Sole proprietorship, the ideal choice to start!

Have you been thinking for a long time about starting something of your own but are you afraid with the various "strange" things that are heard about entrepreneurship in Greece? Do you have a day job and want to increase your income by starting your own sole proprietorship based in your home? Well, think no more!

It's time to act!

Initially, we should mention that a sole proprietorship is usually the appropriate solution for young entrepreneurs until they develop their activity. This is mainly recommended because of the simple procedures of starting and stopping such a form of business, but also because of its low operating costs in general. The sole proprietorship can have different manifestations, one can have a sole proprietorship In order to provide services based in his home or in a separate place, he may have a sole proprietorship in parallel with a job in which he is employed, the sole proprietorship may concern a trade or a production activity in a separate place from home (warehouse or store). Each case has its peculiarities in terms of tax and insurance treatment.

Starting our analysis we will refer to the taxation of the sole proprietorship but also to the insurance obligations of a freelancer.

Sole proprietorship and taxation

Taxation in the sole proprietorship follows a scale with a tax rate that varies per 10.000,00 €. The scale in detail:

When we refer to the taxation of any business, we always refer to the net profit it has (income - expenses) and not to its turnover. Based on the above table, a sole proprietorship with a net profit of € 23.000.00 will pay income tax of € 3.940.00 ( € 10.000.00 X 9% + € 10.000.00 X 22% + € 3.000.00 X 28%).

In addition to income tax, there is an obligation to advance tax for the following year, which is in the order of 55% of the tax amount. The business in the above example would therefore have to pay an advance tax of € 2,167.00 (€ 3,940.00 X 55%). The advance tax, however, should not be considered an actual charge but only a cash (liquidity) charge, as the following year it is offset against the next income tax or refunded in case of loss.

Finally, the trade fee borne by sole proprietorships which amounts to 650,00 € / year should be taken into account. However, there is an exemption from this tax for young entrepreneurs for the first 5 years of their operation.

Sole proprietorship and insurance

Insurance to a freelancer is mandatory from the first day of operation of his business and provides him with health and pension coverage. The amount of insurance is paid monthly and its amount is determined annually by the professional himself depending on the insurance category in which he chooses to join. The selection is made from the table below:

For young freelancers and for the first 5 years of their operation, there is the possibility of insurance in the special insurance category of 148,15 € / month.

Benefits for young entrepreneurs and small businesses

For young entrepreneurs and small sole proprietorships, certain tax and social security incentives are provided with the aim of increasing liquidity, through tax savings, but also their competitiveness. Specifically:

• New businesses, as long as they do not exceed € 10,000.00 annual turnover, are given a 50% discount on the tax on their profits. As we saw above, the tax rate for the first 10.000,00 € profits of a sole proprietorship is 9% and with the aforementioned discount it is reduced to 4.5%. This relief applies for the first 3 years of operation.
• New businesses are exempted from the trade fee of € 650.00 for the first 5 years of their operation.
• For small businesses whose annual turnover does not exceed 10.000,00 € VAT exemption is provided. This exemption also applies to start-up sole proprietorships and until their turnover exceeds the limit of € 10,000.00. By exceeding the limit of 10.000,00 €, VAT starts and is imposed from this point onwards.
• For new sole proprietorships and for their first year of operation, a 50% discount is provided on the advance tax payment. Thus, a newly established sole proprietorship for its first year of operation will pay an advance tax of 27.5% instead of 55%.
• Young professionals are given the opportunity to choose for their insurance the minimum insurance category of € 148.15 / month instead of that of € 240.25. This option is given for the first 5 years of insurance of the new professional.

The above gives young entrepreneurs the right to save significant amounts at the beginning of their operation, thus increasing their liquidity and giving them an extra boost for their first steps.

'Special' categories of sole proprietorships

In closing our article, we will refer to some special categories of sole proprietorships that often create "confusion".

1. Sole proprietorship "Blockaki"
   It is a category that concerns exclusively the provision of services and in order for someone to join it must meet the following conditions:
   

   • Mandatorily, the registered office of the business should be located in the main residence of the taxpayer

   • No parallel salaried activity

   • Have up to 3 customers or if they have more than 3, 75% of the income comes from one

   • The activity must not have commercial status. It mainly concerns cases of provision of services concerning professions which do not originate in higher education. For example, the plumber is considered to have commercial status, so he cannot be classified in this category.

     The main advantage that exists for those paid with this scheme is that they are treated tax-wise as employees, thus taking advantage of the tax deduction of € 777.00 provided for them. This category of professionals, however, cannot recognize tax costs other than insurance costs.

2. Sole proprietorship with parallel salaried employment
   One way for an employee to increase his monthly income is to be active independently of his morning work and as a freelancer. Usually this is done by establishing a sole proprietorship based at home without or in a separate place if it is a commercial activity.
   
   The main advantage in this scenario is the reduced insurance burden on the taxpayer. The insurance costs of the sole proprietorship are offset against the contributions deducted from the salaried work, so it pays little or no security for the sole proprietorship. Because the profits of the sole proprietorship are added to the tax return with the taxable income from salaried work, the taxpayer may be required to pay large amounts of tax at the end of the year. For this reason, before starting the business, an assessment of the tax should always be made based on the income of salaried work. In the scenario of high incomes from salaried work, the solution of the sole proprietorship is rejected and the establishment of some form of company (I.K.E., G.P., etc.) where the tax rate is fixed at 22% regardless of the level of profitability should be considered.
   
   
3. Home-based sole proprietorship and commercial
   There is a general impression of the ban on home-based commerce. The general rule is that in order to carry out commercial activity one must necessarily use a business establishment (shop or warehouse) separate from that of one's home. This rule is based on activity code numbers, The so-called K.A.D., which were issued in 2008 and prohibited home-based marketing.What has now slightly changed the data and leaves a loophole for the possibility of home-based commerce, is the boom of e-commerce through e-shops, something that in 2008 when the K.A.D. was created was not so common. Now, the sole proprietorship based at home and commercial activity is a matter of fact and is examined by the respective Tax Office on a case-by-case basis. We could say that in most cases home-based trade is allowed when this is done exclusively through an e-shop and the marketable items are such that they could be stored at someone's home. Drop shipping is also a new form of commerce that does not even need storage space, since a third party warehouse is used for it.Under very specific conditions and after a relevant permission from the competent tax office, there can be commercial activity based in our residence.