Information about Dutch income taxes for freelancers and small business owners (sole proprietorship) in the Netherlands, provided by Suurmond Tax Consultants…
If you receive income from freelance work or self-employment while residing in Holland, this income needs to be declared to the Dutch Tax Office (‘Belastingdienst’). If the income is insignificant and you do not regard or present yourself as a business, you can declare it as ‘other income’, which is also referred to as freelance income. This is a simplified way of declaring such income in the Dutch Income Tax return and normally has no VAT consequence. For startups, a ‘sole proprietorship’ (‘eenmanszaak’ in Dutch) is often a favourable option. However, if the income is more substantial and of a more permanent nature, then a limited liability company (BV) may be a better option for you.
As the majority of individuals registering a small business opt for ‘sole proprietorship’, we offer an overview of how the taxation works in regard to this type of business structure.
The ‘sole proprietorship’ is commonly associated with being a ZZP’er, but the two are not exactly the same. A ZZP means you are self-employed without staff, while a sole proprietorship is not precluded from employing staff.
To register a sole proprietorship business, you first make an appointment at the local office of the Chamber of Commerce (‘Kamer van Koophandel’). The KvK will then inform the Tax Office (‘Belastingdienst’) of the registration and an account will be established for VAT (‘BTW‘) purposes.
Once the business is registered, you will need to submit a VAT return every quarter, accounting for your VAT on both the sales and purchase/expense side. Most businesses are required to charge clients the general VAT rate which is 21% in the Netherlands. Some categories of products and services are taxed at a lower rate of 6% and others may be exempt entirely from having to charge VAT (such as counselling services).
Business related expenses are deducted from income, although restrictions may apply. At the end of each fiscal year, an annual business statement needs to be drafted and incorporated into your Dutch Income Tax return.
The sole proprietorship, along with a partnership, has a number of tax facilities which reduce taxable income. The following is a summary of allowable deductions.
Self-employed deduction (Zelfstandigenaftrek)
You are entitled to the self-employed deduction if you meet the criterion of being an independent entrepreneur (i.e. independence of clients, continuity, entrepreneurial risk) and meet the hours criterion. The hours criterion means that you spend at least 1.225 hours on business related activities. The amount of the self-employed deduction is €7,280 (2018).
Start-up deduction (Startersaftrek)
When you have started your business, you may be entitled to the start-up deduction. This is an additional amount on top of the self-employed deduction. For 2018 the start-up deduction amount is €2,123.
To qualify for this deduction, the following conditions must be met:
- You are entitled to the self-employed deduction;
- In the previous 5 years you were not an entrepreneur for at least 1 year;
- In the previous 5 years you have not used the self-employed deduction more than twice;
It is possible that the amount of the self-employed deduction and the start-up deduction together is higher than the profit. This will result in a loss, which is applied to other tax years with a positive income.
Small business profit exemption (MKB-winstvrijstelling)
After applying the above deductions, 14% of the remaining profit is tax exempt and therefore deducted from the taxable income.
Co-operating Partner Deduction (Meewerkaftrek)
There is another deductible item that can be claimed if your partner works along in the business. The following 3 conditions must be met:
- You are an entrepreneur;
- You meet the hours criterion;
- Your fiscal partner works 525 hours or more in the business or your partner receives a compensation of less than €5,000.
Depending on the number of hours your tax partner works, you may deduct a percentage from the profit. It is important to record your partner’s hours on business activities.
If you have any questions about starting up a business, please contact our office. We are happy to assist you. We can inform you on tax matters related to starting up a business in the Netherlands. This can be general information as well as advising on your particular tax situation.