Business on Etsy

Business on Etsy

Question:
Hello!
I would like to open an online shop on the Etsy platform where I can sell digital patterns that can be downloaded and printed by buyers. I am legally interested in how this can happen and whether it is possible to avoid opening a company on my part. I want this to be an additional income, not the main one, as I am currently working on a permanent employment contract.
Thanks in advance!

Answer:
Hello,
The activity you describe is commercial, which implies registration as a merchant. When it comes to trading goods, your only option is to register a company - EOOD. The law still allows you to carry out this activity as a natural person, but in reality it equates you to a Sole Trader (ET) and accordingly the taxation and insurance is the same as for an ET.
 
From a tax point of view, things look like this:
- for an individual, you declare the amount of income for the year. From the amount received in this way, you deduct the insurances paid during the year and on the amount received in this way, you owe 15% tax.
- with an EOOD, you declare the amount of income and expenses related to your activity. If the income is more than the expenses, then you make a profit and this profit is taxed at 10%.
 
From an insurance point of view, the situation is as follows:
- in the case of a natural person, your annual income is also covered by insurance. Accordingly, you will owe 27.8% insurance contributions, calculated on the income you receive. The amount on which insurance is due on a monthly basis cannot be lower than the minimum insurance income - BGN 933.00 and higher than the maximum - BGN 3750.00. When calculating your insurance income, it is taken into account that already you have employment contract insurance, i.e. if you already have insurance for the maximum insurance income, you will not owe insurance. If the insurance from your employment contract is on a lower amount, you will owe insurance on your realized income from sales through Etsy, and the amount on which the insurance is calculated cannot exceed the difference between the maximum insurance income and your insurance income from the employment contract (for example, if you are insured for BGN 1,500.00 and your average monthly income from Etsy is BGN 3,000.00, you will owe insurance on the amount of BGN 2,250.00 (the maximum insurable income - 3750.00 minus your insurable income from the employment contract - 1500.00).
 
- with an EOOD, insurance is paid again on an amount of your choice, but not less than the minimum insurance income for the year - BGN 933.00 and higher than the maximum - BGN 3750.00
 
You will need to estimate and make some kind of plan for what income you expect to receive and what expenses you would have. Only in this way could you determine which form of activity is economically more profitable (ie you would pay less tax and insurance).
 
Apart from the differences from a tax and insurance point of view, there are also several purely functional differences:
- the money you earn as an individual is really your money and you can "spend" it whenever and on whatever you want. With an EOOD, the money the company earns stays with the company. If you, as the owner, want to have this money available, there are several options - to give yourself a salary, to give yourself a loan, or after the financial year is over and if the company has made a profit, you will be able to distribute the profit as dividend (but you will have to pay an additional 5% dividend tax on this amount).
- as an EOOD, the company is responsible for its obligations to the extent of its own assets and capital. As an individual, the company is you, which means that you are personally liable with all your property for any obligations arising from your activity as an individual.
 
To register an EOOD, the procedure is a little longer and more complicated. To begin with, a set of documents is prepared (constitutional act, minutes of the founding meeting, management contract, several declarations and a sample signature). Some of the documents are notarized. After that, you need to find a fundraising account in a bank of your choice, to which you can deposit the initial capital. The minimum is BGN 2.00. The import note for the paid-in capital, together with the other prepared documents, is submitted to the Commercial Register, no later than 7 calendar days from the date of the founding act, and the registration takes place within 7 working days . The state fee is BGN 110.00. The notary fee is BGN 6.00, and the bank fee depends on the bank you choose, ranging from BGN 10.00 - 50.00.

Regardless of which option you choose, you should know that in any case you will be subject to VAT registration, according to Art. 97a of the VAT law, since you will receive services from companies outside Bulgaria (in your case, you will receive services from Etsy, for which you will pay a fee in the form of commissions deducted from the sales). In this registration mode, you will owe 20% VAT on the value of such services received.
Also, if you pass the threshold of sales to individuals in the EU (but outside Bulgaria) of 10,000 euros per calendar year, you will be subject to registration under another VAT regime - the so-called OSS mode. In this case, you will also have to charge VAT on your sales, and the VAT rate must correspond to the rate in the relevant country where your customer is located.
We hope we have been helpful!
Greetings!