Part-time entrepreneurship and light entrepreneurship
When working as a part-time entrepreneur, you have a main job and a business of your own. Operating as a private trader or a light entrepreneur are two of the options available to you. Make sure to check how part-time entrepreneurship affects your taxation, pensions and unemployment security. You may also have to notify your employer of your part-time business.
You are a part-time entrepreneur if you have a business but get your main income from another source.
Wage earners, students and pensioners often work as part-time entrepreneurs when they want to earn additional income. In certain cases, an unemployed person may also operate a part-time business.
Part-time entrepreneurship gives you a chance to try your business idea in practice. When you get your main income from elsewhere, it is easier and safer to test whether your idea could become something bigger. At the same time, you learn about entrepreneurship and starting a full-time business is easier.
As a part-time entrepreneur, you can also try a new sector if you are planning a new career. You can also work as a part-time entrepreneur on a seasonal basis (for example, by cutting grass in the summer).
Note that a part-time entrepreneur is not entitled to a start-up grant.
Operating a part-time business as a private trader is often the best option. It is simple and easy to administer. In many cases, it is also easier and less expensive to set up and close a private trader business than other types of companies. It is particularly well suited for new entrepreneurs who plan to run a business without partners.
Limited liability company is the second most popular company form in part-time entrepreneurship. However, it is much more inflexible and expensive than operating as a private trader. Closing a limited liability company is also a complex process. The advantage of a limited liability company is that you are not liable for the company’s debts with all your personal assets.
You can only set up a part-time company as a general partnership or a limited partnership if you have a business partner. In that case, you must have full trust in your partner because in a partnership, a shareholder is usually personally liable for the company’s obligations. A cooperative is often used as the company form of a part-time business in arts and other creative fields.
You can also start a part-time business as a light entrepreneur. In that case, you do not set up a company of your own but you are paid for your work through an invoicing service.
In light entrepreneurship, you work as a private person and invoice your customers for your work through an invoicing service. You do not have a company of your own and you may not even have a Business ID.
The invoicing service deducts the employer contributions and its own service charges from the invoices that you send to your customers. It usually pays the rest to you as a salary. The accounting and tax returns are also the responsibility of the invoicing service. However, you are responsible for acquiring customers, your work, pricing and for paying your unemployment insurance contributions.
In taxation and accounting, light entrepreneurs are often considered as wage earners but in pension and unemployment security matters, they are classified as entrepreneurs.
Light entrepreneurship is well-suited for small-scale business operations and especially for selling services. It is not suitable for licensed sectors (such as restaurants serving alcohol), for business operations requiring large investments or for sales of goods.
Light entrepreneurs often operate on a part-time basis. Ordinary entrepreneurship is usually a better option for a full-time business. Moreover, a light entrepreneur is not entitled to a start-up grant.
If you run a part-time business as a private trader, a general partnership or a limited partnership, your business income is added to your main salary and you pay taxes on your total income. A cooperative and a limited liability company pay taxes on their own financial results, while you must pay taxes on the salary, dividends, surplus refunds and interest payments that you take out from the company.
You should pay the taxes on your company’s financial results as tax prepayments. If you operate as a part-time private trader, you can also use your personal tax card to pay your corporate taxes, instead of making tax prepayments. It that case, you must ensure that your tax rate is at the right level.
If your part-time business has a turnover of less than EUR 10,000 during a period of 12 months, you do not need to enter you company in the VAT register or pay any VAT on your sales. If the turnover is more than EUR 10,000, you should register your company immediately and pay the taxes. It is important that you give correct estimates of your sales at the start of the financial year. If your turnover in the financial year is estimated to remain below EUR 10,000 but this sum is exceeded during the period, you must pay taxes on the whole year’s sales. If your turnover is between EUR 10,000 and EUR 30,000, you can apply for a minimum payment reduction for your VAT.
A light entrepreneur usually earn their income as salary. This means that all your business income is taxed as earned income.
An ordinary entrepreneur does not need to pay VAT if the turnover is less than EUR 10,000 during a period of 12 months. However, as a light entrepreneur, you must pay VAT on all your sales. This is because the turnover is calculated on the basis of the invoicing service’s turnover. For the same reason, you are not entitled to minimum payment reduction for your VAT payments.
Note also that operating as a light entrepreneur impacts tax deductibility and you may not necessarily be able to deduct the purchases made by your company from your taxes. You should always check the tax deductions with the tax authorities. If you make large or frequent purchases as part of your business operations, setting up an enterprise may be a better option.
You must notify your employer of your part-time business if this is required under your employment contract. If you have a full-time job in central or local government, you must always notify your employer of the matter. In other cases, you can run a part-time business outside working hours without notifying your employer.
Make sure, however, that your part-time business does not compete with your main job. Note that the ban applies to the business operations and their concrete preparations. Moreover, your part-time business may not harm your employer in any way.
Discuss the matter with your employer in advance if you are unsure whether you are allowed to set up a part-time business.
If you are a part-time entrepreneur or a light entrepreneur, you must take out a self-employed person’s pension insurance (YEL) if both of the following conditions are met:
- your estimated annual business income exceeds the YEL limit, which has been slightly below EUR 8,000 in recent years
- your business operations have continued for at least four months.
By paying YEL contributions, you accumulate a pension for your part-time business operations. At the same time, you are also accumulating a pension for your main job.
If you are on an old-age pension, you do not need to take out a YEL insurance policy. However, you can take out a YEL insurance policy if you want to have a higher pension.
If you have a different type of pension (such as a disability pension), you must take out a YEL insurance policy if the above conditions are met.
If you are a part-time or a light entrepreneur and lose your main job, TE Services will determine whether you are an entrepreneur under the Unemployment Security Act.
If the TE Services decide that you are an entrepreneur, they will then determine whether you operate a full-time or a part-time business. Your entrepreneurship can be considered part time if for example you are able to accept a full-time job despite running a part-time business. In other cases, you are considered as a full-time entrepreneur. The crucial factor is the time required by your business operations and not the income that it generates.
If the TE Services determine that you have a part-time business, you are usually entitled to unemployment benefits. Your business income is taken into account when the amount of the benefits are calculated.
If the TE Services determine that you are a full-time entrepreneur, you are not entitled to unemployment benefits.
If you start a new business when you are unemployed, the TE Services will decide after a four-month trial period whether you are a part-time or a full-time entrepreneur. For these four months, you receive unemployment benefits in which consideration is given to your business income. If your entrepreneurship is considered full time at the end of the period, you are no longer entitled to unemployment security. Note that the four-month trial period may impact your eligibility for the start-up grant.