Many professional persons offer their service non as sole traders but through a private limited company especially established for this purpose. If the profits realized are kept within the company, for the time being only the corporate income tax has to be paid.
Only if a distribution of profits occurs, the capital gains tax (25% of the remaining 75%) is applied, while in the case of the sole trader the tax rate applied to the income can also amount up to 50%. Furthermore, for the time being, no social contributions have to be paid with regard to these profits.
An annotation at the margin of the directives on income tax stating that the earnings derived from personal activities as of 1 July 2009 have to the attributed to the person who has rendered a service personally, has created some confusion because consequently income derived from self-employed activities may not be taxed within the private limited company but the person who has “personally” rendered the service is liable to taxation.
After heavy criticism voiced by experts, the Ministry of Finance is now trying to defuse this rule which would have made impossible taxation in the framework of a company. There is, however, the problem of the abuse of the construction of the private limited company for taxation in case where factually or legally it is not able to carry out operations.
A private limited company has to incur non-wage labour costs for remuneration paid to managing directors. According to a finding of the Administrative High Court, also the simple payment of reimbursement of costs to the managing director-shareholder must result in the payment of non-wage labour costs (municipal tax, employer’s contribution to social security).
According to the Income Tax Act, the tax base of the municipal tax includes also remuneration paid by the private limited company to the managing director-shareholder of the company. This situation remains heavily contested among the experts.