Not all surprises are welcome, and there are some we would definitely rather avoid. As an entrepreneur, it’s only natural that you want to be rewarded for your efforts. Unfortunately, a letter from the tax authorities can often put a stop to that if it turns out you need to pay additional taxes. If you’re a an entrepreneur, liberal professional or company and you want to avoid being caught out, check out our tips below.
Let’s start at the beginning...
...when you need to choose the social security status of your business. Your decision to start a sole-trader business or a company has a significant role to play in determining how much taxes you will owe and therefore your income. Whatever you choose, we should note the differences between the following taxes:
Personal income tax for sole traders (self-employed or liberal professionals)
This tax is calculated using your net professional income (i.e. your professional income minus your professional expenses) and increases progressively per tax bracket (25% to 50%) as your professional income increases. In other words, the higher your income, the higher your tax rate.
Corporation tax for companies
In contrast to personal income tax, corporation tax has a uniform tax rate (25%). In general, corporation tax rates are also much lower. This means that the more profit you make, the more worthwhile it becomes to operate as a company.
In addition to direct taxes, there are other taxes you also have to pay both as a sole trader and as a company. These include VAT, social contributions, local taxes, provincial taxes, and eco-taxes, to name but a few.
Benefits in kind
Not all that glitters is gold. If you’ve bought a new vehicle, mobile phone or laptop on the company account, for example, you will also have to pay tax on that! The tax authorities assume that you might make personal use of things bought by the company, after all.
Tips for paying less tax
As an entrepreneur, you have the right to figure out how to pay as little tax as possible. The technical term for this is ‘tax avoidance’. Do be careful in your approach to this, however – if you push things too far, you risk being accused of fraud. We’ve provided some tips on how to reduce your tax burden below, but if you’re not quite sure, you should get an accountant.
As a self-employed person or liberal professional
File your professional expenses
The tax authorities account for the fact that as a self-employed person or liberal professional you have to re-invest part of your profit in order to keep developing your company. This is why you are taxed on what you earn, minus the expenses you incur by running your business. Consequently, the more expenses you incur, the less net income you have and the less taxes you pay.
Be careful not to overdo it, because not everything is considered a professional expense, and you should check with your accountant which expenses are worthwhile.
File your travel expenses
If you’re making regular use of your vehicle to pick up orders or visit customers, then that means you’re using your vehicle partly for professional purposes and you can deduct (part of) your transport expenses from your taxes. Exactly how much depends on the type of travel:
- Purely personal travel is not tax deductible
- Travel between your home and fixed place of work is tax deductible at a rate of 0.15 euros per kilometre
- Purely professional travel requires a contribution which is limited to a certain percentage, so you have to demonstrate your actual expenses incurred
Submit your periodic VAT return
As a self-employed person, you are usually required to pay VAT, which means you then have to charge your customers VAT on your invoices. Given that you also have to purchase goods, materials or services for your business, you can deduct the VAT you’ve had to pay from the VAT your customers have paid to you (this is called VAT deduction). You then pay the remaining amount to the tax authorities.
Submit the tax certificate for your social security contributions
As a self-employed person, you pay a considerable amount of social security contributions every year, and your social security fund sends you an annual summary of the contributions you made the year before. These are also deductible, which means you pay less tax. So don't forget to submit the tax certificate for your social security contributions in time.
As a company
Pay a dividend instead of a salary
In certain situations, it can be in your interest to pay out a dividend rather than provide a salary, as you do not have to pay social contributions on dividends.
Create a liquidation reserve
A liquidation reserve can be especially worthwhile because SMEs have to pay a 30% withholding tax when paying out an ordinary dividend.
By creating a liquidation reserve, an SME can deposit all or part of the accounting profit after tax into a separate liability account once a year. You are taxed on this twice:
- When the liquidation reserve is created, you pay the standard corporation tax and an additional 10% tax.
- When paying out the liquidation reserve, you pay a 5% or 20% withholding tax, depending on when this takes place.
Specifically, if you wait at least five years before paying out the liquidation reserve as a dividend, you will only pay a 5% withholding tax. If you pay out earlier, you pay 20%.
Please note that if you create several liquidation reserves, you are not free to choose the order in which they are paid out, rather you must follow the principle of 'first in, first out'.
Liquidation reserves can also be paid out at 0%, even during the five-year waiting period! This does require you to dissolve and then liquidate your company, however. Be careful, if this is your only reason for doing so and you then start a new company with exactly the same activity and staff, the tax authorities can view this as abusing the system.
You do not pay social contributions or personal income tax on meal vouchers , but you do pay corporation tax. This makes them worthwhile for both employees and company managers!
Reap the benefits by offering group insurance to your employees – the contribution you pay for this is tax deductible, and the NSSO contribution on the premiums is considerably lower than the amount paid on salaries.
As a natural person, you can let out movable and immovable property to your company
You do not pay social contributions on rental income. This means it can be a good idea for a natural person to let out a commercial property to their company, for example. What’s more, you can deduct certain expenses from the rent. The amount you charge as business manager or company director must be in line with market rates, otherwise you risk this being viewed as a salary and therefore taxed more heavily.
Earn interest on money you lend to your company
Lending money to your company can be a smart move, because the interest paid to you by your company is tax deductible. Your company only pays 30% withholding tax, and you obviously don’t have to pay or pre-pay social security contributions on the interest that you receive from your company.
Preparing for your tax statement?
The tax authorities encourage entrepreneurs to make pre-payments, which mean that taxes on business income are paid in the income year rather than the assessment year.
If you’re self-employed or a liberal professional and pay 106% of the taxes you owe in advance, then the tax authorities will give you a tax benefit or reduction. Companies are never entitled to this. As a self-employed person or liberal professional, you are not obliged to make pre-payments, but if you don’t make enough payments or make none at all, you risk a potentially substantial tax increase, so you’re better off doing so!
Companies can pre-pay taxes in order to avoid a tax increase due to not paying enough in advance.
Even though they can be beneficial in terms of taxes, pre-payments are often forgotten about. An easy solution to this is to take out a KBC Tax Pre-Payment Plan, which automatically makes pre-payments to the tax authorities. Curious as to how it works?
Avoid a tax increase by taking out a %%product.oorafbetalingsplan%%!