I don't know what i should put into the title of this topic.

There is always one thing that i always wondered: How do people release their (first) indie game without falling into a potential spiral of cost and or (high) taxes?

Before i go further into details, let me explain my situation.

I'm a 24 year old student studying/living in Austria (not Australia :P ) but my nationality is polish.

I'm just making finishing touches on my hobby game project which i planned to release commercially on steam (i already passed the Steam Greenlight process successfully.)

Now, in Austria i need to register as a Sole-Proprietorship in order to be able to distribute the game through steam. - no problem here. AFAIK taxes only need to be payed if you have a revenue of over 11.000 euros in a year. (very simplified.)

The bigger issue here is the cost of the (mandatory) Social insurance.

Now, you don't need to pay social insurance if you have a yearly income of max 5.000€ and a max turnover of 30.000€.

If you go above that restriction once in a year, you have to pay the yearly social insurance for (at least) the next 5 years (without exceptions). The cost of social insurance starts at 2.500€ (yearly) and can go even higher, depending on your income from the last 3 years. (Which is mind-bogling). As an example, if you have 6000€ income (already taxed) in a year, you will have to pay nearly 41% from your income for social insurance alone.

(You aren't even able to live from that in this country.)

And to be honest, this seems to be very restricting. Basically if i start selling a game on steam, my income from the sales can't go above 5.000€ (unless i start to create costs in order to write them off from my income. Which i might have to do in the end...)

Now, given that i never released anything commercially (means that i have no idea how much i can expect to make in the first year) and because i'm studying and doing this mostly in my spare time (means that i don't know how long it would take to release another game... the current project took nearly 4 years to make) i'm a bit paranoid. I don't see how running a company as a Sole-Proprietorship is/would be financially viable once i would hit the given yearly limit of 5000€ (income). (Because after that i would need to pay a minimum of 2500€ yearly for social insurance, even if i don't have any income at all.)

(Obviously games sell at release date in the first month (or months) the most which means that the revenue in the first year might be high and then fall off to nearly 0 in the following years (Austrian law is/was made for self-employed people and companys which have a steady income over the months.) )

What i'm interested in is (if you live in another country) how the law (in your given country) handles Sole-Proprietorships/Self-employment. Do you have (mandatory) insurance? How much can your income be without paying taxes (or insurance?) Are there any kind of other "hidden costs" which you have to keep in mind?

After gathering the information (reading austrian law, calling the local Austrian Federal Economic Chamber, etc... ) i'm really scared with the attempt to register as a Sole-Proprietorship. (And thus even considering releasing that game for free.)

Because let's face it: I'm in no way able to have a steady and high enough income to pay the insurance. (Not as an hobby-indie dev who released only one game and sure as hell not with a game which no one has ever heard about.)

Of course, all that stuff wouldn't affect me if the game sales very poorly on steam (which very well might be the case. Who knows. I just want to make sure to not fall into a financial trap.)

And logically, as a student who wants to release a game (primarely as a hobby) and might not release another one for the next 2-4 years (if at all), i shouldn't care about social insurance at this point in time. (and pay for that yearly.)

How are other devs handling this? (Releasing games commercially as a hobby.)

Again, i might be overthinking all that stuff and i could be making assumptions which are completely off. I just wanted to ask here if someone can give some insight in how that stuff works in other countries. (It they also have those seemingly high/costly barriers.)

NOTE: I don't want any kind of legal advice for this specific problem (that's what local lawyers are for.) I'm just interested if your local law for self-employment is similar/comparable to what i explained above.

What i'm interested in is (if you live in another country) how the law (in your given country) handles Sole-Proprietorships/Self-employment. Do you have (mandatory) insurance? How much can your income be without paying taxes (or insurance?) Are there any kind of other "hidden costs" which you have to keep in mind?

In Australia (not Austria :P ) a sole proprietorship doesn't affect your personal taxes much -- it's mostly the same as "regular" taxes when working a "normal" job. The first $18k is tax-free, and then you pay ~30% on all income (a bit more complex than that...).

The difference is that if a sole proprietor earns over $80k in a single year, then from that point they must collect 10% GST on all income (equivalent to EU's VAT). Before that you're exempt from GST/VAT.

We don't have unemployment insurance -- everyone can access unemployment benefits here as long as they're not earning enough money... However, I did find out the hard way that the government assesses the income of sole-proprietors differently... Instead of checking whether you're employed or not, they look at your tax forms from the previous year. If you declared income last year, they tell you that you're making money so you obviously don't need their help. :angry:

Our unemployment agency is extremely nasty and is designed to make the process as uncertain, humiliating, hard to access and dehumanizing as possible, and designed to reject as many people as possible though, so I shouldn't have been surprised to find out that they'd find a loophole to disqualify entrepreneurs too.

Generally, IMHO sole proprietorships should not be used for selling a product like a game. They're fine for being a freelancer, but they give you no legal insulation from the actions of the business. But that's off topic, so... Besides the legal implications, it also gives you a lot less opportunities to get creative with your taxes!

A limited liability company (here we call them "proprietary limited") is the usual course of action. This company will pay company tax on it's profits (and VAT on revenue - though steam might collect that for you??), and then they can either hire you as an employee, or they can pay you as a freelancer/sole-proprietor. Usually, as long as the company doesn't actually make any profit, it won't have to pay any company tax -- you can achieve this by ensuring that it always spends the money on services from yourself or other companies that you own. In some countries it's also possible for the company to be owned by a "family trust", which can suck out all the would-be-profits tax free and store them for later...

You should really make an appointment to see an accountant for a "tax planning meeting" (code for "tax avoidance" :D ). It may even be best to create several companies, and have each of them own certain assets (such as IP rights) and have them pay licensing fees/etc between each other... If one company does cash-based accounting, and another does accrual based accounting, then this lets you temporarily push money that you've made right now into the next financial year, which can help keep you under certain limits when you expect to make most of your money in one small burst.

Depending on whether you need the money now (job vs hobby) there may even be a way to leave it in the company, pay the company tax on the profits (which is often quite low) and let it sit in a company-owned term deposit for some time. Later on, you may be able to pay it to yourself as a "divident"/etc... In that case though, you'd have to be careful of capital-gains taxes, if they exist in Austria -- an asset you own (the company) has increased in value, so some governments try to tax you for that increase in value even though you haven't made any money off it yet :o

The money you spend on an accountant now could save you many times more money in the long run :wink:

You should really make an appointment to see an accountant for a "tax planning meeting" (code for "tax avoidance" ). It may even be best to create several companies, and have each of them own certain assets (such as IP rights) and have them pay licensing fees/etc between each other... If one company does cash-based accounting, and another does accrual based accounting, then this lets you temporarily push money that you've made right now into the next financial year, which can help keep you under certain limits when you expect to make most of your money in one small burst.

This is very well put.

I would also look at Corporations in your country. In the US, sometimes it is best to have the company make the money and you receive from the company less than self-employment would hit the tax mark.

In Australia (not Austria ) a sole proprietorship doesn't affect your personal taxes much -- it's mostly the same as "regular" taxes when working a "normal" job. The first $18k is tax-free, and then you pay ~30% on all income (a bit more complex than that...). The difference is that if a sole proprietor earns over $80k in a single year, then from that point they must collect 10% GST on all income (equivalent to EU's VAT). Before that you're exempt from GST/VAT.

And there is no additional cost involved (up to the 18k limit) which might eat away your income? (Like the said social insurance or any other stuff like that which you "have" to pay yearly and/or is mandatory.)

A friend of mine who already sells a game on steam faced the problem that his income was going above the 5k limit. In order to avoid the mandatory insurance (which would cut his income in half and would generate costs over the next years) he had to generate cost in order to stay below that level. (he even stopped advertising/talking about the game on his blog/twitter/youtube and reduced the price of the game on steam...)

Generally, IMHO sole proprietorships should not be used for selling a product like a game. They're fine for being a freelancer, but they give you no legal insulation from the actions of the business. But that's off topic, so... Besides the legal implications though, it also gives you a lot less opportunities to get creative with your taxes! A limited liability company (here we call them "proprietary limited") is the usual course of action. This company will pay company tax on it's income (and VAT - though steam might collect that for you??), and then they can either hire you as an employee, or they can pay you as a freelancer/sole-proprietor. Usually, as long as the company doesn't make any profit, it won't have to pay any company tax -- you can achieve this by ensuring that it always spends the money on services from yourself or other companies that you own. In some countries it's also possible for the company to be owned by a "family trust", which can suck out all the would-be-profits tax free and store them for later...

At first, i was also considering an LLC as an option. (Especially because of the legal insulation which you have mentioned.) But it turns out that it's even more costly/complicated to create said company here.

As an example, in Austria you need to have a at least a capital stock of 35k€ in order to start a GMBH (which is the austrian/german equivalent of an LLC.)

The other option would be to open an LLC in poland. The requirements in poland are far less restrictive (You can start an LLC with a capital stock of just 5000 Z?otych which is around 1200 euros.)

But you still have ongoing costs of running an LLC (in addition to paying the insurance in Poland, which is around 3000 euros in a year) and it's (as far as i know from reading on the internet) harder to manage compared to a sole proprietorship. (But i'll look into that further.)

You should really make an appointment to see an accountant for a "tax planning meeting" (code for "tax avoidance" ). It may even be best to create several companies, and have each of them own certain assets (such as IP rights) and have them pay licensing fees/etc between each other... If one company does cash-based accounting, and another does accrual based accounting, then this lets you temporarily push money that you've made right now into the next financial year, which can help keep you under certain limits when you expect to make most of your money in one small burst.

Well, i probably should. Although, i'm not sure if i'll be able to avoid the insurance costs. (It's mandatory for everyone, even if you have a job and doing indie-dev as a part-time job.) (Best part is that if you work full time and do part-time self employment, you pay insurance twice. Once as self-employment and a second time from the full-time job...)

I don't want to dive into gamedev full-time (still studying). Just wanting to tap my toe into the water to gain some experience and see how well indie dev would work out for me.

OoOOoo, never knew there's so much problems. I live in Ukraine, and there's no big deal with sole-proprietarship.

Well, not encouraging as I am not aware of details but are tax havens (where establishing a company is quite easy) an option?

OoOOoo, never knew there's so much problems. I live in Ukraine, and there's no big deal with sole-proprietarship.

I get the feeling that Austria is (in general) very unfriendly for small businesses/sole-proprietors due to the mandatory insurance. (No one who only earns 5-6K in a year will be able to pay 2.5K or more for insurance and live from that effectively.)

It sounds somewhat funny that you can be executed by the local "self-employment/business" social insurance ... (which is seperate from the social insurance which normal employed people get.)

Oh well...

Well, not encouraging as I am not aware of details but are tax havens (where establishing a company is quite easy) an option?

It may be a possibility, but i would like to avoid any kind of legal trouble by doing so. Not to mention the language barrier and the lack of knowledge about the specific laws.

Although a possibility which i'll look into is the LLC in poland. (I'm polish after all and i'm visiting my grandmother/family in poland anyway on every vacation.)

I informed myself a bit about the polish LLC last night. There is a yearly cost that you have to consider.

1) around 440 Z?otych to pay to the KRS (some form of yearly documentation of the LLC) per year (is around 110 euros)

2) monthly payment of around 300-500 Z?otych (around 75-125 euros, can be even higher) to pay for "bookkeeping services"

LLCs in poland have to do "full bookkeeping" (at least that's how it's called here. Sole-proprietors/Self-employers don't need to do that.). From what i've heard/read you can do it yourself (which would save you the monthly payment) but it's strongly recommended to pay an accountant/bookkeeper to do it for you. (As it seems to be rather complex?)

But i'll inform myself further on this and search an accountant. (Before i start to post more uninformed/false information. :P )

Still, i'm open for more input/insight as to how that stuff looks like/works in other countries. (To get an idea if such costs are the norm or if i happen to live in a country which is rather "business-unfriendly" for small companies)

Here in Turkey, it's rather easy to have a sole-pro prietor and costs are rather reasonable (accountant is mandatory but no one charges official fee for small company) and you're theoretically have to pay for insurance but not practically as long as you don't need state hospital service :)

But here is also "freelancer" people not issuing invoice but something "income receipt" and if they're over certain limit, they pay income tax. I think it would be safe to assume such regulation exists in some form at least in Poland.

But if you still need a company structure, I think your best bets would be Ireland (where such companies are common and people give such service afaik) , Tax Havens again ( there are also such packages ) and on my own Republic of Macedonia. Tax rate is relatively low (9%-11% afaik), probably reasonable accountant costs, not your concern but rather low wages (along with Bulgaria and Romania) . Downsides would be it's not an EU country and if you need Paypal they can only send not receive.

Other than forming your own company, is using another company an option? ( Like revenue is € 100 , profit is € 40 after all costs they get some cut and pay you rest (but you probably still need that "income receipt" thing I believe) )