When to transition from sole proprietorship into a bv?
Your business is doing well. Profits are growing considerably and maybe you even have had to hire employees by now. You’ve once heard or read that it could be wise to transition into a bv (private limited company) at some point, in order to pay less taxes. How does this work?
The biggest advantage of converting a sole proprietorship (or VOF) to a bv is the shift in personal liability. What does that mean? As a sole trader, you’re fully personally liable for any debts of the company and you will personally have to pay up in the event of bankruptcy. The bigger your company is, the greater the financial consequences will be when things go wrong. Creditors are therefore allowed to recover claims from your private assets. This is not the case with a bv. Since a bv is a separate business with its own legal structure, creditors can only hold you personally liable for debts of the bv in exceptional cases.
If you have a sole proprietorship, you’ll need to pay income tax on the profits from your business. As an entrepreneur you’re entitled, under certain conditions, to a number of tax benefits for income tax, such as tax relief for new start-ups, a private business ownership allowance, the SME profit exemption and deduction for the general old-age pension scheme. As a result, you’ll pay less income tax, up to a certain profit level, than when you’re employed. If your profit continues to grow, it will be more interesting financially to set up a bv.
As a bv, you’ll have to pay corporation tax (tax on the profit of the bv), income tax (on the salary through box 1 and on received dividends through box 2) and dividend tax (on the dividends that are paid out).
Advantages of a bv
- A bv is a legal form with limited liability. In other words: not you, but the bv itself is liable for any debts.
- You can divide your properties and financial risks among several private limited companies through a holding company.
- The mandatory starting capital is no more than 1 euro cent.
- Owning a bv can make a professional impression.
- New investors can be attracted through shares in the bv.
- You only pay 16.5% or 25% tax on the profit of a bv.
How much profit should I be making to become a bv?
By now you’re probably wondering: “How high does my profit need to be to opt for a bv?”. There’s no simple answer to that question. It depends on the type of company, the salary you receive, how much money you need to meet your living expenses, the extra costs you would be faced with as a bv, etcetera. But in order to go from sole proprietorship to a bv, a profit of €130,000 per year is a pretty good guideline. With profits that high, having a bv instead of working as a sole trader is more interesting financially. Keep in mind that you’ll also face higher costs as a bv. To set up a bv you’ll need to visit a notary. For a standard bv, the costs will be approximately €500 to €1,500. The civil-law notary will also take care of the registration of the bv in the Trade Register of the Chamber of Commerce.
If your business manages to make a profit of €130,000 per year and you’re actually looking to transition into a bv, you should discuss this with your accountant. Kees de Boekhouder has a sister company called Founders, which focuses specifically on bvs. The accountants there are happy to think along with you about the possibilities. If you’re considering taking this step, please do not hesitate to contact them!