Individual entrepreneur or self-employment: what to choose to stay in the black

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

If you are tired of working for your uncle and you decide to open your own business, we will help you figure out how to arrange your business profitably.

For the first time in Russia, the number of individual entrepreneurs exceeded the number of operating legal entities. This was announced by the Distribution of acting legal entities and individual entrepreneurs (as of April 7, 2019) by the Federal Information Service, and this means that 4,013,000 people have already decided to open their own business and formalized it officially. Let's try to figure out how best to register your activity in order to get the maximum benefit.

Is it possible not to register at all and not pay taxes

If you want to work calmly and not flinch every time a new client comes to you or you are offered to pay by transfer to your personal card, then the answer is simple - you cannot earn money and not share with the state.

Of course, you can rent an apartment or bake cakes at home for years and not be caught, but you can try to offer your services once and get caught by a tax inspector. And this threatens with fines.

So maybe it's not so expensive to work legally? Let's figure it out together.

What you need to know about self-employment and professional income tax (NPT)

Professional income is understood as the receipt of profit by individuals from activities in which they do not employ hired personnel and do not have an employer, as well as income from the use of property.

That is, self-employed are those who earn money by their own labor without hired employees or receive income from renting out residential real estate. This category includes, for example, nannies, tutors, drivers, home nail technicians.

Since 2019, Draft Law No. 551845-7 “On conducting an experiment to establish a special tax regime“Tax on professional income”in the federal city of Moscow, in the Moscow and Kaluga regions, as well as in the Republic of Tatarstan (Tatarstan)” has been introduced, a pilot regime for the self-employed, which is designed for 10 years and is distributed in four regions: Moscow, Moscow and Kaluga regions and Tatarstan. If the experiment is recognized as successful, then the regime will be introduced throughout Russia.

Important: you do not have to be registered in these regions, it is enough to conduct activities in them.

For example, you are registered in Yaroslavl, and you rent an apartment in the Moscow region, or have a residence permit in Kaliningrad, and do work on the Internet for Moscow clients. Then you can register as an NAP payer.

The state needs to pay tax Taxes for the self-employed: who will be affected and how the law will work, depending on the type of your clients. If you work with individuals, then 4% of income, if with legal entities - 6%.

Who cannot be considered self-employed

Professional income tax cannot be applied if you:

• sell excisable goods or goods subject to mandatory labeling;
• resell goods, property rights, except for the sale of property used for personal purposes;
• are engaged in the extraction and / or sale of minerals;
• you work under an agency agreement, commission or agency agreement.

The pros of self-employment

1. Simple registration system. You can register your activity through the specially developed system "My Tax".
2. You do not need to submit any declarations, and cash registers are also not needed.
3. In the absence of income, you do not need to pay tax.
4. There is a tax deduction Federal Law of 27.11.2018 No. 422-FZ "On conducting an experiment to establish a special tax regime" Tax on professional income "in the city of federal significance Moscow, in the Moscow and Kaluga regions, as well as in the Republic of Tatarstan (Tatarstan)", which can reduce the amount of tax by 10,000 rubles. If you work with individuals and pay 4% tax, then every month the amount is reduced by 1%. If you pay 6%, then 2%. As soon as you reach the total amount of the deduction of 10,000 rubles, the rate reduction stops.

Cons of self-employment

1. Territorial restriction. At the moment, it is possible to conduct business in this format only in four constituent entities of the Russian Federation.
2. Restriction on income - 2, 4 Federal Law dated November 27, 2018 No. 422-FZ "On an experiment to establish a special tax regime" Tax on professional income "in the city of federal significance Moscow, in the Moscow and Kaluga regions, as well as in the Republic of Tatarstan (Tatarstan) "million rubles a year. If you decide to be engaged in entrepreneurship and set the goal of scaling and increasing profits, then this limitation can be significant.
3. You cannot hire staff. It's also hard to imagine scaling up without hired workers.
4. Most likely, large companies will prefer to work with individual entrepreneurs.
5. Self-employed do not need to make contributions to the Pension Fund, that is, in old age they will often have to rely only on a social pension. But the length of service can be purchased in addition to the Decree of the Government of the Russian Federation of February 19, 2019 No. 160 "On amendments to the Rules for calculating and confirming the insurance experience for the establishment of insurance pensions." In 2019, seniority for the self-employed costs 29,354 rubles.
6. The NAP has not been tested, which raises fears and doubts.

What you need to know about individual entrepreneurship (IE)

An individual entrepreneur is an individual who is engaged in entrepreneurial activity without forming a legal entity.

Register as an individual entrepreneur under the law of the Code of Administrative Offenses of the Russian Federation, article 14.1. Any person who conducts regular activities aimed at making a profit must carry out entrepreneurial activities without state registration or without special permission (license). There is a narrow list of people who cannot be engaged in entrepreneurship in Russia:

• state and municipal employees;
• military personnel;
• persons with limited legal capacity (also those who are registered in a narcological dispensary);
• foreigners and stateless persons (stateless people), if they do not have registration in Russia.

In addition to taxes, which depend on the form of taxation chosen, individual entrepreneurs must pay insurance premiums for themselves and employees.

Unlike legal entities, you can dispose of the profit at your own discretion and withdraw as much funds from your accounts as necessary and at any time.

An individual entrepreneur can hire employees and scale up a business in this way, while he becomes a full-fledged employer and bears the same responsibility of the Labor Code of the Russian Federation, Chapter 48. Features of labor regulation of employees working for employers - individuals, as well as legal entities.

Pros of individual entrepreneurship

1. Simplified registration system: you can register yourself, and this will require a small package of documents Order of the Federal Tax Service of Russia dated January 25, 2012 No. to the registering authority for state registration of legal entities, individual entrepreneurs and peasant (farmer) enterprises”(Registered with the Ministry of Justice of Russia on May 14, 2012, No. 24139). And since 2019, when registering an individual entrepreneur in electronic form, you do not need to pay a state fee. True, for the preparation of electronic documents, an electronic signature is required.
2. The individual entrepreneur has no obligation to maintain accounting records.
3. Can be applied anywhere in Russia.

Cons of individual entrepreneurship

1. In addition to taxes, all individual entrepreneurs are obliged to the Federal Law "On Amendments to Parts One and Two of the Tax Code of the Russian Federation and Certain Legislative Acts of the Russian Federation" dated November 27, 2017 No. 335-FZ (last edition) to pay insurance premiums for two types of insurance: pension and medical. Regardless of incoming income.
2. Reporting must be kept at the place of residence of the person, that is, at the IP registration address. Accordingly, if you are registered in Izhevsk and operate in Kazan, then registering as an individual entrepreneur and submitting all reports will need to be at the place of registration in Izhevsk.
3. For non-payment of taxes, violations of activities, debts to employees, each entrepreneur is responsible with his own property.

What to choose

To make it easier to compare everything that we described above, we have made an understandable table for you.

	Self-employed person	Individual entrepreneur
Registration with the Federal Tax Service	Simple	A little more complicated, you need to provide a certain package Registration of an individual entrepreneur of documents
Tax reporting	No	Depends on the option Comparison of the general tax regime and special regimes for individual entrepreneurs of taxation: from one report per year to several declarations on a quarterly basis
Territory of application	It is necessary to conduct activities in the region where the experiment is being carried out. These are Moscow, Moscow region, Kaluga region and the Republic of Tatarstan	Without Borders
Insurance premiums	No, but you can pay voluntarily, buy pension points, and 37% of the 4 or 6% tax paid by you goes to the MHIF	You need to pay, even if there is no activity (in 2019 - 36,238 rubles, in 2020 - 40,874 rubles).
Salaried employees	You can't hire employees	It is possible to hire employees under a labor or civil law contract
Limiting income	Up to 2.4 million rubles per year	Depends on the chosen taxation system. For example, on the simplified one - 150 million rubles a year, on the patent - 60 million rubles.

If you plan to be the sole owner of the business, then, having weighed all the pros and cons, you can safely choose any of the legal forms that are more suitable for your type of activity. If you have a partner, then it is better to choose an LLC in order to legally share profits and responsibilities among all business owners.