Can an Entrepreneur Hire Themselves? Legal, Tax, and Accounting Perspectives
Entrepreneurs often have various questions regarding the legalities and practicalities of their business operations. One common query is whether an entrepreneur can hire themselves as an employee within their own business. This article explores the legal, tax, and accounting implications of this question, specifically for those involved in dental technology.
Legal Perspective
Entrepreneurship and Self-Employment:
According to Article 83, Paragraph 1 of the Company Law, an entrepreneur is a legally capable individual who performs activities to generate income and is registered as such under the registration law. Essentially, the entrepreneur is not a separate legal entity from the individual performing the activity. This means that personal and business assets of the entrepreneur are considered a single legal entity.
Given this, Article 85 of the Company Law stipulates that an entrepreneur is liable for all obligations arising from their business activities with their entire property, including assets acquired in connection with the business. This liability does not cease upon the entrepreneur’s deregistration from the register. Consequently, an entrepreneur and the individual performing the business activities cannot enter into contracts with each other, as this would effectively be a contract with oneself.
Despite this, it is common in practice for entrepreneurs to sign contracts with themselves, such as loan agreements or lease agreements. However, this practice overlooks a fundamental rule regarding entrepreneurs: the registration of an entrepreneur does not create a new legal entity; it is merely the form in which an individual conducts business.
Tax Perspective
Personal Salary Payment:
If an entrepreneur meets certain conditions, they can opt to pay themselves a personal salary. According to Article 33a, Paragraph 1 of the Law on Personal Income Tax, an entrepreneur can choose to pay a personal salary. This salary is considered a monetary amount that the taxpayer records in their business books as their monthly personal income, increased by the corresponding salary obligations.
Entrepreneurs who decide to pay a personal salary must notify the Tax Administration via the electronic portal, as stipulated in Article 33a, Paragraph 3 of the law. This notification must be submitted by December 15 of the current year for the period starting January 1 of the following year.
For example, to opt for personal salary payment starting January 1, 2024, the notification must be submitted on Form OLZ by December 15, 2023.
Accounting Perspective
Implications of Personal Salary:
From an accounting standpoint, the payment of a personal salary must be accurately recorded in the business books. This involves documenting the monthly personal income and the associated tax obligations. Proper accounting ensures compliance with tax laws and provides a clear financial picture of the business’s operations.
Unified Legal Entity:
As previously mentioned, the entrepreneur and the individual are not separate entities. This unity affects how transactions and financial records are managed. Personal and business transactions are intertwined, and careful accounting is required to maintain clarity and avoid potential legal issues.
Conclusion
In summary, an entrepreneur cannot legally hire themselves as an employee within their own business due to the lack of a separate legal entity. However, they can opt to pay themselves a personal salary, provided they meet the necessary conditions and comply with the relevant tax regulations. Proper legal and accounting practices are essential to ensure compliance and avoid complications.
For more detailed guidance and assistance with legal, tax, and accounting matters, contact Stojković Attorneys (AK STATT). Our team of experienced professionals is here to help you navigate the complexities of entrepreneurship and ensure your business operates smoothly and in accordance with the law.