What are the tax differences between different legal forms for start-ups?
November 13, 2023 | 50,00 EUR | answered by Fanni Siebert
Dear tax advisor,
I am currently planning my start-up and am faced with the decision of which legal form is best suited for my business. I have already considered various options such as sole proprietorship, GmbH, and UG, but I am unsure about the tax differences between the different legal forms.
In my specific case, I am planning to start a small consulting firm in the field of online marketing. Since I do not have a large amount of financial resources as a start-up, I am currently leaning towards establishing a sole proprietorship or a UG. I have heard that the tax burdens can vary depending on the legal form and I want to make sure that I make the best possible decision.
My concerns mainly lie in not fully understanding the tax implications and the possibility of unexpected tax burdens in the future. Therefore, it would be very helpful for me if you could explain the tax differences between the different legal forms for start-ups. Are there, for example, differences in the taxation of profits, value-added tax, or social security contributions?
I look forward to your expert advice and thank you in advance for your support.
Sincerely,
Mia Bahr
Dear Mrs. Bahr,
thank you for your inquiry regarding the tax differences between the various legal forms for start-ups. It is understandable that as a prospective entrepreneur, you have uncertainties and want to ensure that you make the right decision.
First and foremost, it is important to understand that the choice of legal form can have a significant impact on the tax burden of your business. The sole proprietorship is the simplest and most common form of business establishment. As a sole proprietor, you are self-employed and personally liable with your entire assets for the liabilities of the business. From a tax perspective, the profits from your activities as a sole proprietor are taxed at your personal income tax rate.
On the other hand, the GmbH (limited liability company) and the UG (entrepreneurial company) are capital companies and offer the advantage of limited liability, meaning your personal assets are generally protected from the liabilities of the business. With these legal forms, taxation is done at the company level, which may result in a potentially lower tax burden. However, the start-up costs and ongoing administrative costs for a GmbH or UG are typically higher than for a sole proprietorship.
Regarding value-added tax, as an entrepreneur with an annual turnover of more than 22,000 euros, you must pay VAT. In a sole proprietorship, VAT is usually paid quarterly to the tax office, while in a GmbH or UG, VAT must be paid monthly.
As for social security contributions, as a sole proprietor, you are self-employed and therefore responsible for your own social security contributions. In a GmbH or UG, you are typically employed as a managing director and are subject to social security contributions like an employee.
It is important to seek individual advice from an experienced tax advisor to choose the optimal legal form for you. Each case is unique, and there is no one-size-fits-all answer to which legal form is best. Your tax advisor will analyze your individual situation and help you make the decision.
I hope I could provide you with an initial overview of the tax differences between the various legal forms. Please do not hesitate to contact me with any further questions.
Best regards,
Fanni Siebert
