January 29, 2022

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Have you been starting a business since 2022 and can't choose what kind of business it looks like?  (Trade vs. Ltd.)

Have you been starting a business since 2022 and can’t choose what kind of business it looks like? (Trade vs. Ltd.)

Do you want to start a business from the new year? Can’t decide which type of business is best for you? We will advise you.

In this article, we will compare whether setting up a business or a company is a good thing in business. experts from Consultare accounting firm Digital

Which one is more useful? trade or ltd.

What are the main criteria to consider?

Before you choose the right form of work, you need to think about a few things. First of all, you must bear the amount of annual income. Expense application method and bookkeeping method. The tax rate at which you tax your income. Obligation to pay social and health contributions. Possibility to withdraw funds from the business. commercial responsibility. Costs of accounting treatment and preparation of tax returns.

Do you know how much your annual income will be?

It is important to realize in what area I will do business and to anticipate the amount of annual income for the business. With lower incomes annually, the trade is also worthwhile, as you will not pay high contributions and you can also get lower income tax if you apply a flat rate. High income, exceeding the limit of 50,000 euros per year, is worth receiving from sro

How can you reduce your company’s tax liability?

In commerce, it is possible to apply several methods of managing expenses, which reduce the tax base and, accordingly, income tax. A self-employed person can choose between actual and fixed expenses. Fixed expenses are applied by low-income entrepreneurs, while the tax base can be reduced by 60 percent of total income per year, up to a maximum of 20,000 euros. Actual expenses to be proven by accounting documents (bills, bills) can be kept by a self-employed person in three ways.

Business and Accounting

When should I do business accounting?

You can keep tax records, simple double bookkeeping. Tax records are just a table in which income and expenses are recorded. When keeping accounts, you actually have to prepare the financial statements and close the books, which you wouldn’t be able to do without a good accountant. The difference between simple and double-entry bookkeeping is that in simple accounting, you record income and expenses according to payments and in double-entry bookkeeping, you record costs and revenue that arise from issuing an invoice. With trade, double-entry bookkeeping doesn’t pay off, because you’re also taxing income that hasn’t yet been paid to you. The company must claim actual expenses and keep double-entry books.

At what commercial income tax tax rate?

An entrepreneur can tax income from commerce at up to three tax rates. If your total business income for the year is 49,790 euros, you will apply a tax rate of 15 percent. In the case of high incomes, a tax of 19 percent is imposed. For individuals, there is also a so-called “millionaire” tax rate of 35 percent. Natural persons whose tax base exceeds €37,981.94 are subject to tax at this rate. LLCs tax their income at two tax rates. They can use the 15 per cent rate if their total revenue for the year does not exceed €49,790. If their income is higher, they tax the profit at a tax rate of 21 percent.

Social and health contributions

Am I required to pay social and health contributions for both types of businesses?

A self-employed person who is not an employee pays at least €76.44 per month in the first year of his employment. In the first year of work, the independent business owner is exempted from paying contributions to the social insurance company. The premium amount will be calculated by the health and social insurance company only after the first trade tax return has been submitted. The amount of the insurance premium depends on the tax base achieved by the entrepreneur in the previous year. With a high tax base, this is a fairly high contribution burden. Therefore, for this reason, entrepreneurs are preferred to the larger size of the limited company. A company does not pay contributions to health and social insurance if it has no employees and the manager does not pay any wages. However, it must be borne in mind that if you do not pay any contributions, you are not entitled to social benefits (PN, ka, maternity, etc.).

How can I withdraw money from the business?

When it comes to withdrawing money from a business, the self-employed have an even greater advantage in it. Once the money is in their account or paid in cash, they can immediately use it for personal consumption without proving in any way why they spent the money. In the case of the LLC, this is actually a bigger problem. The company reimburses the costs you incur and the money you will arbitrarily withdraw is still the property of the company and you must document what you spent. Funds should be withdrawn from the company for private purposes only in legal form, i.e. with the payment of a salary or the payment of a profit. The downside to paying the profit is that you have to wait a year for the company’s accounting to close and the tax return is filed before you can pay the profit. Dividends are subject to a 7 percent withholding tax.

To what extent do I guarantee work?

A private business owner is responsible in his work for all his property, regardless of whether it is property used for business or for private purposes. Compared to an LLC, this is a significant disadvantage and risk to a normal person as such. The LLC, as its name suggests, guarantees only the amount of its assets and the private property of the partners is not taken into account.

How much will I pay the accountant?

In both cases, the price of accounting processing and tax return preparation depends on the number of items that need to be processed. Due to the fact that a self-employed person can keep tax records in which no financial statements are prepared and no books are kept, the costs per accountant are lower. In the case of the LLC, double bookkeeping must be maintained, which must be properly kept with the books closed, financial statements prepared and income tax return. As a general rule, the costs of maintaining limited accounting are higher.

Our recommendations?

If your income is low and you cannot pay almost any tax expenses, it is beneficial to start a business. To increase revenue, we recommend setting up an LLC as well due to comprehensive, clearer records and potential tax optimization.

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