If you live in the Netherlands and earn income from freelance work or self-employment, it needs to be declared to the Dutch Tax Office (‘Belastingdienst’) in your annual income tax return.
When first starting a business in the Netherlands, the sole proprietorship (‘eenmanszaak’) structure is usually a favourable option. If the income is insignificant and you do not regard or present yourself as a business, you can declare it as ‘other income’, also referred to as freelance income. This is the simplified way of declaring such income in the Dutch Income Tax return and normally has no VAT consequence. When the income is more substantial and more permanent in nature, then a limited liability company (BV) may be a better business structure for you.
Since the majority of expat business owners in the Netherlands choose the ‘sole proprietorship’ structure to start, we offer the following overview of Dutch taxation as it applies to this business format.
The sole proprietorship is commonly associated with being a ZZP’er , but the two are not exactly the same. A ZZP (‘zelfstandige zonder personeel’) means you are self-employed with no staff, while a sole proprietorship can have employees.
To register a sole proprietorship business, you first make an appointment at a local office of the Chamber of Commerce (‘Kamer van Koophandel’).
The KvK will then inform the 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 will have to charge the general rate of 21% for their services. Certain activities have a lower rate of 6% or could even be exempt from VAT. Business-related expenses get deducted from income (although some expense categories have restrictions). At the end of each fiscal year, an annual business statement needs to be drafted and inserted into your personal Dutch Income Tax return.
The sole proprietorship and the partnership business structures both have a number of facilities which reduce taxable income. Below is a summary of these 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 at +31 (0)174 244 725. We can inform you on tax matters related to starting up a business in the Netherlands as well as advising on your particular situation regarding Dutch taxes.