Sole trade: moving from income tax to profit tax

When the move is mandatory

A natural person becomes a corporate-income-tax taxpayer if total receipts in the preceding tax period exceed 1,000,000 EUR. The current rule does not add historic alternative tests based on income, asset value or employee count. VAT is not included in the receipts figure used for this threshold.

When a voluntary move may make sense

Profit tax is charged at 10% where the statutory revenue condition is met and at 18% above it. That can leave more funds for equipment, inventory, hiring and other reinvestment. But certain private withdrawals by a natural person carrying on an independent activity have a separate 36% treatment. A business whose owner withdraws almost everything can therefore reach a different answer from an equally profitable business that reinvests.

The opening balance is not just administration

At the start of the first profit-tax period, an opening balance is prepared. The transition reconciliation brings specified inventory, receivables, advances, supplier liabilities and accrual items into the first-period calculation. A trade with substantial stock and customer receivables but few supplier liabilities may therefore have a larger first-year base than the headline rate suggests.

The election or mandatory method generally binds for three years. The notification is made within the statutory year-end framework, so the decision should use a three-year forecast rather than last year’s rate alone.