How to Become Self-Employed

In one of our more recent articles, we dove into the topic of gig economy within the Latvian job market. If you've landed here, there's a good chance you're curious about exploring the possibilities of the flourishing economic model yourself. 

Whether you dream of bringing your cherished business idea to fruition or are on the lookout for additional income streams, registering as a self-employed individual will mark the initial move toward altering your career trajectory. 

In this article, we'll delve into what it entails to become self-employed and what you should consider during the registration process. Please note that the following information pertains exclusively to self-employment regulations and tax policies in Latvia. 

Registering as Self-Employed – How Does it Work?

Before you embark on the registration process, it's crucial to grasp the nature of the economic activity you intend to pursue. If your goal is to establish your own business, your self-employment will likely take the form of a sole proprietor, and the registration will take place in the commercial register. As a sole proprietor, your company's name is also registered, and a fee is levied for the registration process. 

Conversely, if your plan is to operate as a self-employed service provider without a registered company, you must declare your economic activities as an individual within the State Revenue Service's (SRS; VID in Latvia) electronic system, using your personal code.

The key difference between these two forms is that every self-employed individual, in essence, engages in a form of entrepreneurship, but is not required to set up a company. Meanwhile, full-fledged commercial activities can only be carried out by individuals or companies listed in the commercial register. 

If you are still confused about the distinction between these terms, we invite you to explore the main differences below.

Sole Proprietor or Self-Employed Individual - What's the Difference? 

First and foremost, it is worth noting that both sole proprietors and other non-company self-employed individuals are economic activity performers. The main difference lies in the format of the activity, the scale of the operation, and the requirements imposed on the operator.

If you are an economic activity performer without a registered company, you are likely to conduct economic activities in your own name. In contrast, sole proprietors establish a new legal entity through which they engage in commercial activities, such as a limited liability company (LLC; SIA in Latvia) or a joint-stock company (JCS; AS in Latvia). 

This, in turn, leads to a series of other differences, in the case of sole proprietors, including the existence of mandatory share capital, transparency of economic activities, and the founder's responsibility for the legal entity's (LLC, JCS) obligations regarding personal property, and more.

To better illustrate the difference between sole proprietors and other forms of economic activity, let's turn to some figures. 

Any individual whose income from regular transactions (from providing any type of service) exceeds €14,229 per year is responsible for registering their economic activities with the State Revenue Service. However, at this point, the person is not yet obliged to register as a sole proprietor.

On the other hand, if the annual turnover from economic activities exceeds €284,600, registration of the economic activities in the commercial register becomes mandatory.

If you've chosen to make the most of what the Taskio platform has to offer, you've probably already registered or are gearing up to register as a performer in the economic activities arena via the State Revenue Service. In that scenario, we'd like to encourage you to take a moment and get acquainted with the ins and outs of the taxation process.

Forms and Rates of Self-Employment Taxes

When registering as a self-employed individual, you have two tax payment options:

  • Regular Tax Payment

  • Microenterprise Tax (MUN)

Differences between these two formats can be found in the tax rates and calculation methods. Under the regular method, self-employed individuals calculate social contributions every quarter and income tax annually.

In contrast, the microenterprise tax calculation format is a simpler model overall, as a single tax rate applies to both social contributions and income tax calculation. However, this model is more restrictive, as it excludes the option to deduct expenses.

Regarding the tax rate, as mentioned earlier, choosing the MUN format is relatively straightforward. Economic activity performers under this format make tax payments each quarter based on the turnover for that quarter. If the annual turnover is below €25,000, the tax rate is 25%. If the turnover exceeds this amount, the rate increases to 40%.

The calculation becomes somewhat more complex under the regular method. In this case, the tax rate is determined based on the monthly income earned. 

If the monthly income exceeds €620 (the minimum wage in Latvia in 2023), the economic activity performer must calculate contributions using the higher rate of 31.07%. Additionally, a 10% contribution for pension insurance must be made. This rate is applied to the difference between €620 and the actual income. If the monthly income does not reach €620, only a 10% contribution from the actual income is required for pension insurance.

Regardless of the chosen option, your bookkeeping skills and ability to organize are crucial here. It is recommended to actively document income and expenses related to your economic activities by keeping receipts, invoices, and e-receipts to ensure the accuracy of financial transactions. 

To document income and expenses, consider using a simple accounting archive, such as a specially designed ledger or an Excel spreadsheet on your computer. The key is to document everything related to your economic activities, even if you're unsure initially.

The Next Step – Taskio

Once you've sorted out the questions related to self-employment registration, we encourage you to explore the offerings of the Taskio platform. Although the journey to obtaining self-employed status may initially seem daunting, it is often much simpler in practice than the various terms and figures might suggest. 

In case of any uncertainties, we recommend reaching out to the State Revenue Service's customer service center for more detailed information on your specific inquiries. Don't hesitate to contact the Taskio team as well to find answers to questions about the platform's operating principles and efficiency.