Differences Between Light Entrepreneurship and Sole Proprietorship

Differences Between Light Entrepreneurship and Sole Proprietorship
Light Entrepreneur
Sole Proprietorship

Light entrepreneurship is a flexible way to take on work assignments in an entrepreneurial manner without the monthly fixed costs of financial management that a sole proprietor would incur. A sole proprietorship, on the other hand, requires more commitment, as bookkeeping and monthly fees must be taken care of as long as the business is in operation.

Light Entrepreneur

A light entrepreneur is a person who handles their work through an invoicing service. For example, the invoicing service bisse.fi offers the possibility to operate as a light entrepreneur without establishing your own business.

A light entrepreneur does not have fixed financial management costs, as the service fee for the invoicing service is only charged when you receive payment for your work. The service fee includes invoicing software, financial management, tax returns, and handling other official obligations. As a light entrepreneur, you are completely free from bookkeeping. You can become a light entrepreneur by registering with the bisse.fi service without any additional registration notifications, and there are no startup fees for the service.

Flexibility in Work and Breaks for Light Entrepreneurs

As a light entrepreneur, you can have one or more clients (or employers) and decide for yourself how much work you want to do. You can also pause your light entrepreneurship without extra costs and without needing to notify the tax authorities. If you are mostly unemployed, you can receive adjusted unemployment benefits as a light entrepreneur when the amount of work is small.

Taxation and Insurance for Light Entrepreneurs

The bisse.fi service fee is automatically deducted in your personal taxation. Note that light entrepreneurs are obligated to pay YEL (self-employed persons’ pension insurance) like other entrepreneurs, and YEL payments can be included in your tax deductions. The invoicing service handles financial management and official paperwork on behalf of the light entrepreneur, allowing you to focus more on the actual work and directly withdraw your earnings to your account.

VAT Obligation for Light Entrepreneurs

As an entrepreneur, you do not need to be VAT liable if your turnover is less than 15,000 euros. However, this is a company-specific limit. Since the turnover is calculated according to the invoicing service provider’s company in the case of light entrepreneurs, the turnover will certainly exceed 15,000 euros. For this reason, all light entrepreneurs are VAT liable and do not qualify for the lower VAT relief. On the other hand, you do not need to remit the VAT yourself, as the invoicing service takes care of this on behalf of the light entrepreneur.

Sole Proprietorship

Establishing a sole proprietorship does not require minimum capital, and it is the easiest business form to maintain. When starting as a sole proprietor, you can establish your business through the Trade Register or MyTax.

Registering with the Trade Register costs 70 euros in 2024. Registering an auxiliary business name also costs 70 euros per name.

Establishing through MyTax is free. When established, a business operating as a sole proprietorship receives its own business ID.

VAT Obligation for Sole Proprietors

If a sole proprietor’s turnover exceeds 15,000 euros, the business must register for VAT and join the VAT register. Sole proprietors can also make various work-related purchases and deduct them in their taxes (e.g., laptops, office supplies, tools, and marketing expenses).

Bookkeeping for Sole Proprietors

Sole proprietors only need to maintain simple bookkeeping: as an entrepreneur, you either take care of the bookkeeping, taxes, and other declarations yourself or hire an accounting firm to handle the bookkeeping, which incurs fixed costs. If you manage financial administration yourself, you will also need invoicing software. In addition to bookkeeping, sole proprietors must independently handle declarations to authorities, such as VAT and prepayment register.

Benefits and Responsibilities of Sole Proprietorship

Among business forms, a sole proprietorship is ideal when you want to work alone and do not intend to hire others. Terminating the business is done by notifying the tax administration, canceling YEL insurance, and making a notification to the Finnish Patent and Registration Office. A sole proprietorship differs from light entrepreneurship in that the sole proprietor manages everything themselves and is financially responsible for all commitments, including personal assets.