Choose a model taxation that suits your business.
The choice of tax model affects tax burden, cash flow, and future business development. We help sole proprietors make decisions based on concrete data, not assumptions.
Who is this service for?
How does taxation of a sole trader work?
A sole proprietor can operate under three basic tax models.
The tax obligation is determined by a decision of the Tax Administration and does not depend directly on the business result achieved.
Various factors affect the level of tax obligations, such as the registered activity, the sole proprietor's registered office, the year of establishment, and other elements prescribed by law.
The sole proprietor calculates personal earnings on which taxes and contributions are paid, while the business result achieved is taxed as self-employment income at a rate of 10%.
This model allows recognition of business expenses and, for a large number of activities, represents the most commonly optimal tax model.
The sole proprietor keeps business records, and the business result achieved forms the basis for calculating:
- self-employment income tax at a rate of 10%
- pension and disability insurance contributions at a rate of 24.00%
- health insurance contributions at a rate of 10.30%
- unemployment insurance contributions at a rate of 0.75%
This model may be of interest at lower levels of income and profit, but in practice it relatively rarely proves to be the optimal solution.
Comparative overview of tax models
| Model | It is most often advantageous when | Benefits | What to pay attention to |
|---|---|---|---|
| Lump-sum | Smaller business volume and low level of operating expenses | Simple administration and known obligations in advance | Limited ability to recognise expenses |
| Sole proprietor's personal earnings (LZP)Our recommendation | There are business expenses that affect the business result | Flexibility and the ability to manage costs | Requires proper record-keeping and planning of distributions |
| Self-assessment | Smaller business volume with limited expenses | Ability to recognise a broader range of expenses | More complex bookkeeping and reporting |
Lump-sum taxation can often be advantageous for activities that: have a smaller business volume and low level of expenses, do not have a large number of employees, and do not require complex business organisation.
The most common examples are: hairdressers, IT consultants (without major expenses), business consultants, designers, translators, and other service activities.
Based on our experience, for a large number of activities, the sole proprietor's personal earnings model represents the best solution.
We most often recommend it for: private practices, dental offices, medical offices, veterinary clinics, agencies and consulting businesses, IT professionals, creative industries, and activities with higher expenses.
There is no universally best tax model. A model that is advantageous for one sole proprietor may be unfavourable for another. Therefore, before making a decision, we analyse: expected income, expected expenses, number of employees, planned investments, international business, VAT status, and future development plans.
We verify fulfilment of independence conditions to help you avoid the risk of reclassification as an employment relationship.
We link tax obligations to accurate bookkeeping and reporting.
We help with monitoring related-party transactions and preparing appropriate documentation.
analysis and recommendation of the optimal model, tax burden assessment, transition plan and implementation support, ongoing advisory.
Frequently Asked Questions
Not sure which tax model suits your business?
Choosing a tax model can significantly affect total operating costs, liquidity, and future growth.