Your goal when incorporating a company is to clearly separate your private life from your professional life. Thanks to this "new entity", you open up new possibilities and this has positive impacts for you 😊
Check #1: is my profit sufficient?
This is the main criterion! The company must end the year with taxable profit. This allows you to benefit from the advantageous taxation of corporate income tax (CIT).
⚠️ Having €60,000 in annual income is therefore not enough to make incorporating a company worthwhile.
Calculating the taxable profit
Here is a simulation to understand taxable profit.
👉🏻 Taxable profit = Revenue - Expenses - Executive's compensation. In other words: €90,000 - €12,000 - €30,000 = €48,000.
Defining the right compensation
In the example above, imagine you take a compensation of €78,000. The taxable profit is then €0.
👉🏻 In this case, you do not benefit from corporate income tax. Your compensation is taxed under personal income tax (PIT), exactly as if you were self-employed.
You therefore need to define a compensation package that strikes the right balance: meeting your personal net needs while generating sufficient taxable profit to benefit from CIT.
Check #2: is my income sustainable?
Incorporating a company is not a decision to be taken lightly! It is a more demanding choice than starting out as a self-employed individual.
Administrative consequences
Incorporating a company brings additional administrative obligations compared to operating as a sole proprietorship:
Incorporation costs: the services of a notary are required to draft the articles of association and register the company, with fees that vary depending on the structure chosen.
More complex accounting (and therefore more costly):
A company must:
Keep double-entry accounts. This means that every financial transaction must be supported by a document. This is more complex accounting than that of a self-employed individual.
Prepare an annual balance sheet and file annual accounts with the National Bank each year. There are publication costs every year.
File a corporate income tax return separate from your personal income tax return.
Annual contribution: companies must pay a specific annual INASTI contribution for companies each year.
The more sustainable it is, the more profitable it is
Incorporating a company generates costs at the time of creation. But also when winding it down! In that case, this is called a company liquidation. You will need to call upon an accountant, an auditor, and a notary.
💡 Before incorporating a company, make sure the activity is stable with secured income over the medium term. Otherwise, the start-up and wind-down costs will not offset the benefit of incorporating.
Let's go — I'm incorporating a company!
A company allows you to benefit from tax advantages. The corporate income tax rate is indeed lower than the personal income tax rate 👌🏻 As a remunerated executive, you can for example benefit from rent for a home office, meal vouchers or an expense allowance, just like an employee.
You will also protect your assets for the long term. Your company acts as a buffer between you and your activity. For example, the bankruptcy of your company does not affect your personal assets (with some exceptions). Holding shares in your company is exactly the same type of ownership as having a bank account or an investment. It is a movable asset. This means you can transfer or pass it on more easily.
💡 If you wish to develop an activity with others, a company is the ideal way to organise your professional life alongside your partners. You gain added credibility, particularly when negotiating with a client or a bank.
🚀 Incorporating a company is a strategic step that can be very advantageous if well prepared. This transition should be carefully considered, taking into account your financial objectives, your activity, and the tax and administrative implications. BILLY supports you with a specialist expert, so you can anticipate this change as effectively as possible and move forward with complete peace of mind.
👉🏻 If you decide to incorporate a company, take the next step by preparing your transition to a company.
For any further questions, feel free to reach out via the chat 😊
See you soon 👋