Self Employed

Licensed Dealer or Company

The decision regarding incorporation as a Limited Liability Company or registering as a Licensed Dealer has various aspects, and each way of incorporation has advantages and disadvantages.

General Considerations

A major benefit of incorporation as a Limited Liability Company is a legal protection for the Company owners (the shareholders). There is a legal separation between the Company and its owners. The Company is a separate legal entity which is able to sue and be sued, such that actually, the shareholders cannot be sued directly in respect with their responsibility for acts of the Company or claims be made in respect with their assets. The shareholders are exposed only with the funds invested in the Company but not with their private property. When an self employed person is incorporated as Licensed Dealer for VAT purposes, such protection does not exist. A Licensed Dealer assumes all responsibility for his actions in his business and in the event of a legal suit, he is liable with his personal assets regardless of his business activities.

In the case of insolvency and business failure, the Licensed Dealer is exposed to bankruptcy and foreclosure of his private assets, but when a Company is insolvent, the shareholders’ assets cannot be touched.

It should be mentioned that credit providers, banks, suppliers and big customers can request personal guarantees from the Company owners and then, if the Company enters a liquidation process, claims can be made to their personal assets. However, most people dealing with a Company do not request personal guarantees and therefore the owners are be protected in the event of insolvency.

Another benefit of the incorporation as a Limited Liability Company is the business reputation; a Limited Liability Company is perceived by customers and suppliers as more stable, reliable and serious compared to a Licensed Dealer which is an individual.

Tax considerations

Taxation of Limited Liability Company is at a rate of 23% of its profits. If the Company owners (shareholders) will withdraw profits from the Company they will be taxed a dividend tax at a rate of 30%. Opposed to the above, the tax rate paid by an Licensed Dealer is gradual according to the tax brackets up to a maximum of 50% rate.

When a Dealer’s income is low, and does not reach the higher tax brackets, it is advantageous for him to incorporate as a Licensed Dealer. It should be noted that shareholders incorporated as a Company, can draw salaries and enjoy lower tax rates according to the tax brackets, same as a Licensed Dealer.
When a Limited Liability Company has profits, there is no advantage in withdrawal of the profits, because the tax rate is quite similar to the marginal tax rate of a Licensed Dealer, with high income. When the withdrawal of profits is not necessary, they will remain within the Company,and then tax at a rate of 23% will be paid.

The profits accumulated can be invested in various ways and the tax shall be paid only at the withdrawal of the profits.

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