Sometimes, and somewhere, getting a job is REALLY BETTER than build any kind of business…

[Joker_P5R]

Hello to all,

The thread title is purposely provocative.

I would like to write a post, maybe long and a little heavy, but that I would, selfishly, become a brainstorming corner on a topic that often divides.

I read the story of @Axe ; beautiful and I want to congratulate him most sincerely.

I also read the thread, opened by Axe, @Change MY MIND - Getting A Job Is Better Than "Fastlane", which generated many comments and many points of view.

I’ve opened this issue before, in response to other threads. But Axe’s post made me think.

I see that all the comments are about one kind of mindset rather than another. Who thinks, like Axe, that finding a job is better than jumping directly to Fastlane and who claims the opposite.

I’ll probably take a good dose of shitstorm, but that’s okay.

I read a lot of stories similar to Axe’s, where from scratch you managed to make a business of five, six, seven, eight figures. And that’s great.

As I wrote in the title, though, Fastlane doesn’t just depend on skills and a good deal of luck. Fastlane also depends on where you were born.

And if you are born in the wrong place, yes, Getting a Job is REALLY BETTER than try to build a Fastlane business.

Let’s talk about data. About figures.

Italy has 3 type of “entrances” in business world.

• If your revenue does not exceed 5000 euros, you can work under “occasional performance” system. It has a lot of restrictions on what you can and you can’t do. Basically, it is made to who want to sell consultancy or to be a freelancer, because you have to pay attention to several things that you usually do not pay attention to (for example, you cannot bill the same customer two times, and you have a cap on how much you can bill to each customer itself). You can issue your bills with your personal tax code ID.
  
  I used occasional performance billing in past. One year, for my own mistake, I billed 6.000 euros in total. Since I overcome 5k, I had to paid 2.500 euro in taxes. And I was forced to quit my copywriter career. Why? Because if I had declared that in the current year I would have had other extra incomes, I would have to pay 4.500 euro: 2.500 in taxes plus 2.000 in fines.
  
  
• The “flat-rate” scheme is a facilitation that allows you to pay less taxes than the amount that would be payable by opening a regular VAT account in ordinary regime.
  
  Let’s assume your annual income is 30.000 euro, with flat-tax regime, you will end in pay 9.600 euros in taxes, plus your operating costs and accountant costs, usually around 1.000 per year. And this is a facilitation.
  
  
• Ordinary VAT account: where the magic begins.
  
  Despite opening a tax position is free, you have to pay social security contributions. The minimal amount to be paid, even if you do not have any income is 4.200 euros. It means that, only for the idea you have to open the business, you have to pay over 4k, with zero revenue. In simple terms. If you do not have money, your dream of being an entrepreneur can remain a dream.
  
  You have the money. You start. If you exceed 17.504 euros in revenue, you have to add 24,48% on the excess over 17.504 €. Then, you have to add accounting expenses, around 1.000 euros.

But let’s do some math.

You have a normal job. Also paid fairly well. Your annual income exceeds 30,000 euros. Then you have to open an ordinary VAT number. And your income from work is added to the revenue you will make with your business.

You have a good idea and open a small ecommerce.

To start, as mentioned, your income from work is 30,000 euros, which becomes cumulative to the turnover. So we go to pay 4,200 euros + 24.48% on the difference (30,000 - 17,504 = 12,496 euros), then 3,059 euros.

Total cost Social Security: 7259 euro.

Total income from the business: ZERO.

Year 2023: taxes eur 7,259

E-commerce brings you a small profit, say 100,000 euros throughout 2023, net of operational expenses for maintaining ecommerce. It is a round figure, which simplifies the calculation.

Let’s assume that, in the last three months of 2023, you paid 10,000 euros of VAT.

And now we have fun.

It starts 2024. And here are the costs:

- Advance VAT year 2024 = eur 8.800. Pay on a turnover assumption. Hypothetical because you have not yet invoiced anything. This is 88% of the amount of VAT paid in the last three months of 2023 (88% of 10.000 euros).

- Social security contributions 2024.
Base calculation eur 130,000 (100,000 business profit + 30,000 eur employee work): 4,200 eur + 24.48% on difference between 130,000 and 17,504, the basis. So 27,539 euros.

2024 Total social security: 4,200 + 27,539 euros = 31,759 euros


IRPEF 2024 tax brackets:

Up to 15.000 eur, tax 23% = 3.450 eur

From 15.000 to 28.000 eur, taxes 25% = 3.250 eur

From 28.000 to 50.000 eur, taxes 35% = 7.700 eur

Over 50.000 eur, taxes 43% = 34.400 eur

Total IRPEF 2024 = 48.800 eur


Total general taxes per year 2024 = eur 8,800 + 31,759 + 48,800 = 89,539 eur

Percentage of paid taxes = 68.88%

Net profit = eur 40.461.

Earnings from employees, as we said = 30.000 eur

Net Business profit = 10.461 eur



To earn 10.461 eur, or 872 euro per month. Sleepless nights, risks, stress. To earn 872 euro per month.

And it’s not just about revenue. With that 40,000 euros, you have to invest to grow the business the following year.

But you also have to pay the bills, the rent or the mortgage. If you have a family, even worse.

If you don’t invest, how long does your "I want to be Fastlane" business become obsolete and fail?

I would like to create a sensible thread, with suggestions from you, on how you would approach such a Behemoth.

 

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[Jobless]

Move to another EU country, or if doing it in Italy, go for a smarter setup, something with larger scale. I am sure there are ways you can avoid these unjust taxes. At a small scale, I am sure people find creative ways around it.

It is unfortunate, but voluntary exchange between an entrepreneur and their customer will usually take place under the nose of some government, and to some extent this group will try to rob you. If you don't like this, you can 1. accept it and do the best you can 2. become part of the state 3. break the law and risk consequences 4. move to a lower tax place.

If you do not have money, your dream of being an entrepreneur can remain a dream.

Yes, if you can't live on your savings for a good while, get a job.

 

[Jeix]

Sorry pal, Italian here. Most of your "facts" are just flat out incorrect.

If your revenue does not exceed 5000 euros, you can work under “occasional performance” system. It has a lot of restrictions on what you can and you can’t do. Basically, it is made to who want to sell consultancy or to be a freelancer, because you have to pay attention to several things that you usually do not pay attention to (for example, you cannot bill the same customer two times, and you have a cap on how much you can bill to each customer itself). You can issue your bills with your personal tax code ID.

I used occasional performance billing in past. One year, for my own mistake, I billed 6.000 euros in total. Since I overcome 5k, I had to paid 2.500 euro in taxes. And I was forced to quit my copywriter career. Why? Because if I had declared that in the current year I would have had other extra incomes, I would have to pay 4.500 euro: 2.500 in taxes plus 2.000 in fines.

First of all, the numbers are wrong. You are 100% tax free up to €5000/year.
Then, between €5k and €10k you should report your income but you don't need a VAT position yet because you qualify as an occasional worker like you said. Over 10k is when you need a VAT position.

If you were talking about "ritenuta d'acconto", you should know the amount moved from 5k to 10k this year and that such situations always involve an employer (who must be a registered business or freelancer). This employer also witholds a percentage on your earnings that they pay to the government as taxes in your name.
It seems to me like you failed to report your earnings and got fined for it. I think you need a better tax professional.
Also, don't blame the system if you can't count. If you would overflow, wait for January before billing the rest. If your freelance job is going anywhere, you won't stay in this bracket for more than a year anyway.

• The “flat-rate” scheme is a facilitation that allows you to pay less taxes than the amount that would be payable by opening a regular VAT account in ordinary regime.
  
  Let’s assume your annual income is 30.000 euro, with flat-tax regime, you will end in pay 9.600 euros in taxes, plus your operating costs and accountant costs, usually around 1.000 per year. And this is a facilitation.

This is actually a BOON for many people in the country and your numbers are wrong.
I've had this type of VAT position for over 5 years. My average overall tax rate is 21% but the calculations are a little different. You only pay 15% on 66% of what you make (the rest is tax free) plus a little extra for social security. It can either be a flat €3800/year or 25% of whatever is left after paying the aforementioned 15% on 66%, depending on the type of the job you chose to open your VAT position as. Like I said, after all is said and done the total is around 21% of your gross income, which is not a lot.
Also, you can operate in a VAT-free environment which gives you a leg up on the competition if you sell services because you'll automatically be 22% cheaper than competitors who are much bigger than you.
As an extra cherry on top, you get to stay in this bracket up to making €85,000/year. It used to be 35k at one point, then they raised to 65k, it's 85k now and they are talking about raising it again to 100k. The only downside is that you cannot deduct business expenses with this position so it's really meant for freelancers and professionals who don't have to deal with inventory, payroll etc.

• Ordinary VAT account: where the magic begins.
  
  Despite opening a tax position is free, you have to pay social security contributions. The minimal amount to be paid, even if you do not have any income is 4.200 euros. It means that, only for the idea you have to open the business, you have to pay over 4k, with zero revenue. In simple terms. If you do not have money, your dream of being an entrepreneur can remain a dream.
  
  You have the money. You start. If you exceed 17.504 euros in revenue, you have to add 24,48% on the excess over 17.504 €. Then, you have to add accounting expenses, around 1.000 euros.

More like where the magic dies.
This bracket will have you pay 48% of what you make + having to charge VAT to your customers, meaning your prices either jump 22% or you'll make 22% less. Hey I guess you'll be able to deduct expenses now, whoop de doo.
There is NO POINT to this tax bracket because anybody making less than €85k a year should stick to the simplified plan (everyone I know does it and it's what my accountant recommends as well) and anybody making more than that should get a company, which comes with a lot of benefits including full deduction on any and all costs, no income limit and a flat tax rate of 23% on profits only. The downside is that companies have fixed costs but if you are owed 48% in taxes already you might as well tank the costs because you'll come out ahead regardless.

Spoiler: A short digression on companies

There's plenty of "companies made of people" you can make that are super cheap to maintain (less than €1000/year) because they operate in simplified accounting. They are still closely tied to your person and don't have limited liability though. However, if you are more serious about it you can choose "companies made of capital". These are the real deal and cost a lot of money to create (at least 10k) and maintain (no less than €4k/year on accounting and another €4k to pay social security on every partner) but they have the full benefits of being an independent fiscal person meaning that they can own property, companies, investments and so on. They also come with limited liability. Any beginner should stick to simplified VAT positions until they are ready for a "company made of people" and only transition to capital if they are looking to get investors or are really making a lot of money and want to protect their person from the company's business through limited liability.

As for accouting costs, simplified VAT positions only cost around €300/year because most of the accounting job in Italy has to do with matching all your bank movements with the corresponding invoices. But because your position operates in a simplified way, your accountant doesn't need to do that, they can just match your invoices with your reported income once a year during tax season and then it's up to the government to check your bank to verify if they want to audit you (spoiler: they won't because you are small fry). Obviously different accountants will charge differently but anything over €800/year is ridiculouos and you can easily switch to another professional who charges less.

You have a normal job. Also paid fairly well. Your annual income exceeds 30,000 euros. Then you have to open an ordinary VAT number. And your income from work is added to the revenue you will make with your business.

You have a good idea and open a small ecommerce.

To start, as mentioned, your income from work is 30,000 euros, which becomes cumulative to the turnover. So we go to pay 4,200 euros + 24.48% on the difference (30,000 - 17,504 = 12,496 euros), then 3,059 euros.

Total cost Social Security: 7259 euro.

First of all, a "normal job" in Italy will NEVER give you that kind of money and you know it. Don't take my word for it, you can look at this picture from IlSole24Ore, the most prominent business publication in the country:


The average 2021 income in the country is €21,000/year. It's even lower than that if you live in the South.
Second of all, even if you did have that kind of income from a job, you should know that by law your employer pays any and all of your taxes, meaning that every penny you get is tax free (for what it's worth anyway, it's actually taken from your gross income which you can view on the job contract you sign).
The ONLY thing that this impacts is the total amount of money you make in a year to determine your tax bracket but like I said you are golden in the simplified position until €85k so I don't know what you're talking about.

The entirety of your next bit goes on about a hypothetical scenario that uses wrong numbers and tax brackets across the board.
If you "casually" went from 0 to 100k in a year, you would (first of all) still pay the amount of taxes calculated in the tax bracket you were in during the year you made that money (which would mean simplified position, so no more than 21%) and THEN you would be moved to the 48% for the next year.
However, since you are smart you won't let them tax your 100k business for almost half of what it makes so you quickly set up a company and move your operations to it, enjoying tax deductions on all of your expenses and a final tax bracket of 23% on profits only. Sure, you'll have to pay €4k a year in social security and another €4k on a good accountant, totaling to 8 fricking percent of what you've made. Boo hoo this is unsustainable.

Yes, I am aware of advance tax payments for the following year but businesses don't typically swing from 0 to 100k in a year and then from 100k to 0 again so the system actually works in a sustainable way because you'll always pay in proportion to the size of your operations. This is just a liquidity issue because you are paying now what you'll owe in the future but unless you are in dire strains this will never be a problem because you can expect it every year and plan for it well in advance.
Here's another thing: if you end up paying more than you owe because your business volume decreases, you actually get a tax cut on your next payment to compensate. Ain't that nice?

But you also have to pay the bills, the rent or the mortgage. If you have a family, even worse.

There's at least two more things you are missing and they both have to do with Italian culture.

The first one is that businesses and individuals are often one and the same here. The vast majority of everything here is family-owned and run. A lot of Italian "entrepreneurs" have businesses be the cash cow of the family. If your business makes €100k/year, it can easily buy a house for you and get a better rate than you could because of the liquidity it's capable of generating makes it more credit-worthy than the average person with a job. "Rent" is something you've read on American self help books. Nobody rents here. They all live with their parents until they are married and then buy an apartment. The majority of the population is old so a lot of young people inherit real estate. Those that are really desperate and can't even get a job sometimes flee the country, which is another option for you if you are really fed up about all this.

The second and most important thing about Italian culture is a very funny beast we don't often talk about: tax evasion.

When in Rome, do as the Romans do.

A lot of people (and I see this in both friends with VAT positions and professionals that do work on my house or my store) evade taxes to either stay within more favorable tax brackets or to just make more money in general.
While I don't like this culture myself because it's counterproductive to scale a business (you can't scale things in the shadows unless you are hoping to be a drug lord), most people in the country just want an easygoing life and have no interest in building billion-euro empires, so they favor short-term gains over long-term growth.
On top of everything else I've told you in this post, remember that this is a real option in this country, especially if you are struggling to make ends meet or you are trying to save up some money to start a business.

Finally, remember that nobody is forcing you to start a business. I did it because I wanted to and in wanting to I found a way on how to do it. It's okay to want a job, so long as it's truly what you want. All I know is that I would still be making €750/mo flat had I stayed where I was 5 years ago.

To be honest, this whole thread sounds like an excuse as to why you just can't start because of reasons that are outside of your control, when they actually aren't, Italy is one of the richest countries on the planet, there's plenty of recent success stories and you are mostly misinformed on how things actually work (I assume from inexperience).

I know Italy is a mess and it seems like it's 100 times easier to start elsewhere like the US. But remember that the grass is always greener on the other side. There's free healthcare here and no student loans whatsoever. Is that worth nothing in your calculations? Being debt-free from the day you are born until you choose to buy a house (probably) in your 30s?

Best of luck.

 

[marius84]

Hello to all,

The thread title is purposely provocative.

I would like to write a post, maybe long and a little heavy, but that I would, selfishly, become a brainstorming corner on a topic that often divides.

I read the story of @Axe ; beautiful and I want to congratulate him most sincerely.

I also read the thread, opened by Axe, @Change MY MIND - Getting A Job Is Better Than "Fastlane", which generated many comments and many points of view.

I’ve opened this issue before, in response to other threads. But Axe’s post made me think.

I see that all the comments are about one kind of mindset rather than another. Who thinks, like Axe, that finding a job is better than jumping directly to Fastlane and who claims the opposite.

I’ll probably take a good dose of shitstorm, but that’s okay.

I read a lot of stories similar to Axe’s, where from scratch you managed to make a business of five, six, seven, eight figures. And that’s great.

As I wrote in the title, though, Fastlane doesn’t just depend on skills and a good deal of luck. Fastlane also depends on where you were born.

And if you are born in the wrong place, yes, Getting a Job is REALLY BETTER than try to build a Fastlane business.

Let’s talk about data. About figures.

Italy has 3 type of “entrances” in business world.

• If your revenue does not exceed 5000 euros, you can work under “occasional performance” system. It has a lot of restrictions on what you can and you can’t do. Basically, it is made to who want to sell consultancy or to be a freelancer, because you have to pay attention to several things that you usually do not pay attention to (for example, you cannot bill the same customer two times, and you have a cap on how much you can bill to each customer itself). You can issue your bills with your personal tax code ID.
  
  I used occasional performance billing in past. One year, for my own mistake, I billed 6.000 euros in total. Since I overcome 5k, I had to paid 2.500 euro in taxes. And I was forced to quit my copywriter career. Why? Because if I had declared that in the current year I would have had other extra incomes, I would have to pay 4.500 euro: 2.500 in taxes plus 2.000 in fines.
  
  
• The “flat-rate” scheme is a facilitation that allows you to pay less taxes than the amount that would be payable by opening a regular VAT account in ordinary regime.
  
  Let’s assume your annual income is 30.000 euro, with flat-tax regime, you will end in pay 9.600 euros in taxes, plus your operating costs and accountant costs, usually around 1.000 per year. And this is a facilitation.
  
  
• Ordinary VAT account: where the magic begins.
  
  Despite opening a tax position is free, you have to pay social security contributions. The minimal amount to be paid, even if you do not have any income is 4.200 euros. It means that, only for the idea you have to open the business, you have to pay over 4k, with zero revenue. In simple terms. If you do not have money, your dream of being an entrepreneur can remain a dream.
  
  You have the money. You start. If you exceed 17.504 euros in revenue, you have to add 24,48% on the excess over 17.504 €. Then, you have to add accounting expenses, around 1.000 euros.

But let’s do some math.

You have a normal job. Also paid fairly well. Your annual income exceeds 30,000 euros. Then you have to open an ordinary VAT number. And your income from work is added to the revenue you will make with your business.

You have a good idea and open a small ecommerce.

To start, as mentioned, your income from work is 30,000 euros, which becomes cumulative to the turnover. So we go to pay 4,200 euros + 24.48% on the difference (30,000 - 17,504 = 12,496 euros), then 3,059 euros.

Total cost Social Security: 7259 euro.

Total income from the business: ZERO.

Year 2023: taxes eur 7,259

E-commerce brings you a small profit, say 100,000 euros throughout 2023, net of operational expenses for maintaining ecommerce. It is a round figure, which simplifies the calculation.

Let’s assume that, in the last three months of 2023, you paid 10,000 euros of VAT.

And now we have fun.

It starts 2024. And here are the costs:

- Advance VAT year 2024 = eur 8.800. Pay on a turnover assumption. Hypothetical because you have not yet invoiced anything. This is 88% of the amount of VAT paid in the last three months of 2023 (88% of 10.000 euros).

- Social security contributions 2024.
Base calculation eur 130,000 (100,000 business profit + 30,000 eur employee work): 4,200 eur + 24.48% on difference between 130,000 and 17,504, the basis. So 27,539 euros.

2024 Total social security: 4,200 + 27,539 euros = 31,759 euros


IRPEF 2024 tax brackets:

Up to 15.000 eur, tax 23% = 3.450 eur

From 15.000 to 28.000 eur, taxes 25% = 3.250 eur

From 28.000 to 50.000 eur, taxes 35% = 7.700 eur

Over 50.000 eur, taxes 43% = 34.400 eur

Total IRPEF 2024 = 48.800 eur


Total general taxes per year 2024 = eur 8,800 + 31,759 + 48,800 = 89,539 eur

Percentage of paid taxes = 68.88%

Net profit = eur 40.461.

Earnings from employees, as we said = 30.000 eur

Net Business profit = 10.461 eur



To earn 10.461 eur, or 872 euro per month. Sleepless nights, risks, stress. To earn 872 euro per month.

And it’s not just about revenue. With that 40,000 euros, you have to invest to grow the business the following year.

But you also have to pay the bills, the rent or the mortgage. If you have a family, even worse.

If you don’t invest, how long does your "I want to be Fastlane" business become obsolete and fail?

I would like to create a sensible thread, with suggestions from you, on how you would approach such a Behemoth.

Ciao Joker, ti rispondo in italiano perché credo che sia la nostra lingua madre. In effetti il post deve essere piuttosto difficile da leggere per i non residenti nel Bel Paese, perché è molto tecnico e specifico.

Indipendente da tutto, volevo farti i complimenti sia per l'inglese che per il coraggio di andare controcorrente in un forum come questo.

Mi hai incuriosito, andrò a leggere il post di Axe

 

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[MarcusAurelius]

Hi Joker,

Italian dude here. I write to you in English for the best understanding of everyone, if anyone would like to speak.

I understand your fears. Your calculation of taxes on Italian companies is correct.

But you are daydreaming... (or I should say having nightmares).

You are projecting yourself into a future that you cannot predict. And most importantly, relax. Because everything goes in proportion. Get help from a good accountant and you’ll get a much better picture.

@Jeix says right things. And some wrong assumptions.

You can have a revenue of 100,000 euros; you pay taxes on what you actually have left, so you can buy goods for the company as much as possible, to pay less taxes.

Then, as Jeix says, there are inaccuracies in your reasoning.

But let’s go step by step.

I understand that the average salary is 21k. But that does not mean that there are no people who earn more. The average stated by Il Sole 24 Ore is not a unique and absolute reality.

Just as it does not mean that there is only the flat-rate scheme, as Jeix tells us. There are cases, as in yours, where you have to open the ordinary regime.

If you are an employee, and your gross annual income is over 30,000 euros, you can not, in any way, open VAT flat-rate. It is forbidden by law. You are obliged to open it in ordinary mode.

And, just to clarify, even if it is not needed: you can not "try to do something, to invoice something and only after open VAT". This is bullshit. And anyone who tells you about it has no idea where it is.

Because if you do not have the VAT number, you cannot invoice. Without the VAT you are evader even if you earn 1 euro.

But, if you open a simple individual company, you DO NOT pay the 4,200 euros of Social Security taxes. You pay them already as an employee (to be clear, they are paid by the company you work for). You will pay only a few hundred euros for opening the tax position and pure costs of accounting management.

So, you can open a business with less than 1000 euros.

Secondly, if you bill something, the IRPEF you pay will be proportional to the revenue. You will never find yourself drowning with a revenue of 10,000 euros against 40,000 euros of taxes. It is not possible, just by mathematical principle (unless you are found to edg, but I do not think this is the case).

Don’t be afraid, and get a prospectus from a good accountant.
The matter is much simpler than you think.

If your revenue reach millions of euros (and I hope so), maybe you can consider to move in another country.