring employees or renting infrastructure or means of production.

It is also worth adding that self-employed workers may carry out a professional activity and a business activity at the same time. In this case, withholding will only need to be applied to invoices issued in connection with the professional activity.

With all this information, you can now assess whether your work is a professional activity or a business activity and understand what relationship you will have with the tax authorities.