Compensation for your co-working partner

You own an eenmanszaak (sole proprietorship), and your partner works with you in the business. How do you manage financial compensation for this work, and what type of compensation is most favourable? Here are five available options.

You have five options for rewarding your co-working partner:

1. Working partner’s abatement

If you opt for working partner's abatement (meewerkaftrek, in Dutch), you will pay less tax on your profit. You are entitled to deduct a percentage from the profit. The more hours your partner works in the business, the higher this percentage will be. You will receive the working partner’s abatement if you meet the following terms and conditions:

• You must be an entrepreneur for income tax purposes (in Dutch).
• You must meet the working hours requirement of 1,225 hours per year.
• Your partner for tax purposes works for your business 525 hours a year or more without compensation, or the compensation you pay is less than €5,000.

2. Wages/actual compensation

Your co-working partner receives compensation for the hours they work. The amount of this compensation (in Dutch) must be reasonable for the work performed by your partner. If your tax partner receives €5,000 or less in wages, you are allowed to deduct this amount from your profit. Your partner does pay income tax and social insurance contributions.

Every year you can opt for co-working partner’s abatement or actual compensation/wages.

3. Formal employment contract

You hire your co-working partner and enter into an employment contract. Your partner has the same rights as any other staff you might employ. There must be a relationship of authority between you and your partner. You will pay payroll tax on your partner’s wages. If your partner is your first employee, you must register as an employer (in Dutch) with the Dutch tax administration. Also when you have a sole proprietorship (eemanszaak) it is possible to hire staff.

4. Co-working partner in a vof

You and your partner establish a vennootschap onder firma (vof). If the two of you are married or in a civil partnership, this is sometimes referred to as a man-vrouwfirma (husband-and-wife business). This vof form applies to all married couples, irrespective of their sex, and is not a separate legal form. One disadvantage of a man-vrouwfirma is that you are both liable through your private capital. Any prenuptial agreement you might have signed will not affect this.

If the Dutch tax administration classifies both of you as entrepreneurs for income tax purposes (in Dutch), you are both also entitled to the entrepreneurs’ allowance. Note that you must comply with the hours criterion of 1,225 hours per calendar year.

If your current legal structure is an eenmanszaak, you have the option to convert it into a vof. You do not need a notary public. Discuss the potential tax consequences with an advisor or tax expert.

5. Co-working partner in a bv

You and your co-working partner can also choose to establish a besloten vennootschap (public limited company, bv). The bv is incorporated by a notary public. A bv is a legal business structure. A bv has several advantages. For one, you are (in theory) not personally liable for any debt. There are a number of exceptions. For example, directors are liable in the event of mismanagement or if the bv is not yet listed in the KVK Business Register.

The bv is run by one or more directors. You and your partner can both serve as directors of the bv. If you and your partner jointly hold more than 5% of the shares, you both qualify as directeur-grootaandeelhouder (director and majority shareholder/DGA). You will both need to comply with the rules of the customary salary scheme (gebruikelijkloonsregeling, in Dutch).  The typical wage for 2024 is at least €56,000.

If your partner will be joining you in a previously established company, you can also choose to convert the business into a bv. In this case, you change the legal structure from eenmanszaak to bv. To set it up, you need to see a notary public.

Joint shareholders in a bv

The shareholders of a bv are the owners of the bv. The shareholders receive dividends as compensation.

If you are both shareholders, the articles of association of a bv generally state that the general meeting of shareholders decides on the appropriation of the profit. The profit can be transferred to the shareholders as dividends. The bv deducts dividend tax on this profit. If you and your partner jointly hold more than 5% of the shares, the profit will be taxed in Box 2 of your income tax form.

What is fiscally beneficial?

Your personal situation determines which of these options is most favourable for you and your co-working partner. Any other income your partner earns could have tax consequences. Ask an accountant or bookkeeper for advice.