Hire my sister to decrese the TMI's tax?

[Upphew]

I wish i could understand why someone has to even think about this, i cant understand your examples.

Am i to think that the over complex system of business rules here requires the mandatory addition of more complex checklists from the tax man.That ver link in English doesn't give the example i need to understand this strange phenomenon.

You guys use words like client and customer, both are paying for some service, thats what business is.How is this impacting on the number of clients you have.Please give the explanation some more depth.I really want to know if its a set of stupid collective rules that have been implemented by the original business rules being stupid in the first place!

Example. I work for company, construction, some years, work has been steadyish, but seems to go down. Employer agrees to give jobs if I set up TMI, he will pay me more, but I have to take care of all the costs, just like every TMI. I don't have any other clients, I don't do marketing, I still work with the same tools I did before, I do what I did before with same routines. -> taxman will say "no company, job"

[Upphew]

to avoid receiving taxable salaries.

I cant say much about the system here.Normal business is you receive money that you provided any form of service for then its a taxable income. Regardless of who you are,child, pensioner, unemployed, company , partnership,sole trader,community group.
1 or 100 clients doesnt change the fact that the 1st clients payment is taxable income and the last is taxable income.

Im really intrigued as to why the income classification can change according to other operating circumstances.

Taxable salary at 300 000 per year vs. dividends at 300 000 per year.

[Mook]

to avoid receiving taxable salaries.

I cant say much about the system here.Normal business is you receive money that you provided any form of service for then its a taxable income. Regardless of who you are,child, pensioner, unemployed, company , partnership,sole trader,community group.
1 or 100 clients doesnt change the fact that the 1st clients payment is taxable income and the last is taxable income.

Im really intrigued as to why the income classification can change according to other operating circumstances.

Taxable salary at 300 000 per year vs. dividends at 300 000 per year.

plus of course you can deduct more expenses. Computer, phone, internet, other tools....

[Rosamunda]

@ Cors 187

I don't think Finland is unique in this respect.

As you know. Company tax is a flat rate whereas personal income tax is a progressive tax (ie people with high incomes are taxed more than people with lower incomes).

In order to avoid paying high levels of income tax as salaried employees, some people set up companies and provide their services on a business-to-business basis.

Example. Imagine I am an IT consultant and I work for a company called ABC Oy. I'm good and I get a great salary and I pay lots of tax. My employer also has to pay high KELA contributions (about 25% on top of the wage he is paying me).

So, we come to a deal. I leave ABC Oy and set myself up in business and I call my company XYZ Oy ( or TMI, whatever). I continue to work for ABC Oy doing exactly the same work as before except that at the end of every month I send ABC Oy an invoice instead of them paying me a salary with a pay slip. This way I pay less tax and my employer has lower payroll costs. (I have to charge VAT but ABC Oy doesn't care because they can deduct it anyway).
In this case XYZ Oy is not really trading as a proper business. As the sole employee of XYZ Oy, working only for ABC Oy and no other customers, our relationship is more like an employer/remployee one.


This is the kind of scenario that Vero doesn't like because it is set up only to avoid paying tax.


But, if XYZ Oy finds other customers, eg I start working on projects for DEF Oy and GHI Oy then it's OK. I am operating a proper company that trades B2B with other companies.

HTH

[cors187]

I wish i could understand why someone has to even think about this, i cant understand your examples.

Am i to think that the over complex system of business rules here requires the mandatory addition of more complex checklists from the tax man.That ver link in English doesn't give the example i need to understand this strange phenomenon.

You guys use words like client and customer, both are paying for some service, thats what business is.How is this impacting on the number of clients you have.Please give the explanation some more depth.I really want to know if its a set of stupid collective rules that have been implemented by the original business rules being stupid in the first place!

Example. I work for company, construction, some years, work has been steadyish, but seems to go down. Employer agrees to give jobs if I set up TMI, he will pay me more, but I have to take care of all the costs, just like every TMI. I don't have any other clients, I don't do marketing, I still work with the same tools I did before, I do what I did before with same routines. -> taxman will say "no company, job"

Right so i would normally use the word contractor for (Employer agrees to give jobs if I set up TMI), but we've had this difference of opinion before when i first joined the forum.
The second point being that because the sole trading entity(TMI), was employed by the "contractor(employer), then this is right for the vero to look for illegal enterprise.
Now considering that the contractor gives work to one TMI No1(the old employee) , and he gives work to another TMI No2,(some other guy who never worked for the contractor), then it is the right for vero to consider TMI No1to be persuaded into illegal enterprise?.
Contractor company has the right to restrict or abundantly give help to any TMI or OY company that is doing their work.Prime example being that the contractor company allows workers to use scaffolds, various machinery etc that enables the TMI or OY to fulfill its required work. Thats a fact and it becomes a useless point of objectives for an outsider(vero) to classify "help" as a means of illegal enterprise.

Lawful point being- that if TMI No1 was payed enough money by the contractor, that he then payed all his legal obligations.But Vero says ,if its possible that we can class TMI No1 as an employer of your company, then you owe us the employee contributions that are required from an employer,correct?
But TMI No2 never worked for the contractor company as an employer, so is it expedient that TMI No2 should be classed as an employee?.

Both TMI No1 and No2's enterprise classifications hinges on that fact of- does N01 and No2 have any more contractors that they work for?
This point is also useless to the entrepreneur because TMI No1 was sick of making all the money for an employer so he decided to start his own business.He used his old employer to make sure he had work to pay the bills, unfortunately the start was difficult for TM1 No1 so he used his old employer as much as possible.No extra work came his way for that financial year.

On paper there is no difference between an employer using illegal enterprise to force an employee to start trading as a Sole trader(TMI), and an employee(now a Sole trader TMI) who is trying his best to make as much money as he can and "use" whatever resources he has available.

this is why i think business is so slow and a band of pansies controls the useless legislation and extra governmental money spending that employes a large number of useless people.

Im here to say that using another companies resources to reduce costs on your own business is the same intelligent concept that the host Finnish governmental departments(needed or useless) uses on its peoples, its the same principle.

To say that a Sole trader can be legally classified as an employee is a difficult proposition.

2 employees from a company turn into TMI, they both receive the same amount of help from the contractor company to do their services.
One TMI is an average worker so his proficiency and the money he earned in his pocket was about the same as an employee, except the fact that he had to do the work and could not rely on another employee to help him finish the work.

The second TMI was was an absolute machine of excellence , often doing twice as much as any other worker.He knew he was the best and commanded that the contractor pay him more per piece or per Sq meter , or else he was leaving.So the contractor paid more as the work was of such high quality that it was good media and marketing that they could offer such a high quality work. The second guy earned up to 3 times as much as he did as an employee, the contractor paid more money that they ever did when he was an employee.

Whats the point of the old employer paying twice or 3 times as much for the TMI , when they could have paid less if they kept the guy as an employee and given him a salary increase???They couldn't it was no their decision.
I understand that there is a law and i now understand your example.

The reason why we don't have this uselessness in Australia is that when someone becomes a sole trader its usually at the extra expense of employers.Employers would try to keep them but cant do it as great workers control their own destiny.
In some ways its almost backwards,sorry
Its all about the government claiming their due money, nothing to do with pure entrepreneur strategies.

What do you think about the fact that vero cannot prove employer-employee relation if the total expenditure of the company for that second TMI was higher than the average TMI payment plus adding the extra employee contributions from the company.?
That is proof that the company was in no way trying to reduce worker costs and inducing illegal enterprise

[cors187]

to avoid receiving taxable salaries.

I cant say much about the system here.Normal business is you receive money that you provided any form of service for then its a taxable income. Regardless of who you are,child, pensioner, unemployed, company , partnership,sole trader,community group.
1 or 100 clients doesnt change the fact that the 1st clients payment is taxable income and the last is taxable income.

Im really intrigued as to why the income classification can change according to other operating circumstances.

Taxable salary at 300 000 per year vs. dividends at 300 000 per year.

@ Cors 187

I don't think Finland is unique in this respect.

As you know. Company tax is a flat rate whereas personal income tax is a progressive tax (ie people with high incomes are taxed more than people with lower incomes).

In order to avoid paying high levels of income tax as salaried employees, some people set up companies and provide their services on a business-to-business basis.

Example. Imagine I am an IT consultant and I work for a company called ABC Oy. I'm good and I get a great salary and I pay lots of tax. My employer also has to pay high KELA contributions (about 25% on top of the wage he is paying me).

So, we come to a deal. I leave ABC Oy and set myself up in business and I call my company XYZ Oy ( or TMI, whatever). I continue to work for ABC Oy doing exactly the same work as before except that at the end of every month I send ABC Oy an invoice instead of them paying me a salary with a pay slip. This way I pay less tax and my employer has lower payroll costs. (I have to charge VAT but ABC Oy doesn't care because they can deduct it anyway).
In this case XYZ Oy is not really trading as a proper business. As the sole employee of XYZ Oy, working only for ABC Oy and no other customers, our relationship is more like an employer/remployee one.


This is the kind of scenario that Vero doesn't like because it is set up only to avoid paying tax.


But, if XYZ Oy finds other customers, eg I start working on projects for DEF Oy and GHI Oy then it's OK. I am operating a proper company that trades B2B with other companies.

HTH

Ok , so there was 2 different systems going on in the discussion
The second as you refer to it is the ability for the entrepreneur to start an OY company , holding all the shareholders units, he then continues to work under the umbrella of the OY in terms of paperwork,at the due time he then processes all received payments as shareholders dividends and pays the dividend tax.
Considering under the OY umbrella there is 4 ways of directing money.
Employee salary-As share holder of the OY you can declare your work in the Oy umbrella as Salaried employee(includes mandatory contributions from employer and employee).
Company profits- Doesnt deserve a mention as this money is the companies and not yours.
Shareholders dividends- Company money before tax that is paid to shareholders at the dividend tax rate(no Obligatory contributions)
This last one i forget the name but the shareholders can take out tax free money of a certain amount or % dependent on the value of the company>i think its upto 9000e per year.

So new legislation watchdogs the employee>dividend relationship in an OY?
Any more links on this concept would be good as i play in this field.

[Rip]

Shareholders dividends- Company money before tax

That is paid from remaining profits after the corporate tax has been paid (24.5% currently, I think).

[cors187]

there is a tax of 21% or 22,4% on dividends (70% of dividend is taxable capital income and capital gain tax rate is 30% for capital gains lower than 50 000 and 32% for the part that exceeds 50 000). However, effective tax rates are 40.36% or 41.41% for private person. That's because corporate earnings have already been taxed, which means that dividends are taxed twice. Corporate income tax is 24.5%

i stand corrected or unfranked

[cors187]

Thought to post this up for any of the go getters looking to figure out the best way to retain earned money.

Dividends from nonlisted companies

Other companies also pay dividends (such as family companies, or companies of self-employed individuals), i.e. companies that are not listed at the Stock Exchange. Receipts of dividend from nonlisted companies are divided into earned income and capital income.
Description of the part regarded as capital income

Receipts of dividends are regarded as capital income up to the amount that equals the arithmetical nine-percent annual return on the value of the share. For this purpose, the value of the share is the arithmetically worked out value (matemaattinen arvo / matematiskt värde) based on the balance sheet of the previous year. The formula for the arithmetical value of the share is Net Wealth (assets minus debts) divided by Quantity of Shares.

During the tax year, receipts of dividends from nonlisted companies regarded as capital income (according to the above rules) are exempt from tax up to €60,000.00. Receipts of dividends exceeding €60,000.00 are treated as follows: Only 70% of the receipts of dividend are taxable income. The remaining 30% is tax-exempt income.

The ceiling of €60,000.00 concerns the recipient of dividend personally. This means that all the qualifying receipts of dividends from nonlisted companies are added up. The taxable and tax-exempt portions of the income are automatically separated during the procedures of tax assessment.
Description of the part regarded as earned income

Receipts of dividends above the nine-percent return level (see above) will be regarded as earned income. Only 70% of the receipts of dividend are taxable income. The remaining 30% is tax-exempt income.

Determined accord­ing to the progressive scale, the taxpayer's personal tax percentage rate for all earned income will be used in the assessment of the taxable portion. The taxable and tax-exempt portions of the income are automatically separated during the procedures of tax assessment.

Example

David received dividends from nonlisted:

From the small company 'A' Oy: €120,000.00 and
from the small company 'B' Oy: €150,000.00

David is a shareholder in the small company called 'A' Oy, and the arithmetical value of his shares in 'A' equals €900,000.00. Now, if the company distributes any dividend, the part regarded as capital income will be 9% x €900,000.00 = €81,000.00.

Consequently, the part regarded as earned income within David's dividend from 'A' Oy will be (120,000 ./. 81,000 =) €39,000.00.

David is also a shareholder in 'B' Oy, another small company, and the arithmetical value of his shares in 'B' is €2,000,000.00. Under the circumstances, the entire dividend distributed by 'B' will be regarded as capital income, because it stays below 9% of arithmetical value.

As a result, there is an amount of €231,000.00 of capital income in David's hands.

As noted above, receipts of dividends from nonlisted companies are exempt from tax up to €60,000.00. Then we will only examine the part exceeding €60,000.00, (231,000./. 60,000 =) i.e. €171,000.00 of which €119,700.00 will be taxable (70%) and €51,300.00 exempt from tax (30%). In total, the tax-exempt part of David's capital income is €111,300.00 and the taxable part is €119,700.00.

David's receipt of dividends of €39,000.00, regarded as earned income, will be assessed as follows: An amount of €27,300.00 (70%) is taxable, and €11,700 (30%) is exempt from tax. This taxable earned income will be added to David's other earned income, and it will have an effect on the progressive scale of his tax.

[cors187]

My brother is unemployed for half a year.
I was told before I can hire him if I want get the deduction or at lease decrease my TMI's incoming tax.

But today after discussing with my bookkeeper, I found it is difficult.
For example, if I set his salary as 1500 euro, I need to pay 30% in total for tax (20%), insurance (7%), pension (18%) and 2% sth. else. At meanwhile, my brother needs to pay tax, pension.... from his side.
While the TMi's incoming tax is around 30% if my profit reaches 40,000 a year.

Shall I hire him or not? Is there some way to deduct TMI's tax? I know in UK, the tax is deductible if they donate.....

I think for you, if your making good money is not to take peoples words as true, i have done this and many times i think i have the correct knowledge but i dont.
You should actively try to understand the tax laws yourself , because in Europe there will be many times your business management depends on what you know and that impacts the confidence of you in many situations.Confidence is everything here.
Theres some simple rules of making money, one rule is if there's to much to do with one set of hands , get another pair.

[Pursuivant]

OK, lets put it this way.

As a Finn, I would never "start a company" or "become an enterpreneur" unless I won in the lottery.

[Upphew]

So new legislation watchdogs the employee>dividend relationship in an OY?
Any more links on this concept would be good as i play in this field.

OYs are used to dodge taxes, sometimes it goes too far and tax.fi takes action, eg. doctors working for only one private hospital and doing the billing through his/her own Oy. Then there are cases where employees are forced to start Tmi and the only difference is that they bill the same company they worked before. Those cases can be interpreted as job not b2b transaction. And that is done to protect the worker, not necessarily to get more taxes.

[cors187]

Then there are cases where employees are forced to start Tmi and the only difference is that they bill the same company they worked before.

But in real terms this is the situation that allows the sole trading identity to search around and tell his old boss to stick it as "im on to greener pastures"(then the boss really does have to pay more or employ a new employee and training), as an employee the TMI cannot proceed to "grow" and neither can he show that he has run a successful stint as a contractor.
I think the business associates i know, think this phenomenon reduces active competition in the Contractor/sub contractor game.Less hungry contractors means less tenders and price negotiation more favorable to the Tenderer. Good for the active peeps.

In any case , what your saying is that just having the structure of the Sole trading identity (TMI) is not enough if the TMI is "using" its old employee for gain.The TMI needs to offset any chance of a tax.fi ruling (employer/employee) that destroys the relationship that is making the TMI money and giving him opportunity that he hasn't had before.
Some of the offset principles you mentioned are-
Media marketing the TMI?
Paperwork trail that shows active searching of other business opportunities?

[Rick1]

quote="Pursuivant"]OK, lets put it this way.

As a Finn, I would never "start a company" or "become an enterpreneur" unless I won in the lottery.[/quote]


As a Finn I would get myself elected in parlement and sit on my ass with 3 months holiday and 6k per month. Only come to HKI couple of times a year. When does the brightest Finn comes with the idea to have only 100 members instead of 200? Nobody will notice the difference since only halve are sitting there when needed.