Besides doing business through an independent business status , there is another option – the incorporation of a limited liability company.
What is a limited liability company?
An Ltd. is a commercial organization that can engage in any legal purpose for which it was founded, purpose that was declared at the time of its foundation. An Ltd is a separate entity from the persons who founded it, its owners and its assets, and accounts.
What are the conditions to establish a company?
According to Article 2 of the Company Law (hereinafter – “Company Law”), any person can establish a company, provided that the purpose of the company is not contrary to the law or public regulations. A company can also open a public limited company. The company can have one shareholder or more. A limited liability company is a legal entity in every aspect that stands in its own right and is held by its shareholders.
What are the advantages of establishing a company?
• From a fiscal standpoint, an independent status is liable for income tax and social security contributions on its annual income. The maximum marginal tax rate for the self-employed as of 2022 is 50% plus 3% additional tax compared to the company’s tax burden at a rate of 46.1% composed of corporate tax (23%) and an additional tax (30% on the balance of income).
• In an enterprise’s organization, there is a two-stages taxation method. A company can defer the payment of taxes for the distribution of dividends by taking advantage of the profits that have not been distributed as a dividend for the purpose of making additional investments or expanding its business activities.
• This means that the tax liability for a company’s activity can be half of that of an independent status.
• An enterprise can separate its business activities by creating separate companies for each activity. These companies can distribute their profits to the parent company in the form of an intercompany dividend without paying taxes. These funds can be used for other investments in the group and not just in the company that generated the profits.
The process of starting a business
A certain number of actions are necessary to start a business:
• Filing a business registration application with the company registrar
• Opening a bank account for the company
• Registering at the tax administration (Create a VAT file, create an income tax file)
• Registering with the National Insurance Institute (in case of hiring employees)
Costs
Unlike in independent status situation, there are additional costs to run a company .
• One-time fee to establish the company
• An annual fee to be paid to the Company Registrar
• Higher monthly bookkeeping costs
• The cost of preparing audited financial statements is higher than the annual income tax report submitted by self-employed professionals
It is important to note that these expenses are recorded for tax purposes and are less significant as the business grows more prosperous.
