Become self-employed - Tax - Strategy

Taxes
1

Hello everyone

I am currently dedicating my free time to developing a mobile/web application, which I consider a side job.

Background:

I initially created an app for a former colleague, for which I was compensated. However, he is interested in further professional enhancements to the app but has a limited budget. Consequently, I proposed a partnership, though we have not yet discussed the specifics. Meanwhile, I have begun developing the API and the mobile app.

In this partnership, my responsibility will be solely in development, while he will manage administrative tasks and potentially hire personnel for sales, installation, etc., though he may also undertake these roles himself.

Despite my seemingly greater effort, the original idea is his, and he will oversee the sales aspect. Therefore, I am inclined to agree to an equal 50% share.

The app will operate on a subscription basis, with different pricing tiers, e.g., Package A at XX francs per month, Package B at XXX francs, etc.

Our proposed financial model is to first cover operational costs like server fees, employee salaries (if applicable), etc., and then evenly split the remaining profits.

During the COVID-19 pandemic, I registered a sole proprietorship but was informed that activation required securing a client and entering a contractual agreement. At that time, I did not pursue this further. I assume my business is currently sleeping, but this new opportunity could revive it.

Questions:

  1. Is splitting the remaining profits 50/50, after expenses, a sound strategy? If not, what would you recommend?
  2. What business model should we adopt, considering we are both self-employed? Should I retain the rights to the app/codes and sell licenses to him, which he then resells to his clients? Or should we proceed with a 50-50 profit share? If so, how can I incorporate my company into this arrangement, given the presence of two separate entities?
  3. As I am already employed full-time, will owning a company offer any tax benefits, or is this approach bad?

My goal is to avoid a dynamic where I simply develop the app under his direction, giving the impression that he is my employer.

And Of course, I will ensure that we formalize our arrangement with a legally binding contract.

I appreciate any advice on this matter and hope I’ve brought my issue to the right place.

2 Likes
2

I am not at all specialist in these questions, but I guess it helps to indicate tax domicile of your partner and eventually of the company behind the app.

1 Like
3

Being self employed can be a very good thing at tax level.

Basically, you can subtract a lot of thing from your income as professional expenses. And you can thing very broadly. Basically, if you can justify it is an expense linked to your business, you can count it as a loss of your business and thus not an income.

And you can think very broadly. When you went to the restaurant with a friend and you pay, if you discussed business for 5 minutes, this can be deducted as a professional meeting. Your car is required to meet other people you can talk about business. And so with your mobile, internet, computer. If you’re using an office in your apartment to work, why not make part of your rent an expense business ?

And it’s not that weird, the company I work for does this, eating out with clients and discussing anything but works, and counting it as business expense.

Basically, if it’s a side hustle and you’re not making THAT much, you should be able to come at 0 benefits and so not pay any tax on your self employment money. And I’ve always heard it as a way for the government to encourage self employment or entrepreneurship.

3 Likes
4

Thank you for your insightful response. it has highlighted several aspects I was previously unaware of.

Indeed, it appears that there are considerable benefits to be gained. I have no intention of exploiting tax deductions for personal expenses unethically :grinning: . If legitimate business expenses are eligible for tax reductions, that would be sufficient for me.

As a full-time remote worker in Switzerland, I understand that working from home does not qualify for tax deductions, which I find somewhat perplexing. This is because I incur higher costs for quality internet, use my own monitors and devices (though the company provided a small PC), and pay for electricity. Additionally, the necessity of a dedicated home office compelled me to move to a larger apartment. While working from home is a personal choice, I had hoped it might yield some tax relief. :thinking:

Given these considerations, I am inclined to proceed with my sole proprietorship but recognize the need for a strategic plan. I must determine what to propose to my partner, how to draft a contract, the sales model to adopt, and how to handle the accounting for my business. At present, I lack expertise in these areas and might consider using a professional service. My wife, unfortunately, also does not have this knowledge.

5

Doesn’t it “depend on the canton”?
I remember - at least during covid - some people could deduct the extra “work room” they needed.

6

Hello @dbu

Yes, it’s possible. We used to live in Basel-Stadt, and after researching, I discovered that they don’t offer payments for this. Now we’re residing in Basel-Land, and I don’t believe there have been significant changes in this policy.