SIA vs Sole Trader vs Self-Employed — which structure suits you best?
In our experience, the question "SIA or sole trader?" comes up in about eight out of ten first-time consultations. The other two ask: "Maybe self-employed is better?" Essentially, it's the same question — just phrased differently. The answer has always begun with "it depends", but in 2026 the circumstances have changed enough to make it worth reviewing previous benchmarks.
The short answer
The choice between an SIA, sole trader (IK), self-employed, and the micro-enterprise tax (MUN) regime depends on income level, risk profile, and the need for liability protection. Up to €25,000 per year, self-employed is the simplest option. From €25,000 to €40,000, an SIA starts to save on taxes. Above €40,000, an SIA is clearly more advantageous — at €60,000, the difference can exceed €14,000 per year. For businesses with risks — penalties, product liability, employees — an SIA is necessary regardless of income.
Three plus one options
MUN (Micro-enterprise tax) — a special tax regime that any business form (SIA, sole trader, self-employed) can apply, allowing taxes to be paid on turnover based turnover, not profit. In 2026, the rate is 25% of turnover, applied to all turnover up to €40,000 per year[reference:6]. This system is simple, but the €40,000 cap means you must plan for growth.
SIA (Limited liability company) — a capital company. A separate legal entity. Profit is taxed under the 20/80 formula when distributing dividends (or 15%+6% under the new alternative regime). Requires registration with the Enterprise Register, full double-entry bookkeeping, and submission of annual reports.
Sole trader (IK) — registered in the commercial register, but no separate legal entity is created. The owner is personally liable for all obligations. Profit is taxed as business income under PIT rules (25.5%/33%), plus social security contributions (VSAOI).
Self-employed person — an economic operator who registers only with the State Revenue Service (VID) (no registration with the Enterprise Register required). No legal entity status. The same tax scheme as a sole trader — PIT (25.5%/33%) and VSAOI (31.07%). The minimum VSAOI contribution in 2026 is €242.35 per month (€780 × 31.07%).
Comparison table
Criterion | MUN | SIA | Sole trader (IK) | Self-employed |
|---|---|---|---|---|
Liability | Depends on legal form | Limited to share capital | Full personal liability | Full personal liability |
Tax base | Turnover up to €40,000 | Profit (dividends) | Profit (PIT+VSAOI) | Profit (PIT+VSAOI) |
Tax rate | 25% on turnover | CIT 20% (or 15%+6%) only when distributing profit | PIT 25.5%/33% + VSAOI 31.07% | PIT 25.5%/33% + VSAOI 31.07% |
Social contributions | Included in tax | Only from salary | Minimum €242.35/month (even with no income) | Minimum €242.35/month (even with no income) |
Registration | For any form | Enterprise Register | Enterprise Register | VID only |
Bookkeeping | Simplified | Full double-entry bookkeeping | Single-entry bookkeeping | Income/expense journal |
Annual report | Varies | Must be submitted to UR | Must be submitted to UR | Not required |
Maintenance costs per year | Low | €1,600–3,000 (typical) | €300–1,500 (can be done yourself) | €0–500 |
Bank account | As needed | Separate company account required | Personal account allowed, but not recommended | Personal account allowed |
Dividends | Income is taxed as income | Yes (with CIT) | No — all profit is owner's income | No — all profit is owner's income |
VAT registration threshold | €50,000 | €50,000 | €50,000 | €50,000 |
Source: gramatvedisriga.lv, March 2026.[reference:7][reference:8]
When an SIA is the right choice
Choose an SIA if:
Your annual income exceeds €40,000. At this threshold, the SIA's tax advantage becomes significant and grows with income. At €60,000, the difference between an SIA and self-employed can exceed €14,000 per year.
You have significant business risks. Penalties, product liability, hiring employees — if something goes wrong, an SIA protects your personal assets.
You plan to attract investors or partners. Only an SIA allows you to divide shares and attract external financing.
You want to pay yourself dividends. An SIA is the only form that allows you to separate salary from profit distribution and use the 0% CIT on reinvested profits.
Company reputation matters to you. Banks, large clients and business partners prefer dealing with an SIA rather than a sole trader or self-employed person.
When the MUN — micro-enterprise tax — is worth considering
MUN is a tax regime, not a legal form. Anyone can switch to the MUN regime, regardless of whether the company is an SIA, a sole trader, or a self-employed person. Its main advantage is simplicity: taxes are paid only on turnover, without having to calculate profit from complex expenses. However, this simplicity comes at a cost.
Advantageous if:
Your annual turnover does not exceed €40,000. You can only remain in the MUN regime until your turnover exceeds this limit. If this happens, you must switch to the general regime the following year[reference:9].
Simple accounting is important, where only revenues are recorded, not the difference between income and expenses.
Your company operates in one of the supported industries and meets the MUN criteria (e.g., up to 5 employees).
MUN is not advantageous if:
You want to grow quickly. The €40,000 cap is strict. If you exceed it, you will have to leave the MUN regime and use the general regime the following year.
Your company has significant expenses. Under the MUN regime, expenses are non-deductible, which can significantly increase the tax burden if your business has high operating costs.
You need VAT payer status in the future. It can be combined with MUN, but the interaction between the two regimes can be surprisingly complex.
When a sole trader (IK) is the right choice
A sole trader occupies an awkward middle ground — the same tax scheme as a self-employed person, but you have to register with the commercial register and maintain additional formalities. In 2026, we rarely recommend sole traders: for liability protection, it's better to set up an SIA; for simplicity, it's better to register as self-employed.
A sole trader is only justified in the following cases:
You need a company name and commercial register entry to build client trust, but a full SIA structure seems excessive.
You work in an industry where commercial register entry is mandatory (e.g., construction).
You want a transitional phase before setting up an SIA, but are not ready for the full maintenance burden of an SIA yet.
When self-employed is the right choice
Choose self-employed status if:
Your annual income is below €25,000. In this range, the tax burden of self-employment is similar to that of an SIA, but maintenance costs are minimal — no mandatory accountant, registered address service, or annual report.
You have low business risks. For example, you provide consulting services, write texts, do photography, or work in the arts.
You want to test a business idea. No mandatory monthly costs, so you can start with minimal funding.
Your income is irregular or seasonal. A self-employed person pays VSAOI only for months in which they have income (but the minimum of €242.35 per month must be paid for each month, even if there is no income).
Important warning: If your income is approaching the €25,000 threshold, start planning the transition to an SIA. Otherwise, you will pay proportionally more in taxes than an SIA owner with the same income.
Real tax calculations
To make the comparison tangible, let's look at three income scenarios for 2026. We assume the business has no significant expenses and you want to withdraw all the money for personal use (for the SIA — as dividends).
Important note on VSAOI calculation: In the calculations, VSAOI is simplified as 31.07% of total income, but in practice, social contributions must be paid on no less than the minimum wage (€780 per month), which in 2026 is €242.35 per month, even if there is no income[reference:10]. If monthly income exceeds €780, VSAOI must be calculated from the actual income. Additionally, the contribution cap in 2026 is €105,300 per year, above which VSAOI is not payable[reference:11]. Using the simplified formula is acceptable for comparative analysis, but all final calculations should always be checked with an accountant.
1. Income €15,000 per year
Self-employed | SIA (standard regime) | |
|---|---|---|
Revenue | 15,000 | 15,000 |
VSAOI (31.07% of net income) | –4,661 | — |
PIT (25.5% after VSAOI deduction) | –2,637 | — |
CIT (20/80 formula on €15,000 dividends) | — | –3,750 |
Total taxes | 7,298 | 3,750 |
Net income | 7,702 | 11,250 |
Maintenance costs (accountant, etc.) | ~100 | ~1,800 |
Actual take-home | ~7,600 | ~9,450 |
Conclusion: At €15,000, the SIA is already more advantageous, but maintenance costs eat into the tax savings.
2. Income €40,000 per year
Self-employed | SIA (standard regime) | |
|---|---|---|
Revenue | 40,000 | 40,000 |
VSAOI (31.07% of net income) | –12,428 | — |
PIT (25.5% after VSAOI deduction) | –7,031 | — |
CIT (20/80 formula on €40,000 dividends) | — | –10,000 |
Total taxes | 19,459 | 10,000 |
Net income | 20,541 | 30,000 |
Maintenance costs | ~200 | ~2,000 |
Actual take-home | ~20,341 | ~28,000 |
Conclusion: At €40,000, the SIA is significantly more advantageous — you keep about €7,700 more.
3. Income €80,000 per year
Self-employed | SIA (standard regime) | |
|---|---|---|
Revenue | 80,000 | 80,000 |
VSAOI (31.07% of net income — up to the cap*) | ~19,500 | — |
PIT (25.5% on first band, 33% on second) | ~15,100 | — |
CIT (20/80 formula on €80,000 dividends) | — | ~20,000 |
Total taxes | ~34,600 | 20,000 |
Net income | ~45,400 | 60,000 |
Maintenance costs | ~300 | ~2,500 |
Actual take-home | ~45,100 | ~57,500 |
*VSAOI cap in 2026: contributions are calculated only on income up to €105,300 per year.
Conclusion: At €80,000, the difference exceeds €12,000 per year. An SIA is no longer just a choice — it is a financial necessity.
Note: The calculations are simplified, assuming that all income is distributed as dividends (for the SIA) or net income (for the self-employed). Paying a salary from the SIA would change the calculation, but the main relationship remains valid.
The new alternative CIT regime (15% + 6%) and its impact
From 2026, SIAs whose members are only natural persons can choose an alternative tax regime: 15% CIT on distributed profit and an additional 6% PIT when paying dividends. This regime makes SIAs even more advantageous for companies that distribute most of their profit (above 75%). However, the main conclusion remains unchanged: an SIA is clearly more advantageous at incomes above €40,000 regardless of which regime is chosen.
Why most switch to an SIA in their first year
This is not a marketing slogan — it is the reality we observe. Here are the real reasons:
Clients demand invoices from a legal entity. Most B2B clients refuse to work with self-employed individuals because they want official invoices from an SIA.
Creditworthiness. Only an SIA can obtain a bank loan, leasing offer, or apply for a company credit card.
Growth plans. If you are self-employed and your business grows, you will usually reach an income level within 6–12 months where an SIA becomes financially more advantageous.
Social guarantees. An SIA allows you to pay yourself a salary and accumulate a pension, while optimising taxes through dividends.
International operations. Foreign clients and partners expect to deal with an SIA, not with a natural person.
Decision test — find your path
Answer 5 questions and find out which form suits you in 2026.
1. What are your planned annual revenues?
a) Up to €25,000 → 0 points
b) €25,000–50,000 → 1 point
c) Above €50,000 → 2 points
2. How high are your business risks?
a) Low — writing, design, consulting → 0 points
b) Medium — small penalties → 1 point
c) High — product liability, construction → 2 points
3. Do you plan to attract investors or partners?
a) No → 0 points
b) Possibly in the future → 1 point
c) Yes, it is necessary → 2 points
4. Is a company name in the commercial register important to you?
a) No, clients don't care → 0 points
b) Yes, it would build trust → 1 point
c) Mandatory → 2 points
5. What are your growth plans?
a) Stay alone, no employees → 0 points
b) Possibly hire 1–2 employees → 1 point
c) Grow actively, build a team → 2 points
Results: 0–3 points — Self-employed; 4–6 points — SIA; 7–10 points — SIA mandatory.
Frequently asked questions
Can I start as self-employed and later switch to an SIA?
Yes, this is a very common path. Register as self-employed, test your business idea, and when your income reaches the €25,000–30,000 range, set up an SIA. You can then close your self-employed activity or continue both in parallel depending on the nature of the activities.
Does a sole trader (IK) have to pay VSAOI even with no income?
Yes, just like a self-employed person, a sole trader's minimum VSAOI contribution in 2026 is €242.35 per month, even if there was no income in that particular month.
Why choose a sole trader (IK) at all if self-employed is simpler?
The advantage of a sole trader is the commercial register entry, which is mandatory for some industries (e.g., construction). For some clients, "SIA" or "sole trader" sounds more trustworthy than "self-employed". But in 2026, we only recommend a sole trader if there is a specific reason — in most cases, the better choice is either an SIA or self-employed.
Is an SIA always more advantageous than self-employed?
No. At low income levels (below €25,000), the maintenance costs of an SIA — accountant, registered address, bank services — can exceed the tax savings. For example, a self-employed person with €15,000 in income might save about €1,500 in taxes by operating through an SIA, but the SIA maintenance could cost €1,500–2,000 — resulting in little or no net gain.
Is the MUN regime suitable for everyone?
No. MUN is suitable for those whose turnover does not exceed €40,000 and whose operating expenses are relatively low. Moreover, not all industries meet the MUN criteria. Be sure to consult with an accountant before making a choice.
Not sure which form suits you best? Our specialists will analyse your specific situation — income level, expense structure, development plans, risk profile — and recommend the optimal business form. We also handle the registration and formalisation of your chosen structure.
Last updated: April 2026. Information reflects current tax laws and practice. For specific issues, consult a licensed accountant or lawyer.
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