From VOF to BV: The benefits and how to arrange the conversion

Many entrepreneurs start their business as a sole proprietorship or general partnership (VOF). But over time, it may be more advantageous to switch from a VOF to a BV. When is it smart to make this move? What are the advantages and disadvantages? And what do you need to arrange to convert the VOF to a BV?

Liability: why switch from a VOF to a BV?

Doing business through a sole proprietorship or partnership means that you are liable with your entire private assets for all of your company’s obligations. This means that you can be held personally liable for any debts or claims arising from your business. A BV offers limited liability and functions as a legal entity, with its own rights and obligations. This means that your private assets remain largely protected. For entrepreneurs in higher-risk industries, such as construction, it may therefore be more attractive to switch from a VOF to a BV. Note that the limitation of liability is not unlimited and does not apply, for example, to payroll and sales taxes or in case of mismanagement.

Continuity and sale in the case of a limited liability company

Upon the death of a business owner who undertakes through a limited liability company, the limited liability company continues to exist simply because it is a legal entity. The shares pass to the heirs, depending on how this is stipulated. Often this transition occurs with tax benefits. Even if you plan to sell your company in the future, it may be smart to convert your VOF to a BV first. This prevents you from having to pay taxes on the entire sale price immediately and offers the possibility of partially deferring taxation, depending on the structure. In addition, transferring shares is usually easier than selling a sole proprietorship or VOF.

Tax advantages of converting a VOF to a BV

One of the biggest differences between a VOF and a BV is how profits are taxed. With a VOF, the entire profit is taxed in Box 1 of the income tax. It does not matter if you pay yourself a salary; this is considered a private withdrawal and does not affect the taxable profit. Income tax works with a progressive rate, with the highest rate rising to 49.50% in 2024. In a limited liability company, you pay corporate tax on profits, and the rates for this are lower in 2024: 19% and 25.8%. This can make a significant difference if you make higher profits. Moreover, after converting from VOF to BV, you can decide to pay dividends.

When the director-major shareholder (DGA) decides to pay dividends, this is subject to additional tax in Box 2, with rates of 24.8% or 33%.

When the director-major shareholder (DGA) decides to pay dividends, this is subject to additional tax in Box 2, with rates of 24.8% or 33%.

If you want more information on the DGA salary, click here.

The procedure: How do you convert a VOF to a limited liability company?

Converting from a VOF to a BV requires a number of steps. The most common is to convert retroactively to the beginning of the fiscal year. This means that the entire year is then considered to be the year the BV is incorporated, and so all profits earned will also no longer be taxed in Box 1 in that year.

However, there are deadlines for a retroactive conversion from VOF to BV. For a silent conversion, you must file a letter of intent with the Tax Office before October 1. The notary must then complete the conversion no later than March of the following year.

The notary draws up the deed of incorporation and contribution and ensures that everything is officially recorded. Once this is completed, your sole proprietorship or VOF is officially converted into a BV and you can continue to do business under your new structure.

We are happy to help you

Are you considering converting your sole proprietorship or partnership into a BV? Our specialists will be happy to guide you through every step of the process, from initial considerations to the official incorporation. Contact us without obligation to discuss your options and find out how we can help you make a smooth and successful transition.

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