How much does starting your own business cost?
If you’re looking to start your own business, it’s important to know what costs are involved. Put simply, you have start-up costs, social security contributions, taxes and expenses. For your convenience, we’ve worked it all out for you and put together a summary of the costs associated with starting out as a sole trader or a company.
Costs involved with starting your own business
Setting up as a sole trader
There are a few costs to consider before you can officially start your business. For starters, there’s the cost of registering your business with the ‘Crossroads Bank for Enterprises’ database, which is 105.50 euros (exempt from VAT). You’ll also need to have your VAT number activated, the cost of which ranges from 66.55 to 77.50 euros (including VAT) depending on the business one-stop shop you go to. Tip: the KBC Boostpack offers all kinds of benefits and discounts to help you get started.
Setting up as a company
If you’re looking to set up a company, you also need to factor in certain registration and activation costs, just like a sole trader. Tip: the KBC Boostpack offers all kinds of benefits and discounts to help you get your company off to a flying start. Note that when setting up a company where your liability is limited, you are also required to submit a financial plan. You can prepare this plan yourself or have it done by an accountant. Depending on its complexity, this can easily cost another 1 000 to 1 500 euros.
Setting up as a sole trader
As a self-employed individual operating as a sole trader, you pay an annual tax on your gross taxable income via your personal income tax return. This is your total annual turnover less all your business expenses for that financial year (lease of a company car and/or business premises, equipment purchased, etc.).
Depending on the amount of your gross taxable income, you pay a percentage of taxes:
- Up to 15 820 euros: 25%
- Between 15 820 euros and 27 920 euros: 40%
- Between 27 920 euros and 48 320 euros: 45%
- Over 48 320 euros: 50%
Your income is taxed in brackets based on these rates.* This means you pay 25% tax on the first bracket of 15 820 euros and this percentage gradually increases in proportion to the amount of your income. Note that, depending on your family situation, you may qualify for a tax exemption on some of your income. This has not been factored into the example. Besides federal personal income tax, you also need to consider the supplementary municipal taxes. The tax rates vary by municipality, ranging from 7% to 9%, and are based on your federal taxes due.
* The example reflects the brackets for income year 2024 / assessment year 2025. These brackets are subject to change based on future government updates.
Setting up as a company
As a self-employed individual running a company, the profit you make is subject to corporation tax. Your profit is your total annual turnover less all business expenses. You pay (or rather the company pays) 25% corporation tax on your profit. For small and medium-sized enterprises (SMEs), a reduced rate of 20% on the first 100 000 euros of profit applies under certain conditions.
Your income is part of the company’s cost structure. The company pays payroll withholding tax on this income.
Example
Let’s say your company’s net profit after expenses is 50 000 euros. You’d then have to pay 10 000 euros (20%) in corporation tax on this amount. You can either keep the remaining 40 000 euros as company profit or distribute it as dividend.
What are social security contributions?
When you’re self-employed, you’re required to pay social security contributions on your income – just like everyone else. This allows you to build up social security entitlements like your pension and to insure yourself against risks such as illness.
How much does it cost?
In 2024, up to 20.5% of your net taxable income* goes towards annual social security contributions. This amount is usually paid in quarterly instalments, i.e. four times a year.
How is this calculated for start-ups?
As their actual income is not yet known, start-ups pay a provisional minimum contribution of 890.51 euros per quarter for the first two years, which is then recalculated later based on their actual income.
Subject to certain conditions, you may qualify for a reduced rate for start-ups where you pay 446.25 euros instead of 864.15 euros for the first four quarters. This is intended to give you a little extra financial breathing space while getting your business up and running.
Social security contributions for sole traders
When you operate as a sole trader, all the profit your business makes is considered as your gross taxable income. Taxes are then deducted from this amount and what remains is your net taxable income, which forms the basis for calculating your social security contributions (up to 20.5%). In other words, the more you earn, the higher your social security contributions.
Social security contributions for companies
Strictly speaking, the company is not responsible for the social security contributions. As a company director, you pay social security contributions on your wages, just like a sole trader. But since you set your own wages, you also have some control over your social security contributions. In a company structure, you can decide to pay yourself a minimum wage at the start, on which you pay the minimum social security contributions. This will allow you to steadily create the financial scope to continue investing and growing your business.
When you’re self-employed, you’re responsible for making sure you have all the equipment and facilities you need to perform your business activity properly. The associated costs are fully or partially deductible. In other words, you can deduct them from your annual turnover, thereby reducing the annual profit calculated and hence the taxes you have to pay.
- Smaller or recurring business expenses (such as the lease of your premises) are written off in a single financial year and therefore deducted in full from the turnover that same year.
- Larger or less frequent business expenses (such as the purchase of a digger or laptop) are depreciated over a number of years. In this case, a portion of the purchase amount is deducted from the annual turnover each financial year. The depreciation period is usually determined based on the useful life and the type of investment.
As a self-employed individual, you are required to charge VAT on every product or service you sell. The applicable rate is 21%, 12% or 6%, depending on the product or service provided.
Strictly speaking, VAT is not a business expense, but a tax you, as a business owner, are required to charge on your customer’s invoice and which you must remit to the government every quarter. You’re basically a middleman and that, too, has its perks. You may deduct all or part of the VAT you paid on business expenses that quarter from the amount of VAT to be refunded.
In a nutshell…
While running a business, with all its complex cost structures, may seem daunting at first, a bit of good advice can go a long way. The main thing is to determine from the outset how much salary you can pay yourself to avoid spending money you will need at some point in the future. Being self-employed, you need to be aware that not all money coming in is actually yours. As an employee, your employer takes care of all the necessary deductions, but when you’re self-employed it’s all up to you. All the very best for your endeavours!
