What status to choose – the one of sole entrepreneur or of self-employed?

What status to choose – the one of sole entrepreneur or of self-employed?

This is one of the first questions that pops up in the heads of beginning entrepreneurs. If sole entrepreneur status sounds familiar, self-employment is something new! From 2020, every resident of Russia can apply for self-employed status - that is, in legal terms, become a payer of tax on professional law. The registration procedure takes ... 10 minutes and may be done through a mobile application. If we talk about obtaining the status of a sole entrepreneur, registration process will take you up to 7 days, you can do it independently or with the help of specialists. But besides the time of registration, there are other - more important - factors, which we will discuss further.

What does it mean to be self-employed?

  • you can combine it with work under an employment contract;
  • tax must be paid only if there was income this month (4% when working with individuals and 6% when working with companies and individual entrepreneurs).

However, people working in certain fields may apply for self-employment status.

What is a self-employed, unlike a sole entrepreneur, exempt of?

  • no need to use the online checkout - only issue an electronic check to the counterparty;
  • no need to open a separate bank account;
  • it is not necessary to pay contributions to the Pension Fund (but the record of service is not accrued).

But the most cool thing here is that you won’t dread tax audits!

However, you will still bear the risks of entrepreneurial activity: if a legal dispute arises, it will be considered by district courts of general jurisdiction according to the rules of the Code of Civil Procedure of the Russian Federation.

What does it mean to be a sole entrepreneur?

  • you can choose how much and how to pay taxes (possible taxation systems - patent, simplified or basic taxation system);
  • you can choose almost any type of activity (except for those prohibited by law);
  • you can hire employees to work under labor contracts and pay contributions and personal income tax for them;
  • you can work with large counterparties and quickly expand the scope of activities.

Unlike a self-employed, a sole entrepreneur has the following responsibilities:

  • they have to make mandatory contributions to the Pension Fund and the Social Insurance Fund, regardless of whether they have income or not;
  • they have to keep accounting and submit reports monthly, quarterly and annually.

However, a sole entrepreneur is subject to tax audits, while claims will be considered by commercial courts. In order to choose the most relevant status, formulate your type of activity, analyze potential income and expenses, and calculate your abilities to solve administrative and accounting problems. If during the process of preparing for registration you have any questions - please contact TEAM - we are ready to help and address any issues you may face.