How to Register a Sole Proprietorship (Self-Employed / Independent Contractor) in Micronesia

In the Federated States of Micronesia (FSM), becoming self-employed or working as an independent contractor is one of the most accessible ways to start a business. Unlike corporations or partnerships, this option does not require large investments, complicated paperwork, or lengthy approvals. Instead, individuals can begin operating once they register with the tax authorities and meet any local licensing requirements.

The process is generally manageable, though it does involve ongoing responsibilities. Self-employed workers are subject to the Business Gross Revenue Tax, may need to collect a state sales tax, and are expected to keep accurate financial records for compliance. For foreign nationals, state-specific permits or additional authorizations may also apply.

While the main challenges include meeting quarterly filing deadlines and ensuring compliance with both national and state rules, the benefits are clear. This path allows individuals to maintain full control of their work, operate independently, and enter the market quickly with minimal setup costs. For freelancers, consultants, and small traders, it is often the most practical way to do business in FSM.

Disclaimer: This article is for informational purposes only and is not a substitute for legal or tax advice. Always verify with official sources or seek professional guidance before taking action.

What is a sole proprietorship in Micronesia?

In FSM, a sole proprietorship is generally treated simply as a self-employed or independent contractor arrangement for tax and business purposes. While there is no specific “sole proprietorship” registration regime beyond tax registration, individuals operating a business under their own name or trade name are subject to gross revenue tax obligations.

Depending on context, this business model might be called:

• Sole trader
• Self-employed
• Independent contractor

These all refer to a single person running a business without forming a separate legal corporate entity.

How does a sole proprietorship work in FSM?

Sole proprietorship vs other business structures in FSM

There are alternatives to operating as a sole proprietor in FSM. For example, entrepreneurs may instead incorporate a company or establish a partnership. These alternatives generally provide limited liability and may be better suited for larger businesses or ventures with multiple stakeholders. Below is a comparison between sole proprietorships and corporations in FSM.

Step-by-step guide: How to register as self-employed in FSM

Step 1: Check your eligibility

Citizens of the Federated States of Micronesia may register as self-employed without additional immigration steps, while legal residents with valid status can do the same under the same tax and licensing rules. Foreign nationals are allowed to operate but often need permits or business licenses from the state where they plan to work (such as Yap, Pohnpei, Kosrae, or Chuuk), so requirements should be confirmed locally before starting operations.

Step 2: Choose your business name

You can simply use your full personal name. If you prefer a trade name (a “doing-business-as” name), check locally whether registration is needed at the state or municipal level. There's no central business name registry requirement for sole proprietors at the national level.

Step 3: Gather required documents

You will typically need:

• Valid identification (passport or FSM national ID)
• Proof of residence or address
• Completed Business Registration Form (for tax purposes)
• Any required state or local permits (depending on municipality)
• Proof of prior tax compliance (if applicable)

Step 4: Register with the DOFA

You file your registration (in person) with the DOFA. Submit your filled Business Registration Form and identification. After approval, your business is automatically registered for tax purposes.

Step 5: Pay registration fees and contributions

There are no significant upfront registration fees for sole proprietors in FSM. However, you must comply with tax obligations.

Step 6: Complete post-registration obligations

After registering, your responsibilities do not end. You must file quarterly Business Gross Revenue Tax (GRT) returns and remit any sales tax due to your state authority. Record-keeping is crucial: you should maintain clear records of invoices, receipts, and accounts for at least five years. If you hire employees, you will need to register with the FSM Social Security Administration to pay contributions on their wages. If you decide to stop operating, you must notify the Department of Finance & Administration and file any outstanding tax returns to formally close your registration.

Financial and tax obligations for sole proprietors in Micronesia

You are responsible for:

• Gross revenue tax (GRT): Sole proprietors in FSM pay a business gross revenue tax instead of personal or corporate income tax. The rate is USD 80 on the first USD 10,000 of annual revenue, and 3% on revenue above USD 10,000. Businesses with less than USD 2,000 in annual revenue are exempt. GRT must be filed and paid quarterly with the DOFA.
• Sales tax: While there is no nationwide VAT, most FSM states levy a sales tax on goods and services. Sole proprietors must register, collect, and remit this tax to their state revenue office. Filing frequency is usually quarterly, but may vary by state.
• Social security contributions: If you hire employees, you must contribute to FSM Social Security. Self-employed individuals are not automatically enrolled but can opt into contributions for pension coverage via the FSM Social Security Administration.
• Record-keeping: You must keep complete and accurate records of all invoices, receipts, and accounts. Documentation must be retained for at least five years, as authorities may audit your filings.
• Invoicing: Every invoice should include your business name, tax identification number (TIN), client details, date, description of goods or services, and any applicable sales tax. Invoices must be numbered sequentially and kept for your tax records.

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FAQs

What is the minimum capital required to start as a self-employed (independent contractor) in Micronesia?
There is no minimum capital requirement. You can begin operating with no upfront investment beyond your normal business expenses.

Do self-employed individuals (independent contractors) need to register for VAT/GST?
Micronesia does not have a national VAT system. Instead, most states levy a sales tax. If you provide goods or services in one of these states, you must register locally, collect sales tax from customers, and remit it to the state revenue office.

How much are the standard monthly or annual contributions?
You are required to pay the Business Gross Revenue Tax (GRT) quarterly. If your revenue is below USD 2,000 annually, you are exempt. Between USD 2,000 and USD 10,000, you pay a flat USD 80 per year. Above USD 10,000, you pay USD 80 plus 3% of the excess.

Can a self-employed individual (independent contractor) hire employees?
Yes. If you hire employees, you must register with the FSM Social Security Administration. You’ll also need to withhold employee contributions and remit them along with your employer share.

How long does it take to register as a self-employed individual (independent contractor) in Micronesia?
Registration with the Department of Finance & Administration is relatively quick. Most sole traders can expect to complete the process within a few days, especially if filing in person.

Can foreign nationals register as self-employed individuals (independent contractors) in Micronesia?
Yes, but foreign nationals may need special permits or local business licenses depending on the state and type of activity. Requirements vary, so it’s essential to confirm with local authorities in the state where you intend to operate.

Do self-employed individuals (independent contractors) need a separate business bank account?
It is not mandatory to open a separate business bank account, but it is highly recommended. Keeping business and personal finances separate helps with record-keeping, quarterly tax filings, and potential audits.

What happens if I stop working as a self-employed individual (independent contractor)?
If you close your business, you must inform the Department of Finance & Administration, settle any outstanding GRT or sales tax, and file final returns. This ensures you are deregistered and no longer liable for quarterly filings.

Are there any government incentives or reduced rates for new self-employed individuals (independent contractors)?
There are no specific incentive programs, but businesses earning less than USD 2,000 annually are exempt from the GRT. This exemption often helps new micro-businesses during their early stages.

Can I use Deel as a self-employed individual (independent contractor) to get paid by international clients?
Yes. Deel allows you to receive payments from global clients in multiple currencies with low fees and transparent exchange rates.

Does Deel generate compliant invoices for self-employed individuals (independent contractors)?
Yes. Deel automatically generates compliant invoices including all necessary details, helping you meet FSM’s invoicing and record-keeping requirements.

Can Deel help me with taxes as a self-employed individual (independent contractor) in Micronesia?
Yes. Deel provides downloadable tax reports and payment records that make filing your quarterly GRT and annual state obligations easier. While it doesn’t replace an accountant, it simplifies compliance.

Does Deel offer contracts for freelancers and self-employed individuals (independent contractors)?
Yes. Deel includes contract templates that are locally compliant, so you can work with international and local clients professionally and securely.

Can I access benefits through Deel as a self-employed individual (independent contractor)?
Yes. Deel offers optional benefits such as health insurance, retirement savings plans, and other perks that are usually only available to employees.