The profession of a manicurist in Bulgaria enjoys significant popularity, with more and more people choosing this craft as their career. Trends indicate that as the demand for high-quality beauty services increases, many professionals opt to work as independent entrepreneurs in this field.
However, before embarking on a private practice, one must first answer the question: How is accounting managed for a manicurist?
One of the primary decisions manicurists face is selecting the appropriate legal form—whether to register as a freelancer with a patent or establish a business entity (such as a Sole Proprietor or a Limited Liability Company (LLC). This choice directly impacts their tax obligations and social security contributions.
Choosing the Right Legal Form: Freelance Profession with a Patent or a Registered Business?
Manicurists can choose between two main legal forms: freelance profession with a patent tax or business registration. The profession falls under the patent tax category, meaning the tax amount is determined by each municipality and varies depending on the location—sometimes even by district in larger cities. The patent tax is fixed and does not change based on actual revenue unless it exceeds 166,000 BGN.
Income and Expenses
- Freelance Profession with a Patent: This option is suitable for manicurists planning to work independently and serve individual clients. The patent tax is based on the business location and is not influenced by actual revenue. A 25% standard expense deduction is considered only when calculating the taxable income for social security contributions but does not reduce the patent tax itself.
- Registered Business (Sole Proprietorship or Limited Liability Company): This legal form is more appropriate for manicurists with higher incomes or plans for expansion. In this case, a corporate tax of 10% is applied to profits. If dividends are distributed, an additional 5% dividend tax is levied.
Client Type
- Freelance Profession: Best suited for working with individual clients who do not require invoices.
- Registered Business: If you plan to work with companies or corporate clients, registering a business allows you to issue invoices and provides better opportunities for business expansion.
Long-Term Goals
- Freelance Profession with a Patent: A good choice for manicurists who plan to maintain a small-scale business and work independently.
- Registered Business: If you aim for growth, such as opening new locations or selling products, registering a business makes it easier to manage more complex operations. Additionally, an LLC structure offers personal asset protection.
The choice of legal form depends on your goals and expectations for the business.
Steps to Register as a Freelance Manicurist on a Patent
Document Preparation and Certification
The first step is preparing the necessary documents. To register as a freelance professional, you must provide a document proving your qualification as a manicurist. This can be a certificate from a completed course or training in manicure, confirming that you have the required skills and competencies to practice the profession.
Submitting an Application to the Registry Agency Based on Residence
Registering as a freelance professional under the patent tax system requires submitting an application to the Registry Agency. The activity is classified as a patent-based profession, meaning the tax amount will depend on the municipality and specific district.
Registering the Business Location
To determine the exact amount of the patent tax, the business location where the activity will be conducted must be registered.
Procedures for Registering a Sole Proprietorship or a Limited Liability Company
Choosing between a Sole Proprietorship and a Single-Member Limited Liability Company depends on the scale of your business and the level of financial responsibility you are willing to take on.
Registering a Sole Trader
The registration process for a Sole Trader (ET) is quick and straightforward. You need to submit an application.
Registering a Single-Member Limited Liability Company (LTD)
An LTD is more suitable for manicurists looking to expand their business on a larger scale. Registration requires a minimum capital (e.g., 2 BGN) and is processed through the Commercial Register.
Advantages:
- The owner’s liability is limited to the amount of capital, which protects personal assets.
- More opportunities for business growth and expansion.
Disadvantage:
- More administrative and accounting requirements compared to a Sole Trader (ET).
Accounting and Reporting
- Freelance Profession: Accounting is simplified, with fewer reporting requirements.
- Sole Trader (ET) and Limited Liability Company (EOOD): Detailed accounting, including monthly and annual reports, is required. This often necessitates hiring an accountant to ensure compliance with financial regulations.
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Registration and Operating Costs
- Sole Proprietorship (ET): Lower registration costs since no initial capital is required.
- Single-Member Limited Liability Company (EOOD): Higher costs, including opening a capital accumulation account and depositing the initial capital. However, it offers better asset protection and tax optimization opportunities for larger businesses.
Conclusion
- ET is a good choice for small businesses with low financial risk.
- EOOD is better suited for those planning business growth and willing to take on greater risks, as it provides greater protection and flexibility.
Social Security Contributions and Taxes for Manicurists
Freelance Profession with a Patent Tax
- The tax is fixed and does not change based on revenue, unless earnings exceed 166,000 BGN.
- The amount of tax depends on the municipality where the business operates.
Social Security Contributions
- Contributions are income-based, meaning they cannot exceed the actual earnings of the individual.
- For example, if the income after deducting the 25% standard expense allowance is below 933 BGN, social security contributions cannot be calculated on a higher amount.
- The minimum insurable income is set by the state, but freelancers have the flexibility to opt for a higher income base to receive better social and pension benefits.
Flexibility in Social Security Contributions
- The standard expense deduction—a fixed percentage subtracted from revenue—simplifies accounting significantly.
- No need to collect invoices for every purchase, which saves time and effort.
Taxation
- Income is taxed at a fixed patent tax rate, regardless of actual earnings.
- This makes accounting simple and clear, a major advantage for those who wish to avoid complex bookkeeping.
Social Security Contributions and Taxes for a Registered Business
Sole Trader (ET)
- Social security contributions for ET owners are similar to those of freelance professionals.
- They are based on the chosen insurable income, covering pension, healthcare, and unemployment insurance.
- Taxation:
- In addition to the flat income tax, ETs are subject to a 15% profit tax, calculated on net profit after expenses.
- All expenses must be documented with invoices—unlike the standard expense deduction for freelancers.
Single-Member Limited Liability Company (EOOD)
- Social security contributions depend on the owner’s chosen insurable income.
- The owner can register as an employee in their own company, leading to additional social security contributions.
- Taxation:
- 10% corporate tax on company profits.
- If the owner withdraws dividends, an additional 5% dividend tax applies.
Tax Optimization with EOOD
An LTD offers tax optimization opportunities because business expenses—such as rent, materials, training, and other legitimate business costs—can be deducted from the company’s profit.
However, these expenses must be properly documented, which complicates accounting and requires more detailed financial reporting.
Patent Tax for Manicurists
Patent Tax as an Alternative for Low-Income Manicurists
For manicurists with lower earnings, one alternative is the patent tax. This is a fixed tax that replaces corporate tax and applies in cases where the business operates in small towns or revenue does not exceed a specific threshold.
The patent tax is convenient for businesses that prefer to avoid detailed accounting documentation and have relatively low turnover.
The amount of the patent tax depends on the type of activity and location, but it remains fixed and is paid regardless of actual business revenue.
When Should You Transition from a Freelance Profession to a Registered Business?
Transitioning from a freelance profession to a registered business is usually necessary when:
- Revenue increases significantly.
- You start working with larger clients or business partners.
- You need greater financial and asset protection.
A registered company offers more flexibility in financial management and better opportunities for business growth.
What Happens When a Manicurist Has No Clients?
Even if you have no clients, you are still required to pay social security contributions and taxes. However, in some cases, you can temporarily suspend your activity, which allows you to pause social security payments for a certain period.
Even if no business activity is conducted, monthly and annual reports must still be submitted.
Tax Relief Opportunities
Tax relief plays a crucial role in reducing the tax burden and optimizing financial management. The right legal structure—freelance profession or registered business—determines how and to what extent you can benefit from these advantages.
Freelance Profession
- The main tax relief for freelancers is the standard expense deduction, which is automatically applied.
- Standard expense deduction (currently 25%) is subtracted from total taxable income, meaning you do not need to keep receipts or invoices for expenses such as materials, equipment, or services.
- This system is simple and minimizes paperwork, but it may not be ideal for manicurists with high business expenses (e.g., rent, studio equipment, marketing).
If a manicurist has significant expenses, switching to a registered business can provide better tax optimization options.
Tax Relief Opportunities
Tax relief plays a crucial role in reducing the tax burden and optimizing financial management. The right legal structure—freelance profession or registered business—determines how and to what extent you can benefit from these advantages.
Freelance Profession
- The main tax relief for freelancers is the standard expense deduction, which is automatically applied.
- Standard expense deduction (currently 25%) is subtracted from total taxable income, meaning you do not need to keep receipts or invoices for expenses such as materials, equipment, or services.
- This system is simple and minimizes paperwork, but it may not be ideal for manicurists with high business expenses (e.g., rent, studio equipment, marketing).
If a manicurist has significant expenses, switching to a registered business can provide better tax optimization options.
Registered Business (ET & EOOD) and Tax Deductions
For ET and EOOD, every business-related expense can be deducted for tax purposes, but it must be documented (invoice, receipt, or another payment document).
Main Deductible Expenses for a Manicurist’s Business
- Studio or workspace rent: Costs related to rent, utilities, and repairs can be fully deducted.
- Materials and consumables: Items such as nail polishes, disinfectants, cosmetic products, and daily supplies are deductible.
- Equipment: Large investments like manicure tables, chairs, lamps, sterilizers, and other salon equipment can be depreciated over time as a business expense.
- Professional training and seminars: Costs for courses, workshops, and certifications related to professional development can be deducted.
With an EOOD, these deductions allow for more efficient tax optimization, making it a better option for those looking to expand their business or manage larger expenses.
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Conclusion
Choosing between a freelance profession and a registered business is a crucial decision for every professional.
- Freelance manicurists benefit from a simplified structure and less administrative burden.
- Registered businesses provide greater opportunities for growth and business partnerships.
To make the right decision, it is essential to consult with an accountant who can guide you toward the best solution for your specific business needs.
Check out more useful articles for freelance professionals on the Smetalnik blog.
