Vera Bachu
Experts give several reasons for this. Firstly, the entrepreneur is responsible for all losses and debts of the enterprise with his personal property. Risks are high, so a sole proprietorship is suitable for those types of entrepreneurial activity where they are unlikely.
According to the law, IE is not a legal entity and acts in legal relations as a natural person. He bears unlimited liability for the obligations of the sole proprietorship with all his property, except for that which, in accordance with the current legislation, can not be foreclosed.
Another unfavorable detail of this form of activity – the need to independently purchase a medical policy and make deductions to the social fund. And if the price of a medical policy is not very high, then payments for social insurance are quite tangible for an individual entrepreneur. Therefore, if he buys a medical policy, he often saves on social benefits. Because the retirement age in Moldova is constantly increasing. And heirs cannot claim for these payments. Moreover, they do not give the right to maternity leave, sick leave, etc.
In addition, the sole proprietorship assumes a certain level of accounting of income and expenses. “At first glance, a simplified form of cash accounting is feasible for any founder,” notes Vera Bachu, audit partner at Forvis Mazars. – In reality, though, this is not entirely true. In order to be confident in their calculations, especially with the ever-changing legislation, it is better to hire an accountant. All these points discourage entrepreneurs. If we judge by the practice of our neighbors, Romania and Ukraine, there are many more such enterprises in these countries. So we can conclude that this regime is simpler and more profitable there. In our country, it does not have enough influence on the legalization of the economy. In Moldova there are many small businesses that operate outside the legal framework. Because of this, the state budget loses”.
At the same time, in the interaction between a legal entity and an individual entrepreneur, the tax authorities see a departure from labor relations and their replacement by civil law ones in order to minimize insurance payments. As well as the duplication of the functions of the employee of the enterprise by a third-party organization, notes Sergei Temrin, director of the auditing company Concept. “The whole point is that if an IE does not hire workers, it can withdraw money from the current account without paying insurance payments,” he says. – In this, the tax authorities see a loophole that allows them to avoid paying social and health insurance contributions. In addition, a sole proprietorship has no authorized capital, and it is not clear to everyone where personal property ends and property used in entrepreneurial activities begins. Also, whether a sole proprietor can transform into a legal entity, what is the procedure for liquidation and many other issues where there is no clear definition”.
Until recently, the simplest type of entrepreneurial activity in Moldova was a patent. It provided for payment of a fixed amount and basic social insurance services. The patent holder’s costs were low, and the budget received small but guaranteed contributions. No additional accounting was required.
But this form limited the entrepreneur in terms of sales growth – up to 300 thousand lei per year. In reality, much larger sums passed through it. Therefore, the state canceled it in trade. Instead, it developed a regime of independent activity in trade with taxation at the rate of 1% of income. It is somewhat simpler than sole proprietorships, which pay 12% income tax on profits, so must keep records of both income and expenditure.
“At the same time, Moldova has the so-called “4% regime”, when one pays tax on income from turnover, plus 6% on dividends,” continues Vera Baciu. – The total is 10%, which is 2% less than IE. A little later we have tax regimes for small agricultural producers, as well as individuals engaged in the collection of scrap ferrous and non-ferrous metals. All these forms are applicable to the service sector, and it would be possible to develop one more simple and understandable mechanism for legalization of activities”.
The expert cites the example of Ukraine, where small entrepreneurs are divided into groups, depending on the volume of sales, but pay a single tax of 10%. This is much simpler and more convenient in terms of accounting and entitles them to pensions and basic medical care.
The economic council under the Prime Minister is also concerned about the need to legalize certain types of entrepreneurial activity and is preparing a new regime for the so-called “self-employed citizens”. We will familiarize our readers with the ideas and details of the draft as soon as it is ready.
