Types of legal entities for freelancers in Belgium and the UK

Are you in the UK or Belgium and unsure whether to do business via a legal entity or as a private individual? You're in the right place.
There are 4 ways to register yourself as an independent freelance business in Belgium, and four similar ones in the UK. Each has its own benefits and downsides. Whether you choose to do business via a legal entity or as a private individual, read below to find out what it may imply.
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Types of legal entities for freelancers in Belgium

1. Freelancer (eenmanszaak/ entreprise individuelle) status

We described how to start freelancing in Belgium in all the details in this article.

However, starting as a sole trader, sole proprietor or simply an independent freelancer is not the only option for you to form a business entity. You may consider registering as a freelancer if you are not making more than € 25.000 per year. Should you start earning more, you may want to consider other business structures.

Why to consider freelance (eenmanszaak/ entreprise individuelle) status:

Your tax level is low if you stay below €25 000.
You also can be exempt from reporting on 21% VAT (but you also won't be able to return it).
No need for any capital to get started, other than purchasing the material you need to do your job.
What you earn, you can spend, but be careful of any potential tax payments you may need to do in the future.
Your quarterly social contribution is around €600 EUR, but can be higher if you start earning more (up to €3 000 a quarter for income more than €56 000). See more here (starters discounts are possible, see Xerius).
Why do you need to be careful with freelance status:
You are personally liable for any and all debts.
Your personal income tax can go up to 50% on all of your business's earnings (compared with a company tax which is 33.99%).
You can spend what you earn, but not all of your expenses are 100% tax deductible which makes it a tricky exercise of carefully planning your expenses. Expenses you can deduct in Belgium as a freelancer.
Risks of running your independent business as self-employed is high, as in case of bankruptcy a freelancer is liable and his/her property can be seized to cover the debts.

https://economie.fgov.be states here: ''The risk hanging over the home of the self-employed person was somewhat reduced by a measure that allows them to protect their home by having it declared exempt from seizure in certain circumstances. The protection only applies to the self-employed person's main residence, i.e. the place where they live for most of the year.

The protection is not automatic, the self-employed person must make a declaration of unseizability before the notary of their choosing.

The protection only relates to debts pertaining to the professional activity after the declaration of unseizability. As such, it will not apply to private debts.

The self-employed person can, of course, waive the protection by making a new declaration. This also ends if the self-employed person changes status or dies.''
2. Companies with unlimited liability, such as a general partnership (VOF) and an limited partnership (CommV)
CommV is a limited partnership (Commanditaire vennootschap / société en commandite or CommV/SComm) (a company with legal personality).

It is a business entity where a partnership with 2 people could be legally secured. No notarius services are required to form such a company and you don't need to disclose your balance as it is with a company with limited liability. If you are considering to partner with someone and need an official entity to cover you both, CommV is the best option for it.
Why would you consider CommV?
It is your next step before going big with a different type of business entity.
Companies with profits of less than €100,000 can benefit from a lower corporate tax rate of 20% (normally it is 25%).
You don't need a starting capital.
You can pay yourself dividends from your company. This will be taxed at 30%, but under certain conditions it could be reduced to 20% or 15% for small companies.
You pay yourself a salary from the earnings, typically via payroll services such as SDX work.
Downsides of partnerships:
All partners are personally liable for any and all debts they might build on the part of the company.
Everyone will have to pay personal income tax (up to 50%) on all of your business's earnings, which is far more than any company tax (up to 33.99%).
Not all of your expenses can be 100% tax deductible.
VOF 'vennootschap onder firma (vof)' or in French as a 'société en nom collectif (SNC) a general partnership (vennootschap onder firma/société en nom collectif or VOF/SNC) / (a company with legal personality).

The general partnership is a very simple company form that requires few administrative formalities and also does not require start-up capital. You need to set up a VOF with at least two people. Shares can be transferred relatively easily, but only if all partners consent. An important aspect of the VOF is that all partners are liable for each other with their private assets. This means that poor management by a fellow partner could result in the tax authorities knocking on your door.

Benefits of VOF:
Ideal to build your first partnership.
No need for starting capital.
You can distribute your money the way you see fit in agreement with all partners.
Downsides of VOF:
All partners are personally liable for any and all debts they might build on the part of the company.
Everyone will have to pay personal income tax (up to 50%) on all of your business's earnings, which is far more than any company tax (up to 33.99%).
None of your expenses can be 100% tax deductible since your person equals your business.
3. A limited liability entity - BV, BVBA
This is the only entity that separates you as a private person from business. You are no longer operating as a sole proprietorship. Many consider the limited liability company the best form for freelancers making more than €25.000 per year.
Why would you start a limited liability company:
You'll pay less taxes (up to 33.99%) than you would as a sole proprietor or partner (up to 50%).
All possible debts and damages are credited to the company, protecting you as a person.
You as a shareholder are only liable for the sum of your investment.
You can hire staff.
You pay yourself a salary from the earnings typically via a payroll services such as SDX work.
Things you need to be aware of before you start a limited liability company:
You need notarised certificates, certain administrative and accounting-related legal obligations. Notarial costs can vary from €600 to €3000.
There is no official starting capital required, but you need to be able to show you already own sufficient funds to start your company.

Types of legal entities for freelancers in the UK

Similarly to Belgium, in the UK, freelancers have the choice between registering as a sole trader, registering a partnership, a limited partnership (LLP), or forming a limited company.

As a sole trader, you are essentially a self-employed person who is the sole owner of a business. It is the simplest legal structure, and the most common. You can easily register as a sole trader via the gov.uk website.

Operating as a sole trader is relatively straightforward and you will not have to dedicate a huge amount of time on admin and paperwork. However, you lack much of the protection of a limited company, as your business is connected to you and you can suffer unlimited liability if things go wrong, including losing personal assets. You may also not have access to financial support.

A partnership is similar, as all parties are treated as self-employed and must share the costs and risks of running the business.

A limited company is a legal structure separate from its owner(s), so you will own a company with a trademarked name which nobody else can use.

Since a limited company is a separate legal entity from the owner, their assets are protected in case of failure. Instead of income tax, limited companies pay corporate tax, which often comes with a kinder tax rate than on sole traders. They can also take advantage of many more allowances and tax-deductible costs, which can end up saving more money in the long term, depending on the nature of the expenses. Limited companies face much more scrutiny from the tax authorities though, and there are more responsibilities in running a limited company, such as filing an annual company tax return and annual accounts.

A limited partnership is also a separate legal entity and the liability of the partners is limited to what they invest in the business. Just like a limited company, it must be registered with the Companies House and involves many administrative responsibilities.

Choosing between the different structures ultimately comes down to which is the right one for your business. While you can comfortably freelance long term as a sole trader (or a partnership), it is worth considering the benefits of a limited company (or LLP). Our advice would always be to consult with an accountant or a lawyer to make the best decision.

If you are a UK national moving out of the country to Belgium, please find out more here.

If you are moving to another country, consider switching to Xolo Leap to continue running your freelance business across boarders.

Choosing between a sole proprietorship or company?

Each formula has its advantages and disadvantages, and your choice will have a significant impact on the life of your business. Among the criteria at stake are the following:

  • the type of activity envisaged;

  • the number of people who will participate;

  • the available capital;

  • the financial contribution of the partners;

  • the most appropriate tax regime;

  • the foreseeable development of the activity, etc.

Choosing either of these two options requires in-depth reflection, and it must be adapted to your business project. Do not hesitate to ask for advice from a notary, lawyer, business consultant, accountant or tax expert.

If you don't want to register your company just yet, but still want to legally invoice your clients, even if they are in a different country than you, then try Xolo Go. It is an easy way to run your freelance business without struggling with payrolling and invoicing administration. See how it can help you here.

If you're looking for some extra benefits of having your own EU company, you can take advantage of the Estonian e-Residency with Xolo Leap. It will allow you to run an EU company from abroad with minimum administrative hassle. Find out more here.
Disclaimer: the information has been gathered from official sources: BrainBridge, Liantis, Securex
Should you have any comments, corrections or additions to this text, please send them to info@freelancebusiness.eu
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