You have decided to start a business. Congratulations — you have already beaten 90% of people who only talk about it. But now comes the moment when you realize that having a good idea is not enough — you also need the paperwork that will legitimize that idea before the state. And that is where the first big question arises: freelance business (obrt) or LLC (j.d.o.o.)?
If you think the difference is just in a few letters, get ready — the difference is in money, paperwork, taxes, and your personal liability. Here is what you need to know before stepping into entrepreneurship.
What is a freelance business (obrt)?
An obrt is the simplest form of business. You register it as a natural person, which means — and this is crucial — you are liable with all your personal assets for the obligations of the business. If the obrt incurs a debt of €50,000, creditors can come after your apartment. That is not scaremongering, that is the law.
Advantages of an obrt
- Simple registration — online via e-Građani system, no lawyer needed
- Low start-up costs — registration fee around €20
- Simple bookkeeping — lump-sum obrt does not need a full balance sheet
- Less administration — no assembly, no board, no members
Disadvantages of an obrt
- Personal liability — debts are your personal debts
- Limited growth — lump-sum obrt has an income limit of €300,000, after which you switch to real taxation
- Less flexibility when hiring
What is a j.d.o.o. (simple LLC)?
A j.d.o.o. is a legal entity you establish with a minimum capital of just €10. Yes, you read that right — €10. That is why it has become popular among small business owners, freelancers, and startups.
Key difference: in a j.d.o.o., you are not liable with personal assets. If the company fails, you only lose the €10 in capital and the company’s assets — your apartment and car are safe.
Advantages of a j.d.o.o.
- Limited liability — your personal assets are beyond the reach of creditors
- Growth potential — easily converts to a full d.o.o. once you pass the threshold
- More flexibility — can have multiple founders, easier to sell a stake
Disadvantages of a j.d.o.o.
- More complex administration — you need an accountant, submit balance sheets, maintain books
- Higher operating costs — accountant, business bank account, annual reports
- Mandatory chamber membership (in some industries)
When to choose what?
Here is a rough guide:
- Obrt — if you work alone, have lower income (up to €40,000/year) and do not plan high-risk projects. Ideal for: hairdressers, tilers, freelance programmers, consultants.
- J.d.o.o. — if you plan to grow, hire people, work with larger clients, or enter businesses where there is a risk of lawsuits. Ideal for: agencies, larger consulting projects, e-commerce, construction.
What about taxes?
A lump-sum obrt pays a lump-sum tax depending on the activity and income — from €120 to €1,800 per year. A j.d.o.o. pays corporate income tax of 10%, plus a possible surtax (depending on the city), plus a dividend tax of 10% on distributed profits. Sounds higher, but you also get deductions (entertainment costs, fuel, rent, equipment).
Example: If you earn €30,000 per year as a lump-sum obrt, your tax is around €800-€1,200. As a j.d.o.o., on the same amount you would pay around €2,000-€3,000, but you would also have more deductible expenses.
Conclusion
There is no “right” answer. There is only the right form for your situation. If you are on your own and just starting — obrt. If you plan bigger things or want to protect your assets — j.d.o.o. And if you are not sure, consult an accountant. Trust me, that €100-€200 for a consultation will save you thousands later.
At the end of the day, the most important thing is to start. Paperwork can be sorted out. Hesitation cannot.
This article is for informational purposes and does not constitute legal or tax advice. Before making decisions, consult a certified accountant or lawyer.