My freelance activity: as a natural person or under a corporation?

As a freelancer in Belgium, you face this choice: will you work as a natural person or under a company? Choosing the right legal structure for your freelance activity is an important decision that affects various aspects of your work and finances. In this article, we will discuss the pros and cons of both options so that you can make an informed choice.When starting your freelance activity in Belgium, you need to decide whether you want to work as a natural person or under a company. Both options have different legal, tax and financial implications. It is essential to have a good understanding of the advantages and disadvantages of each choice so that you can make the right decision based on your specific situation.

Freelancing as a natural person

If you choose to freelance as a natural person, this means that you conduct your freelancing activity as an individual, without creating a separate legal entity. Here are some important points to consider:

• Personal liability

  One of the most important aspects of freelancing as a natural person is that you are personally liable for any debts or legal disputes arising from your activities. This means that your personal assets could be at risk if something goes wrong. Therefore, it is important to get proper insurance to protect yourself.

• Simple incorporation and administration

  Establishing a freelance business as a natural person is relatively simple and does not require complex legal procedures. You do not have to pay formation fees and there are no specific accounting obligations. This makes it an attractive option for freelancers who want to keep red tape to a minimum.

• Fiscal aspects

  As a natural person, your freelance income is taxed as professional income in personal income tax. That means you have to pay taxes based on the progressive personal income tax rates. You may pay higher taxes compared to a corporation, especially if you fall into a higher income category.

• Limited financial opportunities

  One of the disadvantages of freelancing as a natural person is that you have limited financial options. You cannot use corporate structures such as issuing shares or attracting investors. This can make it more difficult to raise capital or invest in growing your freelance business.

Freelancing under a partnership

Alternatively, you can choose to conduct your freelance activity under a corporation. This creates a separate legal entity with specific benefits and considerations:

• Limited liability

  A key advantage of freelancing under a corporation is that your personal liability is limited. The partnership is a separate legal entity, which means that your personal assets are not directly at risk in the event of debts or legal disputes. This offers greater protection and peace of mind.

• Fiscal aspects

  A corporation is taxed as a legal entity, where corporate income tax applies. The corporate tax rate is generally lower than the progressive personal income tax rates. As a result, you may be able to pay less tax compared to freelancing as an individual. In addition, there are more opportunities for tax optimization and tax deferral.

• Financial opportunities

  As a corporation, you have more financial options available to you. You can issue shares, attract investors and take out loans to raise capital and support the growth of your freelance business. This can be advantageous if you have plans to expand or diversify your business.

• Administrative obligations

  Establishing and managing a corporation involves more administrative obligations. You have to prepare financial statements, maintain accounting records and comply with other legal requirements. This can require more time and effort, as well as additional fees for accounting services.

When choosing between freelancing as a natural person or under a corporation in Belgium, it is important to consider your specific needs and goals.

• If you are looking for simplicity and flexibility, freelancing as a natural can be the right choice.
• On the other hand, if you want more protection, tax advantages and financial opportunities, working under a partnership may be more beneficial.

Always consult a legal and tax expert to make the best decision based on your individual situation.

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Testimonial from freelancer Alexis
Five years ago, Alexis had started his sole proprietorship. Year after year, he saw his sales increase. An intake interview with an accountant made it clear:

• he needs at least €2,880 net to live.
• He also has a housing loan to pay off.
• Given the many customer visits a car is a must.

 

"Armed with this information, several calculations were made. I could see what my net income would be if I continued working like this or through a partnership. In ten years' time, with the same turnover figures, I would have net private assets of just under € 658,000. Through a partnership, I saw my private assets increase to € 826,000. A difference of € 168,000."

Frequently Asked Questions

• What is the minimum turnover I need to switch to a partnership?

  There is no precise rule and many other factors come into play. We have posed the question to several accountants and the answer seems to be unanimous: a net profit of 50k. Seek advice from your accountant.

• Which form of company is best suited for freelancers?

  This depends on several factors, such as your profit expectations, financial goals and desired level of liability. An accountant or legal advisor can help you choose the most appropriate corporate form for your situation.

• Can I convert my freelance activity from natural person to a corporation?

  Yes, it is possible to convert your freelance activity from natural person to a corporation. However, this may have administrative and tax implications. It is advisable to seek professional advice before taking this step.

• How can I protect my personal property as a natural person?

  As a natural person, you can purchase liability insurance to protect yourself from potential liability. It is also important to draft contracts carefully and consider using general terms and conditions to strengthen your legal position.

• Can I switch from a corporation to a natural person?

  Yes, it is possible to switch from a corporation to a natural person. However, this may affect your liability, taxes and administrative obligations. Consult a professional to guide you through this transition.