Selecting the suitable choice for the type of business has a number of advantages and disadvantages. Seven of them are mentioned in the table below.
|1.||Establishment, liquidation||faster, cheaper||longer, more costly|
|2.||The obligation to keep accounts||no||yes|
|4.||Liability for obligations||with all assets||in amounts of unpaid registered capital|
|5.||The obligation to pay contributions||yes||no|
|6.||The tax rate in %||19/25||22|
|7.||Share of profit||no||yes|
1._ You can register trade almost immediately at the point of single contact (the PSC) already from € 5 for every free trade (the electronic declarations is free of charge). In the PSC you can register to the health insurance company (the HIC), the tax office (the TO) and you receive a trade license. To the social insurance agency (the SIA) you have to sign in person.
Limited Liability Company (Ltd) can be set up for around € 300 by specialized companies and you have to pay the registered capital (the RC) in the amount of € 5,000, or you can buy a business share of an already established company.
If ltd company was not based on a fixed term, it is administrative, time and cost much more difficult to dissolution of a company as a trade. Of course there is a possibility to sell its share to someone else.
2._A sole trader can decide if he/she use the single or double-entry bookkeeping, or not use accounting at all and decides to keep the tax records or apply the expenses as a percentage of revenue of 40% (maximum in the amount of € 5,040). The company can use only the double-entry bookkeeping.
3._ The sole trader should include to the operating cost of contribution payments , the cost of accounting, ordinary operating expenses (telephone, rent, fuel …). The company has similar costs as the sole trader. The sole trader pays in addition the payment of contributions. The administrative complexity of trade and the company is comparable.
4._The biggest advantage of doing business through Ltd company is that shareholders (owners) of the company are liable to the property only in the amount of unpaid the share capital registered in the Commercial Register. In the case of business failure, it can be very important think. For both kinds of business there is a possibility of insurance your business to eliminate negative situations.
5._ The sole trader has the duty to pay contributions from starting a business primarily to the HIC. He/she is not obliged to pay contribution to the SIA in the first year of his/her business. When the taxable income exceed some amount (in 2014 it was € 4,830) the sole trader has to pay contribution to the SIA from july following year.
In the case that the statutory representative wants to employ himself in Ltd company, or receive remuneration for the performance of the manager of the company it must be on as well as the company register to the HIC, the SIA and the Tax office and of course also send reports to those institutions. In contrast, the sole trader does not send any statements.
6._The tax burden for the sole trader is 19%, respectively 25% when the tax base exceeds €35,022.36. In case of loss the tax is not applicable. The ltd company has to pay the tax of 22%. Introducing tax licenses the Ltd company pays minimum tax from the second year of business in the amount of €480, €960 or €2,880.
7._The share of profit can be paid to the shareholders only upon a decision of the general meeting and at the time of payment it is necessary to pay advance 14% to the HIC. The sole trader has no restriction on the payment of profits.
A piece of advice:
If the sole trader decide to keep the tax records or apply the expenses as a percentage of revenue of 40% is not considered as an accounting entity and will not be granting of penalties for incorrect accounting.