Business taxes in the Netherlands: a quick overview
If you would like to set up a business in the Netherlands, you will need to take into account that this means you will also have to pay several business taxes. The exact amount and type(s) of tax(es) you will need to pay depend on the legal entity you choose, your business activities and several other formalities. To give you a head start, we have compiled basic information about Dutch business taxes and the implications this has for your possible business venture in the Netherlands. For personal advice on this matter, you can always contact Intercompany Solutions.
When is someone considered an entrepreneur for Dutch income tax purposes?
Not everyone who wants to be a Dutch entrepreneur actually is an entrepreneur for income tax purposes. If your activities take place in the economic sphere, and if you can expect a profit, you have a source of income and you may be an entrepreneur for income tax purposes. If your activities take place within the hobby or family sphere, you are not an entrepreneur for income tax purposes.
In order to qualify for income tax, there are 3 sources of income:
- Income from business
- Salary from employment
- Results from other activities such as investments and real estate
The source of your income depends on a number of factors. The law and case law set certain requirements that entrepreneurs must meet. After you have registered your company, we will assess whether you meet these requirements on the basis of your circumstances. The Dutch Tax authorities pay attention to several factors, which we have outlined below.
How independent is your company?
A business generally implies a certain measure of independence, as you don’t work for someone else but yourself. This means you should be the one that determines general management, daily activities and the goal of your business. If others determine how you should organize your company and how you carry out your activities, there is no solid basis for independence and thus; there is usually no independent company.
Are you making a profit? If so, how much?
Generally, the main goal of any business is generating profit, unless you want to establish a Dutch business in the non-profit or charity sector. If you only manage to make a very small profit or suffer structural losses that outweigh the profit, it is unlikely that you will make a real profit. In that case your activities won’t be marked as a business.
Do you own any capital?
Since the introduction of the Flex-BV, you don’t have to deposit an obligatory amount of capital anymore to start a Dutch business. Nonetheless, capital is necessary for many types of companies in several industries. You might have to invest in machines, advertising, hiring employees and insurance, just to name a few examples. Sufficient capital to start a business and running it for some time indicates that you might have a business as per Dutch law.
Who will be your clients?
The best thing for any business is a stable client base. The more clients you have, the more you will be able to reduce payments and certain continuity risks. With a full client database you also don’t depend on just a few clients anymore, increasing your independence as a business owner and thus, making it more viable for your business to survive.
How much time will you put into your work?
The amount of time someone spends on business activities is also a deciding factor. If you spend a lot of time on an activity without yielding returns, you usually don't own a business on paper. This essentially means that you must spend enough time on your work to make it profitable. If this is the case, your business can be seen as valid. Also keep in mind that you may be eligible for certain types of entrepreneurial deduction. For some of these entrepreneurial deductions you must meet the Dutch “urencriterium”, which is loosely translated as hours criterion or the reduced hours criterion.
“Urencriterium” or hours criterion conditions
Someone usually meets the hours criterion if you meet the following 2 conditions:
- You spend at least 1,225 hours on your company during a calendar year. Did you interrupt your work as an entrepreneur due to pregnancy? In that case, the hours not worked over a total of 16 weeks still count as hours worked.
- You must spend more time on your business than any other activities (for example paid employment). If you haven’t been an entrepreneur in 1 of the 5 previous years, then you do not have to meet this condition.
How do you publicize your company?
You depend on clients for your company’s existence. In order to be an entrepreneur, you must make yourself sufficiently known, for example through advertising, an internet site, a sign or your own stationery. Your company needs to be distinguishable from other brands and competitors, next to being uniquely tailored to your goals and ambitions. The more people know about your company, the higher the chances of success.
Are you liable for your company's debts?
If you are liable for the debts of your company, then you may be an entrepreneur. This is a tricky subject, though, as some Dutch legal entities profit from a division between personal debt and corporate debt. If you are the owner of a Dutch BV, for example, you will not be personally liable for any corporate debts you make. This doesn’t mean you don’t have to pay those debts though; any debts you make with your company need to be paid in full.
Can you be affected by an 'entrepreneurial risk'?
An entrepreneurial risk involves certain factors that can be troublesome and unexpected with any business. Is there a chance that your clients will not pay? Do you use your good name for the performance of your work? Are you dependent on the demand for and supply of your products and services? If you run 'entrepreneurial risk', this generally means you probably have a business.
When are e-commerce activities considered being (part of) a business?
A lot of people are currently interested in setting up an e-commerce business, due to the flexibility and freedom of movement this option provides. The Netherlands is especially a stable and reliable country to set up an e-commerce business, since the country provides a very competitive and financially profitable market. Do you have an internet site which you regularly use to advertise on the internet for business purposes? Or do you earn money with your internet site, such as by selling goods or services online, or with activities as an affiliate? If the answer to these questions is 'yes', then you are probably an entrepreneur. But whether this is really the case depends on several factors. For example, there are differences between being an entrepreneur for income tax and being an entrepreneur for VAT.
When are you not considered as an online entrepreneur?
If you have an internet page or a website, this doesn’t automatically make you an e-commerce entrepreneur. Do you offer goods or services for free? Or only in the hobby or family atmosphere? Then you are not an entrepreneur according to Dutch law. This is due to the fact that you do not have to pay VAT, and, you also do not have to state anything in your income tax return.
E-commerce entrepreneur for Dutch income tax
Do you sell goods or services online? And can you realistically expect a profit from these goods and/or services? Then this is seen as income and you may be an entrepreneur for income tax purposes. Do you want to register your company in the Netherlands as an online entrepreneur? Then Intercompany Solutions can assess for you whether you meet the requirements for entrepreneurship on the basis of your circumstances. Often, entrepreneurship can only be assessed after the end of a business year for income tax purposes.
Not an entrepreneur, but receiving income?
Do you have income from your internet activities that cannot be considered a hobby? And do you lack any basis of paid employment, but you cannot be considered an entrepreneur either? For Dutch income tax purposes, this is qualified as 'results from other activities'. Your profit is calculated in the same way as with entrepreneurs. But you are not entitled to certain schemes for entrepreneurs, such as the self-employed deduction or the investment deduction. In such a case it would be wise to consider establishing a formal company and possibly benefit from deductions and premiums.
E-commerce entrepreneur for Dutch BTW (VAT)
If you are not an entrepreneur for income tax purposes, you can still be an entrepreneur for VAT purposes. This is mainly the case, when you carry out activities independently and earn income from these activities. In order to find out whether you are an entrepreneur for VAT, we can assess certain facts for you and help you find the best way to do business.
Business taxes in the Netherlands
Once you are officially considered to be an entrepreneur or company owner according to Dutch law, you will need to pay an assortment of various business taxes. Meaning you cannot escape the tax authorities, but this is generally the case in any other country. Not everyone pays the same type and/or amount of taxes. As a Dutch entrepreneur you are required to file a quarterly and yearly tax return, pay tax and sometimes you get something back as well. But what kinds of taxes will you face?
Dutch BTW or sales tax (VAT)
In the Netherlands you pay a certain amount of VAT over services and goods, so as a company owner you will have to charge your customers tax too. This is called Dutch BTW, which is the same as VAT. The abbreviation VAT means 'Value Added Tax'. It concerns the tax you pay on sales made. You charge VAT on your invoices. And vice versa; if you pay invoices, they also state the amount of VAT that you have to pay. The standard rate for VAT is 21%. In some cases special rates apply, these are 6% and 0%. Exemptions may also apply. You pay the VAT that you owe to the tax authorities per month, quarter or year. The Dutch Tax Authorities will let you know exactly how often you have to file a return. In most cases, entrepreneurs file a quarterly VAT return.
Dutch corporate tax
Dutch corporate income tax is a tax that is levied on the profits of companies, which are mostly qualified as a B.V. or N.V.. These companies and organizations must file an annual corporate tax return. Natural persons such as sole proprietorships pay tax on the profits through income tax. This is different for companies. Public companies, private companies and sometimes also foundations and associations pay corporate tax. In some cases, exemption from corporate tax is possible. Think, for example, of an association or foundation that mainly obtains its income through the efforts of volunteers or where the pursuit of profit is of additional importance.
Dutch dividend tax
If your company is a N.V. or B.V. and makes a profit, you can distribute part of that profit to the shareholders. This is usually done in the form of dividend. In that case, you pay dividend tax to the Dutch Tax Authorities. Does your company pay dividends to shareholders? In that case, you must withhold 15% dividend tax on the dividend you pay out. You must declare and pay within one month of the day on which the dividend is made available. In a number of cases you may be eligible for a (partial) exemption or refund of dividend tax.
Dutch income tax
You pay Dutch income tax on your taxable income if you have a sole proprietorship or partnership under firm. This is your income, minus all operating costs settled with any deductible items and tax arrangements. You must declare this to the Dutch Tax Authorities before the 1st of May every year. You only have taxable income if you make a profit with your business. This taxable income is the basis for your income tax. With your tax return, you can deduct deductible items and tax arrangements from your profit. This reduces the profit and therefore you pay less income tax. Examples of these deductible items and tax schemes are: the entrepreneur's deduction (consisting of the self-employed deduction and any starters deduction), general tax credit, investment deduction, SME profit exemptions and employed person's tax credit.
Dutch wage tax and national insurance contributions
If you employ staff, you inevitably need to pay your employees a salary. You need to deduct payroll tax from those salaries. These payroll taxes consist of the withholding of payroll tax and the payment of national insurance contributions. National insurance policies are legally required social insurance policies, that insure your employees against the financial consequences of old age, death, special medical expenses or having children.
The benefits of outsourcing accounting activities
Any entrepreneur establishing a business in the Netherlands can choose to their own administration, and therefore also their tax return. In such cases, it is desirable that you are well informed of any fiscal, financial and economic changes. The (partial) outsourcing of your administration and periodical declarations may initially seem expensive. But experience has shown, that an administration office or accountant actually earns you money.
When starting a business, you can include various scenarios in your business plan that include expectations of costs, including those of taxes. If you write a business plan, you can look at different financial scenarios together with the expert and see what influence the taxes have on the liquidity within your company. Intercompany Solutions can assist you during every step of this process; from the registration of your company to accountancy services. Please feel free to contact us for professional advice or a clear quote.