Starting a small business in Belgium requires quite a lot of thought and contemplation, not in the least about what company form you'll choose. Freelancers and other entrepreneurs all face the same challenge: what type of company best suits my needs? What's best for right now? How could it evolve in the future? What effect will all this have on my taxes?

You'll find out here:

1. How company formation in Belgium works
2. What types of companies in Belgium you can choose from
3. What type of company is most beneficial for IT freelancers

1. Company formation in Belgium

Company formation in Belgium looks complex, but is open to just about everyone.

To start your own company in Belgium you need at least:

• A bank account
• Belgian nationality, a work visa or a professional card[

That's it. If you have these elements in order, you're eligible to become self-employed. Congratulations!

You do, however, need to make sure that you possess the necessary skills to practice some professions. Professions like accountant, solicitor, architect and real estate agent are regulated and require something called 'proof of competence'. It shows that you do indeed have all of the skills required to perform this profession.

Many degrees throughout the European Union are considered equal since the implementation of the bachelors-masters structure in 2004, but some might not be. In that case, you can get your degree affirmed by proving your competence in official government tests.

See  which procedures you need to follow and which requirements you need for your company here.

2. Types of companies in Belgium

The most prominent company types in Belgian law are sole proprietorship, partnership, limited liability company, co-operative, partnership, and payrolling.

Sole proprietor

Sole proprietorship is synonymous with the term 'natural person' in accordance with the terms in Dutch (eenmanszaak) and French (entreprise individuelle).

As a sole proprietor, there is no legal distinction between you as a person and your business. Many freelancers opt for sole proprietorship, often with the idea of changing it in the long run.

Many consider sole proprietorship the best form for freelancers making up to € 25.000 per year.

Benefits of being a sole proprietor:

• Exemption from paying company taxes if you're below a certain yearly income
• No need for any capital to get started, other than purchasing the material you need to actually do your job
• Distribute your money the way you see fit (but take care to save a big chunk of it for taxes!)

Downsides of being a sole proprietor:

• Personally liability for any and all debts you might build in head of your company
• You 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

Partnership

Partnerships are very similar to a sole proprietorship in terms of liability, but with 2 or more people instead of just you. The partnership as it now exists is referred to in Dutch as a 'maatschap' and in French as a 'société simple'. It is an umbrella term for 2 forms that used to be separate.

• You may see it referred in Dutch as a 'vennootschap onder firma (vof)' or in French as a 'société en nom collectif (SNC)' when all partners are active and fully liable.
• When there are silent partners or partners not active in management, it used to be referred to in Dutch as a 'commanditaire vennootschap (Comm.V)' or in French as a ' société en commandite (SCS)'.

Freelancers looking to partner up with other freelancers often choose this form of collaboration.

Benefits of partnerships:

• Combine your skills with someone else's for a more complete service without having to start a large company and hiring staff
• Exemption from paying company taxes if you're below a certain yearly income
• No need for starting capital, other than purchasing the material you need to actually do your job
• You can distribute your money the way you see fit in agreement with all partners

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%)
• None of your expenses can be 100% tax deductible since your person equals your business

Co-operatives are similar to partnerships and the 2 forms are often confused. A co-operative differs from a partnership in that it needs 3 or more people instead of 2, and that liability can be either limited or unlimited. It is a lesser used form than the others mentioned here.

Limited liability company

A limited liability company is the first company type mentioned here that completely separates you as a person from your business. Your business is now a separate legal entity.

Many consider the limited liability company the best form for freelancers making more than € 25.000 per year.

Benefits of a limited liability company:

• You'll pay far 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

Downsides of a limited liability company:

• Starting a limited liability company involves a lot of red tape: you need notarised certificates, certain administrative and accounting-related legal obligations
• You need to be able to show you already own sufficient funds to start your company, although there is no official starting capital

• Exemption from paying company taxes if you're below a certain yearly income
• No need for any capital to get started, other than purchasing the material you need to actually do your job
• Distribute your money the way you see fit (but take care to save a big chunk of it for taxes!)

Downsides of being a sole proprietor:

• Personally liability for any and all debts you might build in head of your company
• You 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

Private company

We mention the private company here for the sake of completeness, but when starting a business in Belgium as a freelancer, you will most likely choose a different company type. This one is usually ideal for larger companies, although you can choose this form without any partners.

The private company is the only current company type in Belgium that requires a starting capital before you are legally allowed to start the company. That capital is also the main reason this form is not ideal for you as a freelancer: you'll need at least € 61.500 before you can even start your business on paper.

Co-operative company

In Dutch, this form is referred to as a 'coöperatieve vennootschap (cv)', and in French as a 'société coopérative (SC)'.

When starting a business in Belgium as a freelancers, you will probably choose one of the alternatives given to the co-operative company.

Its main goal is not to extend a service or sell a product to clients as such, but to be beneficial to its co-operatives and their social and/or economical goals.

Benefits or downsides?

There are no clear benefits or downsides to choosing a co-operative company over any of the other forms, since the form stands completely separate from the rest. You either want to start a co-operative to benefit the co-operatives operating under its umbrella, or you want to make profits and operate your business in a more traditional way.

Payrolling

If you're in doubt of whether you want to pursue freelancing or whether you're ready to start a business in Belgium, the country provides other options.

By choosing payrolling, you get the best of both worlds. In effect, you'll be a freelance entrepreneur with all of the freedom of choice that comes with it. The difference is you don't have to actually start a business.

Payrolling companies like Tentoo (for everyone) and T-heater (for artistic profiles) will act as your legal employer without actually employing you. You will find your own clients and make your own deals. Your client will pay the agreed upon price to the payrolling company, which deducts all taxes and social security contributions you owe before paying you your net wages.

Benefits of payrolling:

• You don't have to start a company in Belgium and go through the motions of getting everything done
• There's no risk of making mistakes in calculating taxes or social security contributions or of spending too much money before taxes and social contributions are due since the payrolling company takes care of everything for you
• You freely choose your own clients, unlike with an employer

Downsides of payrolling:

• You cannot to deduct business expenses like you would if you had a company number
• You still have to find your own clients. The payrolling company does not help you find clients, unlike an employer

The company type you choose says nothing about your level of employment. You can be a parttime or fulltime entrepreneur within all of these forms.

3. The best type of company for an IT freelancer

You probably already guessed it: there's no such thing as the perfect company type for a specific profession. It all depends on elements like how you see the future, what type of collaboration structures you personally prefer and how quickly you want to grow your yearly income.

The best strategy to decide which of the types of companies in Belgium is right for you, is to first draft a business plan (possibly along with an adviser like an accountant) and to then check which company types suit your needs best.