How to choose taxation for individual entrepreneurs

One of the most important moments for an entrepreneur at the beginning of his activity is the correct and balanced choice of a tax system. Current legislation provides for several tax systems for individual entrepreneurs. The application of all these systems is regulated by the norms of the second part of the Tax Code of the Russian Federation.

You will need

Tax Code of the Russian Federation

Instruction manual

1

Study the tax systems that an individual entrepreneur is entitled to apply in carrying out his activities. Each of the systems has its own characteristics, terms of payment of taxes and reporting forms. The entrepreneur has the right to choose a taxation and reporting system.

2

Consider using a general taxation system (OAS) in your business. Under such a system, an individual entrepreneur pays all necessary taxes and payments if he is not exempted from payment on appropriate grounds. Typically, this mode is used in relatively large enterprises.

Most of the taxes and contributions provided by the general taxation system are accrued and paid by you only on condition that the company is engaged in a certain type of activity and at the same time a tax base arises. Traditionally, individual entrepreneurs calculate and pay value added tax (VAT), personal income tax (PIT), property tax, insurance contributions to the Pension Fund, Territorial Compulsory Medical Insurance Fund, Federal Compulsory Medical Insurance Fund.

3

The next type is the simplified tax system (STS). Its use is voluntary. As an individual entrepreneur, you are free to decide on the application of the simplified tax system and choose the object of taxation.

4

If you have chosen a simplified taxation system, you accept the obligation to pay a single tax and are relieved of the obligation to pay:

- value added tax, with the exception of VAT payable upon import of goods into the customs territory of Russia and VAT paid in accordance with Art. 174.1 of the Tax Code.

- tax on personal income (in respect of income derived from entrepreneurial activity) with the exception of tax paid on income taxed at tax rates provided for in paragraphs. 2, 4, 5 Art. 224 of the Tax Code of the Russian Federation.

- tax on property of individuals (in relation to property used for entrepreneurial activity).

5

When choosing a simplified taxation system, make sure that the selected type of activity is not one of those for which it is forbidden to use STS. A list of these species is given in Art. 346 p. 2 of the second part of the Tax Code.

6

For some activities established in a particular region, it is possible to apply a special regime, namely the simplified tax system based on a patent. At the same time, the region sets a fixed cost for the patent, and you, as an entrepreneur, pay it in installments during the term of the patent. A patent is granted for a period of up to one year. Under this taxation system, you will keep a book of income and expenses, but you are not required to submit a declaration. Employment is possible (no more than five people per year). A patent is valid only in the territory where it was granted.

7

If you are starting an activity as an individual entrepreneur, choose one of the types of simplified taxation system. The exception is such type of activity as wholesale trade or the need to transfer invoices to customers for VAT refunds from the budget.

How to choose a tax system (for entrepreneurs)