Sole proprietorship
- Simplicity of management: The company is easy to set up and manage, with no complex formalities.
- Disadvantages:
- Risk to private assets: Personal assets are not separate from business assets. In the event of debt or bankruptcy, creditors can seize private assets.
- High taxation: Income is subject to personal income tax (IPP), with a progressive rate that can reach 40%, 45% or even 50% depending on the size of the income.
Company (e.g. SRL)
- Advantages:
- Protection of private assets: Your personal assets are separate from those of the company, protecting your private assets from creditors.
- More favorable taxation: Corporate income tax is generally lower than personal income tax, thanks in particular to the reduced rate (20% for SMEs).
- Advantageous distribution of profits: Thanks to the VVPR-bis regime, dividends are subject to a reduced withholding tax (15%). What’s more, you can reduce this withholding tax by building up “liquidation reserves” (10% tax on creation, then 5% after 5 years, or 0% in the event of liquidation).
- Disadvantages:
- Initial costs: Setting up a company, especially an SRL, requires a notarial deed, which entails relatively high incorporation costs.
- Management costs: Accounting costs are higher, and there are more legal formalities to comply with.
- Transfer of profits: Profits belong first and foremost to the company. You will have to transfer them to your private assets in the form of remuneration or dividends, which means you will have to pay tax on these distributions.
Example in figures
- Sole proprietorship:
- Profit: €80,000
- Social security contributions: -€18,440.80
- Personal income tax (40%) : -25 146,38 €
- Net: €36,412.82
- Company:
- Gross profit: €80,000
- Remuneration (paid to manager): €45,000
- Corporation tax (20%): €35,000 x 20% = €7,000
- Personal social security contributions: -€10,909.92
- Personal income tax (30%) : -10 105,13 €
- Dividend distribution (15%): €28,000 x 15% = €4,200
- Net: €47,784.95
Conclusion
- In this example, the company generates a higher net income (€47,784.95 vs. €36,412.82 in a sole proprietorship).
- Advantages of the company: It is more advantageous if you can accumulate profits and distribute them under advantageous tax regimes such as VVPR-bis. However, you must wait three financial years before you can distribute dividends under this regime.
- Disadvantages: The company involves more costs and complexity, and interest depends on the ability to accumulate profits over the long term.