Applying for general housing allowance

Source: Kela

General housing allowance supports housing costs. Suomi.fi page describes it as follows:

As an entrepreneur, you can receive general housing allowance under the same conditions as others.

If your only source of personal income is the start-up grant and your household does not include anyone else besides yourself, the amount of general housing allowance for a resident in a one-bedroom apartment in Helsinki is approximately EUR 410 per month. You can use the general housing allowance calculator (only in Finnish) provided by Kela to obtain accurate figures.

What is calculated as an entrepreneur’s income from Kela’s perspective?

  • Your company:
    • is a legal person with a business ID
    • can act as a natural person from the point of view of the law
    • pays corporation tax of 20% on profits once a year
  • You:
    • are a natural person with a social security number
    • are a natural person from the point of view of the law
    • pay progressive tax on your income in the form of personal taxation whenever you receive income
  • Your company’s income does not matter to the self-employed person’s income from Kela’s point of view.
  • Your income is relevant if you have YEL insurance:
    • Your YEL income is counted as your personal income, nothing else
    • yYu do not need to apply for a general housing allowance review unless you change the amount of your YEL income
  • If you do not have YEL insurance:
    • All your income (salary, benefits, dividends, etc.) is counted as income
    • You must apply for a housing benefit review if your income increases by more than 400 euros

Stages:

  • Apply for general housing allowance electronically.
  • Mention in the application that you have received a positive decision on your application for start-up grant and have resigned from your paid employment.
  • Attach the official letter of start-up grant delivered by mail to the application.
  • Attach your work certificate to the application, which shows the last day of your employment.
  • If you do not have attachments ready, you can attach them to the application for ~10 days after submitting the application.
  • You will receive a decision in about three weeks (official estimate).
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Opening a bank account for a company

Basic prices can start from around ten euros, but unlike personal accounts, in business accounts almost any transaction in your company’s ecosystem will cost you something. In general, the total cost increases to around EUR 40. Revolut for Business and some other foreign fintech companies also offer free options that may be suitable if there are only a few transactions per month in a bank account.

Stages:

  • Open a business account with a bank of your choice
  • Once your business account has been created, you can give your company a loan of €1,000 from your personal account so that you can immediately start paying business costs from your business account.
  • When your customer pays your first sales bill, you can return the €1,000 loan to your personal bank account.

Getting an accountant

Hiring an accountant is not legally required. However, as CEO, you have full responsibility for the accuracy of your company’s accounting and tax obligations. If the Tax Administration carries out a random audit, possible complications can be prevented by the fact that you have had a good accountant from the beginning who has corrected your mistakes and fulfilled your company’s tax obligations on time on a monthly basis.

The accountant charges either an hourly rate, or a fixed monthly rate. The price is based on an estimate of how much time they spend on your company’s books each month. It takes an experienced accountant at least an hour, maybe even two, to do the books for an independent software consultant. If we assume an hourly charge of 75 euros per hour, then the price is approximately 75-100 euros per month. If necessary, Talented can help you find a partner for accounting.

Stages:

  • Find a reliable accountant for your business. On a practical level, your accountant is responsible for the obligations that are ultimately your responsibility, so this is an important step.
  • When you contact an accountant:
    • Tell them that your business involves independent consulting in the IT sector
    • Mention your bank account provider
    • Let me know if you already have a customer or expect to have a customer soon
    • Mention the estimated monthly business activity and receipts that the accountant needs to go through
      • If you don’t know the amount, then a rough estimate for an independent software consultant is about 15 receipts per month.
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Buying an entrepreneur’s pension insurance

Source: Finnish Centre For Pensions

Entrepreneur’s pension insurance (YEL) is a statutory, mandatory insurance for entrepreneurs. The official name is misleading because YEL determines not only your pension but also your entire social security benefits.

For example, if you fall ill, your daily allowance is calculated on the basis of the YEL value. The more you pay for YEL, the more per diem you get. Similarly, when you want to buy health insurance, no insurance company will sell the insurance to you without YEL because YEL is its foundation and private health insurance is built on YEL.

What is YEL income and YEL payment?

  • Yel income:
    • Has nothing to do with your actual income (salary, benefits, dividends, etc.)
    • Is how much you want social security to cover.
    • You have the freedom to choose the amount of ~ €8,000 – ~ €180,000 per year.
  • Yel payment:
    • Is the amount you pay for your insurance cover.
    • Is ~19% of your YEL income, which means you pay ~ €125 – ~ €2,820 per month in business costs.

Stages:

  • You have six months to buy YEL from the start of your entrepreneurship.
    • However, if your company has not had a minimum YEL income of ~ €8,000, you do not have to buy YEL yet.
    • When your business receives income that exceeds the minimum income of YEL, you must purchase YEL within the six months mentioned above.
    • Even if you have six months to buy YEL, you will have to set the start date of YEL to the moment when your company’s income exceeded the minimum income limit of ~ €8,000.
  • Buy YEL from an insurance company:
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Selling personal work-related tools to your company

Source: Tax Administration

Your company (legal person) can buy work-related tools from you (natural person). If you do not have work-related tools when starting your business, buy them with the company’s funds as a cost of doing business.

By selling existing tools to your company, you will retroactively convert the amount previously used as personal costs into the costs of your company. The sale price is the current fair market value of the tool.

Stages:

  • List all work-related tools you want to sell to your company. They include a laptop, phone, desk, office chair, printer and offline storage device.
  • Take a picture of the product and its receipt, if it is still stored, to prove that the product really exists. Attach it to the invoice sent to your company.
  • Take a picture of a product similar to yours in the sales note for second-hand goods to prove that you have cleared the fair market value. Attach it to the invoice sent to your company.
  • Create and add to the invoice an agreement containing the following information: who is the buyer, who is the seller, what is sold, and what is the current fair market value of the product to be sold, as well as signature, place and time.
  • Send your company an invoice with all the above attachments.
  • Your company will not receive a VAT refund on products it buys from you. This is because as a natural person you are not registered in the VAT register.

Understanding the new tax situation

Source: Tax Administration

As an independent consultant, your payslips will be different from what you’re used to as an employee – you’re effectively paying only income tax.

Example: An independent consultant receives a salary of €1,000 from their own company and their tax rate is 20% according to the income-tax card.

From the perspective of an independent consultant:

  1. Company withholds 20% of 1,000 euros in income tax => 200 €
  2. The company pays the withheld €200 to the tax administration.
  3. The entrepreneur gets the remaining 800 euros.

From the company’s perspective:

  1. The company must pay 1.34% of the €1,000 employer’s health insurance contribution = > €13.4
  2. The company pays €13.4 to the tax administration.
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To consider:

Acquisition of liability insurance

The company’s liability insurance covers any damage you may cause to your client during consultation. For example, if you accidentally destroy the production database and it takes 5 hours to recover from the error, your client may claim damages of €1,000,000, for example. Liability insurance may cover this amount.

Although insurance is not mandatory by law, it can be mandatory in a contract you sign with a brokerage company or end customer.

Some components of company liability insurance, such as litigation insurance, require that you have signed the company liability insurance before signing the project contract and that it is valid. However, if this is not the case and you have already signed a project agreement, talk to your insurance agent to resolve the issue.

Insurers decide the price based on a number of factors, including your main business and your estimated annual income.

Company liability insurance providers:

Obtaining health insurance

Source: Ministry of Social Affairs and Health 

As an entrepreneur, you have no legal obligation to buy occupational health care for yourself. Health insurance is required if you want to visit a private clinic in urgent cases and you want health insurance to cover it.

Stages:

  • Contact your chosen insurance company and get an offer for your health insurance package.
  • Be prepared to answer basic questions about your business, such as your estimated annual income and YEL income.

Aava Medical Centre offers Talented freelancers occupational health care at a special price (entrepreneur paying YEL). Read more about the benefits here.

Talented makes becoming a software freelancer easy

Setting up a company – We’ll plan the start together with you so that there is no break in the billed work. We can start looking for projects for you even if you haven’t established a company yet or are still employed. Setting up a company is fast and easy nowadays, and there’s no rush with it; we can do it together when you’ve found your first project.

Customer acquisition – Don’t waste billable hours on the lookout for projects, our agents will handle customer acquisition for you! You set your own terms, such as hourly rate and the specs of your ideal project (industry, technologies, duration). Our agents will search for suitable projects for you accordingly.

Running the company – The members of our community have recommended several accountants, insurances and tools for fellow independent contractors. We will gladly pass on the tips so that your journey as an entrepreneur would start smoothly.