Hey guys, does any one of you use the micro-company for long term investing
in many different assets, not just stocks? Hear me out I'm trying to figure these things out.
The increase of dividend tax to 8% is not so nice, but I think the effect of taxing revenue with only 1% and the potential to keep almost 99% in the micro-company as retained profits to reinvest has great potential.
Let me do an example with probably the second best jurisdiction that I found for my case (software dev freelancer 200k euro/year) Bulgaria. The overall taxes would come to about 9%. So let's say I would make 200k in Bulgaria with my sole proprietorship and have to pay 18k of it every year (some of it monthly) to taxman. Now I am left with 182k in my personal bank account
and I want to invest, let's say for the sake of this example I buy a stock. The stock doubles in value in one year. Therefore I have made 182k profit that I will have to pay 10% Bulgarian Capital gains tax
on (18,2k). In the end, I am left with 182 * 2 - 18,2 so about 345,8k.
Now for the example with Romanian micro-company, I only pay the 1% (2500 eur) tax every year and some additional insurance contributions from employing myself from my min. salary, which would be like 2700 eur a year. There is I think another 600 eur a year if I pay out large dividends
, which is not the case here.
This would leave me with 200 000 - 2500 - 2700 = about 195k or like 2% tax. Now the same thing, I invest it in a stock and it doubles. I invested 195k, now it is 390k and the tax on profit is either the 1% again at the end of the year (if it is considered a company profit taxed as corporate tax under micro-enterprise) or 10% as typical capital gains tax in romania.
So If it was the 10% capital gains tax, I am left with 390 - (390/2 * 0,1) = 370,5k. Which is much better than the first case, but is this money still considered to be inside the company, therefore if I wanted to use it eventually, I would have to pay that 8% dividend tax on it again? That would reduce it to
about 341k, So actually funnily enough almost the same result as with Bulgaria. And I would avoid the additional hussle of having a company while in BUlgarie I would just be a freelancer.
But if I did not have to pay that Capital gains tax and were able to claim that the profits are from my business activity and should be taxed with that 1% then I think this picture would look quite different, as I could quickly multiply the amount and then pay the 8% somewhere down the line but on much bigger pile of cash. Does anyone know how this works or if even? Is this owrth it? There could be a huge difference that I am unable to see well yet.