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I will be more profitable LTD or self employed?

Sooner or later, every freelancer comes to the question of what it will be

more profitable to work as a Manager in LTD or to register

as a specialist in the free practice. So in this article I will try to make comparison of these two types of activities. Of course, that the information provided here is basic. Since every business is very specific, in order to make your choice work for one or another system should be considered more carefully.

What you should know before
register LTD.

Advantages

Minimum capital – 2
Lev.

When you register an LTD, you
will be responsible for the debts of the company within amount of capital LTD., ie
do not respond with their personal property.

Have the right to increase or
reduce its capital at any time. This procedure is relatively complicated. As well
can attract co-founders, and their funds will increase the capital; can
to sell shares – in short, you are more flexible in attracting additional
funds.

Have the ability to use
tax benefits under ZKPO, to optimize taxes, social
contributions.

Disadvantages

The state fee for
check EOOD is quite high:

– 110 BGN if you are applying
in the window in the commercial register

– 55 BGN if you are applying
through the website of the Trade register.

It is also necessary to pay
the Commission of Bank for opening of account for capital preservation. On this account you
will be required to make an asset to your future company. capital.

If you decide to close the company,
the elimination procedure takes 6 months.

With the running of the company, you
are required to keep records, make and submit annual financial
reports, i.e. it is necessary to provide expenses for accounting services.

If you receive payment
of goods/services in cash, you should have a cash register.

When your company starts
to work, it needs to have a Manager that you want to pay social
payments. Social security Manager can be done in two
methods:

  • The management agreement
    and control – in this case, the minimum social threshold, above which
    calculated social payments is determined on the basis of economic
    the company’s activities.
  • Example

    You’re a consultant in the field of IT.
    Register the company with subject of activity “consulting in the field of
    computer technology“ and decide that you are going to pay ciplinary on the basis of
    agreement to manage and control. Activity your company will be
    to determine the minimum social threshold for your as a Manager. In
    your case it will be 1 008.00 LV. This means that the mandatory
    the monthly amount of social security payments for you will be 416.52 LP.*

    • As a self-employed person
      which itself pays for the payments. In this case, a
      Declaration on registration of self-employed persons. In 2019 the minimum social
      the income of 560 m., and a maximum of 3 000 BGN.

    Example

    If you decide to choose to pay
    social payments as a self-employed person, above the minimum threshold, then
    monthly payments will be 175.28 m.*

    !!! In respect of siperia
    the following should be noted: the agreement on the management and control equal to
    employment contract, this means that the minimum social threshold higher, so
    there are sitzplatze by the employee and by the employer, which
    case EOOD is one and the same person.

    Example

    If there is agreement about the
    management and control we have two parties to the agreement: the customer and the contractor. Customer
    is the party that holds the Executive to run the company. You like
    the owner of the company can trust its management, and to another person. In this
    you’ll look like a customer, and another person, the principal. Most often, LTD. and
    the owner and Manager are one and the same person. This means that if you
    doing business in the field of IT technologies and choose social
    the provision on the basis of the contract on management and control, the minimum
    social security income on the basis of which will be calculated social
    the payments will be 1 008.00 LV.

    As I mentioned above, the total amount of
    social security payments, which must be paid monthly, will be
    416.52 m., this amount will be distributed as follows:

    – amount of deductions due to
    artist – 138.91 m.,

    – tax on income of physical persons
    – 86.91 m.,

    – the sum of the deductions due
    customer – BGN 190.70.

    As in this case and
    the contractor and the customer are one and the same person, then you will cover the entire amount.

    !!! Therefore, more often elected
    form of social security is a self-employed person.

    Taxation

    Taxable profit is taxed
    corporate tax of 10%. If you want to get paid
    dividend, you will have to pay another 5% tax on the dividend.

    I want to draw your attention that
    earn income form dividend is possible only after the payment of the tax
    profit, i.e. at the end of the financial year.

    Example

    Your company has received
    taxable income of $ 5 000.00 BGN, consequently, the company
    will have to pay income tax in the amount of BGN 500.00. After tax
    net profit your company will make 4 500.00 BGN you have
    the right to pay in the form of dividends. But you must withhold tax
    dividend – 5% or in the case of 225.00 m. Thus, on its own account or on hand
    you will receive 4 275.00 LV.

    What you should know if you
    want to register as self-employed

    To engage in free
    the profession should make the registration in the register BULSTAT of Real
    writing.

    Advantages

    Easy and cheap procedure
    registration. Government fee is 10 BGN.

    More simplified reporting.

    Upon receipt of the cash payments
    funds are not required to have cash register.

    Has the right to regulatory
    recognized costs. Depending on the type of activity, experts on
    free practice are entitled to 25% of the total, or 40% upon receipt
    royalties. I.e. there is no need to raise invoices for the costs, because when
    filing the annual tax return taxable income will be immediately
    adjusted for these normative recognized costs. This is a big plus when
    if you don’t have big expenses.

    The procedure for deregistration
    quick and easy. You only need to apply the pattern.

    Disadvantages

    If you have a large percentage of
    the costs involved in your activity, this choice is not for you.

    Example

    In the General case, you have a 25%
    normative recognized costs, and they reduce your taxable income.
    Ie, if the income in 1 000.00 LV. in a month, recognized normative costs –
    250.00 BGN. Ie if to do its work you need, for example, rent
    premises, payment of utility bills, and they are above 250 m., it
    registration as a specialist in free practice isn’t profitable.

    At the end of the year you will need to submit
    tax return income received, in which also will be done
    alignment of social payments and income tax.

    Example

    You have chosen to pay social
    payments of the minimum income in the year you make regular
    social payments from the amount of 560 m. During the year You received and
    declared income in the amount of 10 000 BGN. This amount is divided by the months in
    have you carried out activities:

    10 000 : 12 = 833.33 m.

    833.33 LV. – it is, really
    you received monthly income. Ie you have income, the top of which you
    really made ciplinary during the year:

    560 X 12 = 6 720 BGN.

    and final income
    10 000 levs.

    The difference 10 000 – 6 720 = 3 280
    LV. is the income of the top which need to calculate ciplinary and their
    to amend the budget.

    Also note that individuals in
    free practice has unlimited liability for its debts.

    *- the amount given on the assumption that the person has a permanent residence
    or Bulgarian citizenship.