By own expenses and risks
An important condition is that the activities of the business enterprise shall be carried out on the executive's - often the owner's - own expenses and risks.
“By own expense” means that the executive covers the expenses related to the work. These can be costs of materials, purchasing costs and running expenses, etc.
“By Own risks” means that the executive has the responsibility for the results of the assignment. The principal can, for instance, complain if not satisfied with the results.
Duration and extension
Single assignments or casual assignments are not enough to constitute a self-employed business. For instance, a person who delivers leaflets in letterboxes for other businesses is considered an employee.
The business must be able to generate a financial profit over some period of time. It is not necessary to have a profit immediately if it is conceivable that a profit will occur at some later stage. Hobbies are not considered as business enterprise.
The business must imply activities. Passive capital dispositions such as stock investments and letting of own residence do not constitute a business enterprise. However, the self-employed person does not have to be active himself/herself, but may instead have employees who carry out the work.
One of the decisive conditions for acceptance by the Tax Authorities is that the business both involves activities of a certain extent and duration of a certain period of time. Neither term is actually defined. The extent and duration will be assessed by the Tax Authorities. Single assignments or casual assignments are not enough to constitute a self-employed business.
Conditions implying a self-employed business (sole proprietorship)
The person responsible for executing the work:
- has three or more principals at the same time or consecutively
- has his/her own office or business premises
- keep his/her own materials
- have his/her own operating assets, i.e. machinery, transportation or computers
- gets paid for goods and/or services rendered, rather than per time unit
- may engage other persons (employees) to carry out the task(s)
- shall deliver a specific pre-defined service, not only limited by time
- cannot claim further assignments from the principal
- cannot claim further payment after finishing the work agreed upon
Other criteria that tend to shift towards self-employed business is when the principal:
- pays for the entire project as a whole, and not separately covers the expenses for materials, running costs etc.
- can complain if the results are considered unsatisfactory
- has no professional nor managerial authority over the person responsible for the work.
The above listed criteria must be considered together. None of the points is decisive separately.
Last changed: 17/01/2012 Print