If you are well versed in business, know how to find clients, and want to try to work for yourself, you can become self-employed or open an individual entrepreneur.
Let us tell you how these statuses differ from the point of view of the law, which privileges and who are suitable.
Who are individual entrepreneurs?
These are individuals who receive systematic profits without forming a legal entity and have passed the state registration procedure. These are those who were previously called PE (private entrepreneurs) and unincorporated entrepreneurs (entrepreneurs without the formation of a legal entity).
An individual entrepreneur can open a capable person after reaching the age of eighteen, sixteen with parental consent or after marriage, or any foreigner residing on the territory of the country. Municipal and civil servants cannot be individual entrepreneurs.
Usually, individual entrepreneurship is opened by masters who independently provide qualified services and who want to hire specialists under the supervision of accountants and copywriters, beauty masters and masseurs, taxi drivers, and confectioners. As long as the income is insignificant, and the earnings are irregular, individual entrepreneurs may not open.
For example, you bake and sell Easter cakes or cakes for children’s parties. If this is an irregular part-time job with insignificant income and you work alone, you do not need to apply for an individual entrepreneur.
But if additional employment begins to compete with the main one, you hire workers, rent space and expensive equipment for business, it is better to arrange everything according to the law. Banks give entrepreneurs loans on more favorable terms than individuals, and the experience of an individual entrepreneur is included in the pension.
An individual entrepreneur also makes it possible to work with new partners and contractors: today, almost all organizations work by bank transfer to make accounting transparent. If you transfer large amounts to the card, the tax authority needs to explain the appearance of funds on the account – it is more difficult to do this without an open individual entrepreneur.
Individual entrepreneurs need to choose monthly or quarterly reporting, pay taxes on income or profits from 6% to 15% and be ready to answer to creditors with all of their property if something goes wrong.
Who are the self-employed?
These are the people who pay the NPD – a tax on professional income. Self-employment is a state experiment in taxation: it is needed to legalize the income of those who want to start earning on their own.
The tax on professional income can be paid by nannies and home confectioners, photographers and tutors, repairmen and fitness trainers, foremen beauty and accountants, carriers of passengers and goods. Sellers of goods requiring labeling (alcohol, tobacco, drugs), lawyers, and those who extract minerals cannot become self-employed. Self-employed people should not have an employer or employees.
To become self-employed, you need to register in the My Tax application or web version. Under the current legislation, NAP is paid only in those months when there was income, that is, money received from clients.
This means that if in January you have a simple and only receipt on the card – a transfer from relatives, it will not be taxed by the NAP. The government promises that the current conditions will not change until 2029.
And which is better to choose?
If you work for yourself, you will not hire employees, the annual income does not exceed 2.4 million rubles, and the future state pension for you not interested, apply for self-employment. If you intend to scale your business, open an individual entrepreneur.
You can become self-employed if you want to do what you love, but don’t want to depend on colleagues and managers. You get conditional freedom of action – you can choose clients, set up a schedule, take a vacation, and sick leave whenever you want.
Along with freedom, personal responsibility also grows: you need to look for each client yourself, you have to pay out of pocket for the weekend, and there is a ceiling for earning.
An individual entrepreneur does everything the same as a self-employed one, but besides, he sets up production processes – he finds competent performers, fires those who cannot cope, pays salaries, and is responsible for the entire company.
Instead, individual entrepreneurs are not limited in their maximum income, they can work with large suppliers, enter the federal and international markets.