Your goal in forming a company is to clearly separate your private life from your professional life. With this "new entity," you open up new possibilities, which have 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).
⚠️ Therefore, having an annual income of €60,000 is not enough to make forming a company worthwhile.
Calculate the taxable profit
Here's a simulation to understand the taxable profit.
👉🏻 Taxable profit = Income - Expenses - Director's remuneration. In other words: €90,000 - €12,000 - €30,000 = €48,000.
Set the right remuneration
In the example above, let's imagine you take a remuneration of €78,000. The taxable profit is then €0.
👉🏻 In this case, you do not benefit from the corporate income tax. Your remuneration is taxed under Personal income tax (PIT), just like as a sole proprietor.
Therefore, you need to define a remuneration package that allows the following balance: meeting your net private needs while generating sufficient taxable profit to benefit from the CIT.
Check #2: Are my revenues sustainable?
Starting a company is not to be taken lightly! It's a more committed choice than starting as a sole proprietor.
Administrative consequences
Forming a company involves additional administrative obligations compared to operating as a sole proprietor:
Formation costs: the services of a notary are necessary to draft the articles of association and register the company, with fees varying depending on the chosen structure.
More complex accounting (and therefore more costly):
A company must:
Keep accounts using double-entry bookkeeping. This means that every financial transaction must be justified by a document. It's more complex than the accounting for a sole proprietor.
Prepare an annual financial statement and file annual accounts with the National Bank. There are publication fees each 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.
The more sustainable, the more profitable
Starting a company incurs costs at creation. But also at termination! In this case, it's called a company liquidation. You need to hire an accountant, an auditor, and a notary.
💡 Before starting a company, ensure that the activity is stable with assured medium-term revenues. Otherwise, the costs of starting and stopping will not cover the gain from forming a company.
Let's go, I'm forming a company!
The company allows you to benefit from tax advantages. The corporate income tax rate is indeed lower than the personal income tax rate 👌🏻 As a paid director, you can, for example, benefit from rent for a home office, meal vouchers, or a expense allowance, like an employee.
You will also secure your assets. Your company acts as a buffer between you and your activity. For example, the bankruptcy of your company does not affect your private assets (except in certain cases). Owning shares in your company is exactly the same type of ownership as having a bank account or an investment. It's a movable asset. This means you can more easily transfer or sell it.
💡 If you want to develop an activity with others, a company is the ideal way to organize your professional life alongside your partners. You gain additional credibility, especially when negotiating with a client or a bank.
🚀 Forming a company is a strategic step that can be very advantageous if well-prepared. This transition should be considered with regard to your financial goals, your activity, and the tax and administrative implications. BILLY supports you with a specialized expert, helping you anticipate this change and move forward with confidence.
👉🏻 If you decide to form a company, go further by preparing your transition to a company.
For any additional questions, feel free to reach out to us via chat 😊
See you soon 👋