BV or sole trader?

The difference in one paragraph

With a sole trader business the profit is yours and is taxed in box 1 of the income tax. With a BV the profit belongs to the company and is subject to corporate income tax: 19% on profit up to EUR 200,000 and 25.8% above that. What you then take out privately is salary in box 1 or dividend in box 2.

So there is an extra layer in between. Whether that works out well depends on your profit, on what you need to live on, and on what you can leave inside the company.

What you lose when converting

This is what gets overlooked most often:

• The entrepreneur allowance, including the self-employed and starter's deductions
• The SME profit exemption, a percentage of the profit
• You no longer need to meet the hours criterion, but it no longer earns you anything either

Those reliefs belong to business profit, not to a BV. For someone just over the 1,225-hour mark with a modest profit, that is a real loss.

What comes with it

A BV brings obligations a sole trader does not have:

• Customary salary. You work for your own company and the law does not accept you paying yourself too little (article 12a of the Wage Tax Act 1964). Your salary must be at least the highest of three benchmarks.
• A corporate income tax return, every year, per company.
• Annual accounts, to be filed with the Chamber of Commerce within twelve months of the year end.
• Notary costs on incorporation, and more administration.

If you have a holding above your operating company, all of this applies twice.

At what point does it pay off?

There is no amount above which a BV is always better, and anyone who gives you one is not counting what you take out. It turns on three things: how much profit you make, how much of it you need privately, and whether the rest can stay in the company.

If you can leave a substantial part of the profit inside the BV, the lower corporate rate works in your favour. If you take it all out immediately, most of that advantage disappears while you still lose the entrepreneur reliefs.

Have it calculated before you go to the notary. Reversing it costs more than the conversion itself.