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Self-employment vs. Individual Entrepreneurship - What to Choose
09.07.2024 10:00
The choice between the status of self-employed and individual entrepreneur (IE) is a key issue for many aspiring businessmen and freelancers.
This decision depends on many factors, including the specifics of the business, the amount of income, plans for the future and readiness to manage paperwork.
In this article, we will examine the main features of both statuses to help you make the right choice, says Elena Valentseva .
So, let's start with self-employment. The status of self-employed appeared in Russian legislation not so long ago and is intended for those who provide services or sell goods without hiring employees
The main advantage of self-employment is the simplified tax system. Self-employed people pay a professional income tax (PIT), which is 4% of income from individuals and 6% from legal entities.
One of the key advantages is minimal bureaucracy. To start working, it is enough to register in the mobile application or on the website of the Federal Tax Service (FTS), after which you can conduct your business using only your passport and SNILS. At the same time, there is no need to keep accounting records, which makes life much easier for freelancers and private craftsmen.
And as for individual entrepreneurs
Individual entrepreneurs are those who are engaged in entrepreneurial activity without forming a legal entity. Individual entrepreneurship is suitable for those who plan to develop a business, hire employees and work with large companies.
Choosing an individual entrepreneur means that you can use any tax system available in the country: general, simplified, patent or UTII. This can be an advantage if your business goes beyond the scope of activities permitted for the self-employed.
Registration of an individual entrepreneur requires more time and documents than the status of self-employed. It is necessary to submit an application for registration of an individual entrepreneur to the tax service, select a taxation system, pay a state fee. After registration, individual entrepreneurs must keep records of income and expenses, and also submit reports to the tax service.
Key differences
1. Taxation: Self-employed persons pay professional income tax, while individual entrepreneurs can choose from several tax systems.
2. Accounting: For the self-employed there is no obligation to keep accounting records, for individual entrepreneurs there is mandatory accounting of income and expenses.
3. Employees: Self-employed individuals cannot hire employees, unlike individual entrepreneurs.
4. Scope of activity: Individual entrepreneurs have wider opportunities for doing business, while self-employed individuals are limited in their choice of activities.
5. Bureaucracy and paperwork: Registering and maintaining self-employment is simpler and requires less paperwork.
Thus, the choice between the status of self-employed and individual entrepreneur depends on your type of activity, plans for business expansion and readiness for accounting. If you are just starting your business and prefer minimal accounting obligations, the status of self-employed will be preferable.
If you are planning active business development, hiring employees and various tax systems are suitable for you, registering as an individual entrepreneur will be more appropriate.
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