BV or sole trader?

The difference

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

So there is an extra layer in between. Whether that is cheaper depends on your profit, on what you need to live on and on how much money you can leave in the BV.

What you lose when you switch

This is forgotten 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 brings you anything either

These benefits belong to a sole trader business, not to a BV. If you only just reach the 1,225 hours and your profit is modest, that is a real loss.

What comes with it

A BV brings obligations you do not have as a sole trader:

• Customary salary. You work for your own BV, and the law does not want you to pay 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 BV.
• Annual accounts, which you must file with the Chamber of Commerce within twelve months after the financial year ends.
• Notary costs when you set it up, and more administration.

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

When does it become worthwhile?

There is no fixed amount above which a BV is always cheaper. It depends on three things: how much profit you make, how much of it you need yourself and whether you can leave the rest in the BV.

If you can leave a large part of the profit in the BV, the lower corporate income tax rate works in your favour. If you take everything out straight away, most of that advantage is gone, while you have lost the entrepreneur allowance.

So have it calculated before you go to the notary. Undoing a BV costs more than setting it up.