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Successful self-employment in the EU

Successful self-employment in the EU and the advantages of an LLC in the USA

Successful self-employment in the EU and the advantages of an LLC in the USA

Independence is an exciting and challenging career decision that brings many benefits, but also some hurdles. This article examines the key criteria for successful self-employment in the EU, tax factors that present challenges, insurance and contributions. It also explains why a LLC (Limited Liability Company) in the USA can be an attractive alternative.

Criteria for successful self-employment

Personal characteristics

Passion and perseverance

A strong passion and perseverance are essential to stay motivated in difficult times. A strong interest in and commitment to your own business help you to overcome hurdles and achieve long-term success.

Ability to take criticism and make decisions

The ability to accept constructive criticism and make quick, well-founded decisions is crucial for success. Flexibility and the willingness to learn from mistakes make a significant contribution to the continuous improvement of the company.

Self-confidence and enthusiasm

Healthy self-confidence and the ability to get others excited about your idea are other key factors. Self-confident entrepreneurs can present their business convincingly and attract important partners and customers.

Business requirements

Good business idea

An innovative and marketable business idea that offers clear added value and ideally occupies a niche is the cornerstone of any successful self-employment. The idea should be both practicable and scalable.

Business plan

A detailed business plan that covers all aspects of the business model, market analysis and financial planning is essential. A well-prepared plan helps to set goals and structure the path to achieving them.

Legal form and authorizations

Choosing the right legal form and obtaining all the necessary permits are important steps. Depending on the type of business and location, there may be different requirements that need to be taken into account.

Financial aspects

Financing

Various financing options such as equity, loans, state subsidies or crowdfunding should be carefully examined and utilized. A solid financing strategy ensures the necessary flow of capital and supports the company's growth.

Cost management

Effective cost management and the use of accounting tools or working with a tax advisor can help keep finances under control. Transparency and control over expenses are crucial for the financial health of the company.

Tax factors that put pressure on self-employment in the EU

Complexity of the tax return

Self-employed people generally have to submit a more comprehensive tax return than employees. This requires detailed records and knowledge of deductible business expenses, which significantly increases the administrative burden.

Higher social security contributions

In contrast to salaried employees, self-employed persons must pay the full social security contributions themselves, which results in a higher financial burden. This includes both health and pension insurance contributions.

Value added tax

Depending on their turnover, self-employed persons must submit monthly, quarterly or annual advance VAT returns, which represents an additional administrative burden. The correct processing of the Value added tax is often complex and time-consuming.

Trade tax

In addition to the Income tax also pay trade tax, which increases the tax burden. This can pose a considerable financial challenge for small companies in particular.

Advance payments

Self-employed people often have to make advance tax payments, which can affect liquidity. Unforeseen high advance payments can make financial planning more difficult and lead to bottlenecks.

Progressive income tax rate

As income rises, the tax rate increases, which can lead to a higher tax burden for successful self-employed people. This can reduce the incentive to earn more and grow.

Complex depreciation rules

The correct depreciation of fixed assets requires precise knowledge of tax regulations. Errors can lead to additional tax payments or other legal problems.

Retention obligations

Self-employed people have to keep business documents and receipts for longer periods of time, which means organizational effort. These obligations increase the administrative burden and require a good documentation system.

Risk of additional tax payments

Insufficient advance payments or incorrect calculations can result in high additional payments. This can lead to unexpected financial burdens and jeopardize liquidity.

Need for professional help

Many self-employed people find themselves forced to take advantage of fee-based tax advice in order to correctly fulfill all tax requirements. The cost of these services can be considerable.

Insurance and other contributions in EU countries for self-employed persons

Health insurance

In most EU countries, health insurance is compulsory for the self-employed. The exact regulations and contribution levels vary from country to country and can represent a considerable financial burden.

Pension insurance

Many EU countries have special pension insurance schemes for the self-employed. In some countries, participation is voluntary, in others it is compulsory. Contributions and benefits vary greatly between countries.

Unemployment insurance

The regulations on this vary. In some countries, the self-employed can pay into unemployment insurance on a voluntary basis, while in others this is not possible. Unemployment cover is therefore often incomplete.

Occupational disability insurance

Disability insurance can be a sensible form of cover for the self-employed. In some EU countries, there are special disability insurance policies for the self-employed.

Social security contributions

In many EU countries, self-employed persons have to pay the full social security contributions themselves, which results in a higher financial burden than for employees. This includes health, pension and often also long-term care insurance contributions.

Additional pension provision

Due to the often lower statutory pension entitlements, self-employed people are advised to make additional private provision, e.g. through private pension insurance or state-subsidized models such as the Rürup pension in Germany.

Professional pension funds

Some countries have their own pension schemes for certain liberal professions. These can offer additional protection, but are often associated with high contributions.

Why an LLC can be a better alternative in the USA

Simple foundation

Forming an LLC in the USA is relatively straightforward and quick. In many states, the formalities can be completed within a day, which greatly simplifies the process.

Flexibility

An LLC offers flexibility in terms of tax treatment. It can be classified as either a partnership or a corporation, which offers various tax advantages.

Limitation of liability

Similar to a Ltd. in Europe, an LLC offers protection of the owners' personal assets. This protects personal finances from entrepreneurial risks.

No minimum share capital

In contrast to many European legal forms, an LLC does not require any minimum share capital. This makes it easier to set up, especially for smaller companies and start-ups.

Tax benefits

LLCs can benefit from various tax advantages, such as the ability to write off certain business expenses. This can significantly reduce the tax burden.

International business activities

A US LLC can make it easier to gain a foothold in the American market and do business internationally. This opens doors to one of the largest markets in the world.

Legal certainty

The USA offers a high degree of legal certainty and excellent protection of intellectual property. This is particularly important for innovative companies and start-ups.

Tax exemption for non-residents

A so-called "Exempt LLC" can, under certain conditions, even be completely exempt for entrepreneurs who are not domiciled in the USA. tax-free be. This offers considerable tax advantages.

Access to financial services

With a US LLC, it is often easier to open bank accounts and use payment service providers such as Stripe or PayPal. This facilitates international payment transactions.

Less bureaucracy

Compared to many EU countries, the bureaucratic hurdles in the USA are often lower. This saves time and costs and allows entrepreneurs to concentrate on their business.

Tax and insurance aspects for EU citizens when setting up an LLC in the USA

US taxes

Without a permanent establishment in the USA and if the owner is a non-resident, there is generally no US income tax. The LLC may be tax-exempt as an "Exempt LLC" or "Foreign Owned Disregarded Entity LLC". However, US taxes may be incurred if the business activity or permanent establishment is in the USA.

Taxes in the home country

The EUCitizens must pay tax on the profits of the LLC in his country of residence. The tax treatment depends on the country in question. In Germany, Austria and Switzerland, the LLC can be classified as a corporation, which can lead to tax disadvantages. With a carefully designed Social contract However, in many cases a classification as a partnership can be achieved, which can offer tax advantages.

Social insurance

As a rule, no US social security contributions are due as long as the EU citizen is not working in the USA. Social security contributions must still be paid in the home country, depending on the local regulations for self-employed persons.

Health insurance

US health insurance is not required as long as the EU citizen does not live or work in the USA. They must still have health insurance in their home country.

Further insurances

Liability insurance for the company can be useful, but is not mandatory. It is important to assess the specific requirements and risks and take out appropriate insurance.

Anonymous foundation and CRS

Anonymous formation of an LLC

In the USA, it is possible to form an LLC anonymously, which means that the owners do not appear in public registers. This offers additional privacy protection and can be advantageous in certain situations.

CRS participation of the USA

The USA does not participate in the Common Reporting Standard (CRS), an international agreement for the automatic exchange of financial data. Under certain circumstances, this can offer tax advantages and increase data protection.

FAQs

What personal qualities are important for successful self-employment?

Qualities such as passion, perseverance, critical faculties, decisiveness, self-confidence and enthusiasm are crucial for successful self-employment.

What business requirements must be met?

Important business prerequisites are a good business idea, a detailed business plan as well as the choice of the appropriate legal form and obtaining the necessary permits.

What financial aspects are important for the self-employed?

Financial aspects include financing, cost management and choosing the right insurance policies to minimize financial risks and ensure the company's financial stability.

Why do tax factors put pressure on self-employment in the EU?

Tax factors such as the complexity of tax returns, higher social security contributions, VAT and trade tax as well as advance payments and progressive income tax rates can put pressure on self-employment in the EU.

What insurance do self-employed people in the EU have to take out?

Self-employed people in the EU generally have to take out health, pension and often also unemployment and occupational disability insurance. The exact regulations vary from country to country.

Why can an LLC in the USA be a better alternative?

An LLC in the USA offers advantages such as simple formation and flexibility, Limitation of liabilityno minimum share capital, tax advantages, international business activities, legal certainty and less bureaucracy.

Conclusion

Self-employment in the EU brings many challenges, particularly in terms of tax and insurance requirements. Thorough planning and the right choice of Type of company are crucial for success. An LLC in the USA can be an attractive alternative, but it also presents its own challenges and requires careful consideration and professional advice.

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Disclaimer: Please note that the above dates, tax rates and regulations may change over time. Do not make any independent decisions without first consulting an expert for your individual situation. It is in your interest to always receive individual information from an experienced expert who knows your situation.

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