The Classic Dilemma of Entrepreneurs
Every entrepreneur finds themselves deliberating, before opening a business, the logical question: "What would be more suitable, the status of 'exempt business owner' or 'licensed business owner'?" The deliberation is understandable because this is not merely a technical decision, but one that could impact pricing, client relations, cash flow, and even how the business is perceived in the market. A wrong decision could follow the business for a long time.
The Practical Differences, Not Just Legal Ones
"Exempt business owner": Exempt from collecting VAT from clients, but cannot deduct VAT on expenses. This means simpler reporting management.
"Licensed business owner": Collects VAT and deducts input VAT. In other words, more frequent reporting and precise tracking are required.
Beyond the legal aspect, simplicity is not always an advantage, especially not for businesses with significant expenses.
Impact on Pricing, Clients, and Profitability
Business owner status directly impacts the final price to the client. Private clients tend to prefer "exempt business owner" - because there is no VAT addition. Business clients are indifferent to this - since they deduct VAT anyway.
In terms of profitability: due to the deduction capability, a business with high expenses - will likely be more profitable choosing the licensed business owner status.
When Does a Wrong Choice Harm the Business?
It often happens that entrepreneurs rush to choose "exempt business owner" status without checking the annual ceiling or the nature of the activity. The reasoning behind the choice is understandable ("to start small") but misguided. When income grows, a transition to "licensed business owner" status is required, and sometimes mid-year. The transition can have different tax implications. On the other hand, choosing "licensed business owner" status for a very small business - could create unnecessary bureaucratic burden.
Option to Transition Between Statuses
It's important to know that the choice is not final. You can transition from "exempt business owner" to "licensed business owner" status when you cross the income ceiling or when the nature of the activity changes. However, the transition requires planning, updating authorities, and pricing adjustments, so it's better to prepare for it in advance.
Examples from Different Businesses
A freelance designer working with private clients and minimizing expenses may benefit from "exempt business owner" status. In contrast, a business consultant working with companies and spending large amounts on professional services will quickly discover that it's preferable to choose "licensed business owner" status early on.
Summary and Practical Recommendation
The answer to the question is not uniform and suitable for everyone. The choice between "exempt business owner" and "licensed business owner" should be based on income projections, type of clients, expense structure, and business growth plans. A brief professional consultation before opening the business could save costly mistakes later.
Whether you're deliberating between exempt or licensed, opening a self-employed business account requires familiarity with the rules and forms of each authority. At CPA Digital, you can open a business online quickly, receive professional guidance, and ensure everything is registered accurately and legally. Opening a self-employed business account online with CPA Digital is the right and safe way to start a business with peace of mind.
Frequently Asked Questions
Is "exempt business owner" suitable for every small business?
Not necessarily. Suitability depends on income level, expenses, and the nature of clients.
Can you start as an "exempt business owner" and transition later?
Yes, but it's important to plan the transition in advance to avoid surprises.
Does "exempt business owner" seem "more professional"?
Sometimes yes, especially with business clients, but this is not the only consideration.