Individual Entrepreneur (ENI) or One-Person Society (Sociedade Unipessoal)?

If you are thinking of turning your project or idea into a business, congratulations! This first step is the most important and where it all starts

However, when starting a question arises: to set up a One-Person Company (Sociedade Unipessoal)? Or open an activity as an Individual Entrepreneur (ENI)?

The answer to this question will influence your tax burden, so a conscious decision must be made after analyzing all the pros and cons. Let's start by explaining each of the regimes.

What is an ENI?

The ENI or Entrepreneur in Individual Name is the individual who opens a business or professional activity in his own name and associated with his fiscal number, allocating the assets to the exploitation of the chosen economic activity. This means that, in the case of debts, you are always responsible for them and your personal assets contribute to accounting purposes. There is no separation between the personal and business spheres. These are income category B income from the IRS.

Main advantages:

• Possibility of opting for the simplified IRS regime - without organized accounting - whenever the annual turnover is less than € 200,000 in the previous fiscal year;
• Opting for the simplified regime, VAT exemption is provided whenever the annual turnover is less than € 12,500 in the previous fiscal year (article 53 of the CIVA);
• Exemption from the cost of accounting, in the case of opting for the simplified IRS regime;
• Exemption from Social Security payment during the 1st year of activity;
• Simplified process of opening and closing the activity.

What is a Sociedade Unipessoal, Lda?

A "One-Person Company" is a company. It is a legal entity independent of the personal sphere, with a different tax number - NIPC (Corporate Identification Number) - and which has a single partner. Partner who has limited liability to the value of the subscribed share - share capital - personal assets are not allocated to the activity and, of course, as he only has one partner, he is responsible for all the company's capital. This type of company can be created by anyone and the minimum share capital is only € 1 (one euro). In addition, if you want in the future you can integrate other partners to help you in the business.

Main advantages:

• Only the company's assets will be able to respond in case of debts. It means that the assets of the partner as an individual are safeguarded;
• All expenses with the company are tax deductible. What does not happen in the ENI under the simplified regime, which only have tacitly 25% of their profits deducted, since the Tax Authority only considers 75% of the income for the purposes of calculating the IRS;
• Possibility to deduct VAT paid technically companies do not pay VAT;
• Enables greater tax planning and efficiency;
• Plurality of partners, that is, at any time it is possible to transform the single share into several.

Conclusion

In our opinion, we cannot say that one option is absolutely more advantageous than the other. It will always depend on the type of business and activity you intend to develop, as well as your current economic situation.

As a reference, we leave 2 scenarios that should be considered in your choice:

1 - Forecast of billing less than € 12,500 in a calendar year

2 - If you are already receiving other types of income

In the first scenario, if you intend to earn less than € 12,500 in a calendar year, the best option will be to stay as ENI or Independent Worker.

The values ​​are low and do not compensate for the work of creating and managing a company or the cost of accounting. Just start your activity on the AT Portal and since you are exempt from invoicing VAT, you do not need to submit the quarterly VAT declarations. And during the first year of activity, you are exempt from the payment of Social Security. It is also a good idea not to forget.

If, on the contrary, you plan to bill above that amount, it may already make sense to open a company. Mainly because it allows you to choose the salary amount you will receive as a manager of your own company. Of the total invoices you can leave part of that capital in the company as a form of profits to be able to use and invest in your business.

In the case of ENI, all amounts billed 75% are taxed under the IRS.

In the company, you have the freedom to do this management and thus reduce the paid IRS. The greater the amount you invoice in a calendar year, the more sense it makes to open a business as you will be able to plan the tax impact.

No less relevant is the question of whether you already have other sources of income.

First, because if the total of your income, not only as ENI, which is the category B income of the IRS, but also others, such as category A income, fall below the gross annual € 9,226, you are exempt from paying IRS. So, if you have no other income and you expect to bill less than € 12,500, it also makes sense to stay as ENI because in addition to the Social Security exemption during the 1st year, you do not pay IRS or VAT invoices.

If, on the other hand, you already have other sources of income, specifically category A (salaries for work for others), opening a company may be a good solution, regardless of the estimated volume of invoicing. This is because, if you can give up a salary in your company, you can waive the remuneration as a manager and you are exempt from paying Social Security for your company because you are already making Social Security discounts through the employment contract.

This scenario allows the amounts that you bill in your company to stay in the company to be able to use, for example, to pay some expenses related to your activity, and at the end of the year you can receive the profits in the form of dividends by paying a maximum tax of 28% (if you choose not to be included in the IRS). With the company you have more instruments to make tax planning more effective.